After you have analyzed your income verses expenses, the next thing you want to do is creating a budget. But how? That is the tough part! If you already have created one than you need to stick to it and put your plans into action. This is easier said than done, because you easily forget about your budget and your financial goals over the next 6 months or a year. So how do you keep this from happening to you?
Here is how: Make sure you follow some of these tips below so you will not get overwhelmed or blocked, as it happens to me sometimes!
1. Create a budget with realistic targets: Let us say one of your budget goals is to not eat out for lunch or dinner on a regular basis. Instead of having dinners out once or twice a week, you can reduce them to 1 or 2 times a month. If you are honest with yourself perhaps you find this to be an unrealistic goal. Sometimes it is a nice break to eat out and have a relaxing rewarding evening. In other words, do not set the bar too high. Drastic and unrealistic goals are make you more frustrated and making you feel misarable to even start creating a budget.
2. Budget your adhoc expenses: Consider your expenses that occur once a year, such as holiday presents, birthdays, vacations, weddings, car maintenance costs, etc. These expenses do not occur every month and they can impact heavily on your budget plans, if not planned wisely. Make a list of these events on a calendar and put a dollar or euro figure to them. Place them in the month they are expected to occur so you can plan in advance how much to have to pay for them. The regular routine expenses are not the reason your budget will fail. It is these adhoc expenses that burst your budget if you do not plan them properly!
3. Write down your budget: It Seems unusual to mention but, taking time to write down your budget plans, creates space in your mind and making a mental note of your budget goals is not enough. You might forget most of the expenses. Do not assume that your financial future will take care of itself by making a simple mental note to yourself. If you have your budget goals detailed in writing you can review and remind yourself weekly and monthly of your financial goals.
4. If you have a bad month or week, do not give up!: Let us say you have been reaching your budget goals for three months. In the fourth month, for whatever reason, you did not reach your budget goals. Maybe you even stopped trying to stick to your budget! If this happens, do not just throw your hands up in the air and admit to failure. Everyone fails sometimes. Your budget is a journey. There will be bumps in the road, so the key is to realize that everyone makes mistakes. There are enough chances to get your finances back on track!
5. Adjust your budget over time: It might take some time to fine tune a personal budget. It depends on your current situation. A budget for a family, husband, wife and 2 or 3 children is planned different than one for a single parent with 2 or 3 children. When you are single you might have more money to spend. When you initially made your budget plans, you probably had to guess at some of your figures. They might not have been in balance with the realities of every day life. For example, you may have underestimated your monthly grocery or utility bills. If this happens, analyze all of the underlying money that was spend in this category to see if your initial estimate was unrealistic. If it was, try to come up with a more accurate number and then to stick to that new figure. It is this type of adjustment that is one of the keys to making sure you can stick to your budget.
6. Review your budget every month: This is where you can make adjustments that are needed. Do you planning on the first day of each new month to review your income and expenses and match them to your budget goals. By actively reviewing your finances and comparing it to your budget, you can adjust your spending habits. This gives you a chance to analyze areas that exceeded your budget expectations and make the adjustments in your spending habits and or your budget. The goal here is to make a habit of keeping your budget. One tip is to make a printout of the basic budget goals on your fixed costs like rent or morgage, gas, electricity, water, phone, internet, etc. and variable costs like study expenses, clothing, shoes, contributions etc..and compare it to the daily expenses. This way you can keep an overview on your financial situation.
7. Set specific short term goals: Let us say one of your budget goals is to have all of your credit card bills paid off in two years. If your credit card balances total $20,000 or $2.000, does not matter because the principle remains the same. That would be $10,000 or $1.000 a year. Divide that number further into quarterly reductions in your credit card bills, in this case $2,500 or $250 every 3 months. Now, this is a more tangible budget goal to go for it. Dividing intermediate and long term goals into short term tangible stepping stones works better to keep your financial situation under control.
8. Reward yourself: Absolutely important! Treat yourself when you reach your some of your short term goals. Since your financial budget is really a journey, take some time enjoy. Sticking to your budget should not be a restrictive and unpleasant experience. Not only should you take the time to enjoy your financial accomplishments along the way, but use part of your budget for fun things too. Just make sure your rewards do not end up breaking your budget!
9. Pay yourself first: Invest a portion of your income, 10% or more. Move the money immediately into a savings account. This is to have an extra budget in financially challenging times.
10. Attitude is everything: When most people think of a budget, they picture restrictions and pain. Almost like a diet. But diets do not seem to work for long! First, if your budget is too strict, too restrictive on your spending, it will not work either. However, you have to limit your spending in some areas and this will take some adjustment in your attitude. When I am feeling limited and sorry for myself when I cannot purchase something that I want, I remember my financial goals I set with my budget. I think about the satisfaction I feel when I reach those goals. Over time, you discover that you do not want to disappoint yourself by breaking your spending goals. Now, I actually get more satisfied knowing that I am reaching my budget goals at the moment the thought of an impulse purchase crosses my mind.
If you follow these steps you will find that living within a budget is not as tough as you imagined. It can actually be fun and rewarding.
This guest post has been contributed by Cynthia Talahatu. Know more about her: