Let the Budgeting Begin
Budgeting is a lot like dieting – almost everyone has tried to do it before, but most people fail to stick with their plans in the long term. Why is that, and does this mean that you won’t be able to stick to a budget?
How budgets can fail
The truth is that most budgets fail for the same reason that most diets fail – they’re too restrictive. Oh yeah, you can tell yourself you won’t overpay for coffee (still going to Starbucks twice daily) is like saying you won’t pay for beer again. Eventually you will feel deprived and lose resolve to stick to budget plans.
To succeed with budgeting, you need to have a balanced approach. A good budget keeps you within your means and allows for some fun money, like observing healthy eating habits keeps you at a healthier weight without dieting. Here are some tips that will help you set up a feasible budget.
Step 1 – Gather information
It’s tough to plan a budget when you aren’t familiar with how much money is going in and out of your wallet. This is why most financial planners recommend recording every expenditure over a week’s time before creating a budget. An easy way to do this would be to get a small notebook and record every purchase, from groceries to utilities, sundries and other small things like soda or gum.
The longer you keep up the gathering of information, the more information you’ll have on hand to assist you. Try to go an entire 30 days to see how spending fluctuates over a month.
Step 2 – Analyze the information
With your notebook in hand, it’s time to analyze where your money goes each month. To begin, assign each expense you wrote down in your notebook to a specific category, such as “Mortgage/Rent,” “Clothing,” or “Medical Expenses.” If you’re having trouble coming up with a list of categories, do an internet search for a budget worksheet – you may even be able to find a free version you can download to your computer to organize your expenses more easily. Once an expense is categorized, total them up and see the percentage of total expenditures each category occupies.
Step 3 – Making the Tough Decisions
When you’re finished analyzing your financial information, you’ll notice one of two possible patterns – either you’re spending less than you make or you’re overspending, based on your current income.
Obviously, the more serious of the two scenarios is that you’re spending more than you’re bringing in as income. If that is the case, you need to spend less or make more, as relying on debt to cover excess is not a viable approach over the long term. That said, cutting expenses might not be so difficult. Reduce the number of times you eat out, spend less on new clothes or beauty services, look at cell phone and cable plans and check you aren’t paying for more minutes or channels than you use are three good ways to trim excess from your budget.
Finally, don’t forget to leave a little wiggle room in your budget to accommodate the occasional fun purchase. Put a few dollars into a separate account for anything that happens outside your budget. And give yourself a break – you may stumble occasionally, but with continued diligence, you will eventually meet your financial goals.
