It’s one thing to know that you need a budget, and another to make one and stick to it. Research shows that money is the primary source of stress for many people, more so than personal relationships or work.
Making a budget—and sticking to it – can help relief financial stress. The majority of people who maintain a budget report feeling more in control, more confident, and more secure.
In order to budget like a Pro, you need to stop making excuses and avoid budgeting mistakes with these helpful tips:
Things To Do Before You Budget
Do you know one of the most common excuse people make for not budgeting? Is that they don’t make enough money to budget meaning they don’t need one —or that they are too poor to budget. That’s a lame excuse. When you budget you are basically telling your money where to go.
Before you draw up a budget you need to decide what you want your money to do for you. Here are three things to consider to help you plan for your budget:
Breakdown your goals into three categories, it can be medium term to long-term goals, short term goals and monthly goals.
- Write down 4 or 5 financial goals you need to achieve in the next 3 – 10 years. These may include things like purchasing a house, starting a family or starting a business.
- Write down you two things you need to achieve in the next year in regard to your finances. It could be building an emergency fund, planning a vacation trip or pay off debt.
- Write down one thing you want to achieve in the next month. This may be saving a certain amount of money, a no spending challenge or not using a credit card for at least 30 days.
Set Up Your Budget
Once you are done writing down your goals, you can set up your budget. First thing first, gather all of the necessary paperwork you may need, such as bank statements or investment accounts. You need to identify the amount of money you have coming in.
You going to have to calculate your expected monthly income, as well as your typical monthly expenses, and break it all down into categories. This is an area where you might find opportunities to cut back.
You will need to identify your fixed expenses and variable expenses in your budget. Fixed expenses are expenses that stay the same for each time, expenses such as gym membership, streaming services or rent. And variable expenses are expenses that tend to change monthly depending on your needs such as groceries. If your income is higher than your expenses, you are off to the good start.
Tracking Your Budget
Now that you have created a budget, you are ready for the hard part which is following it. Creating a budget might look easy but following it might be harder. It’s helpful to keep track of and categorize your spending so you know where you can make adjustments. Doing so will help you identify what you are spending the most money on and where it might be easiest to cut back.
Record your daily spending with anything that’s handy—a pen and paper, an app or your smartphone. I know recording your spending might be hard for you so I would suggest that you use a tracking app like 22seven or your banking app or a excel spreadsheet.
You will need to stop spending when you see that you are running out of money. That is the essential step in staying on budget. You may find that your budget is unrealistic, or you may need to transfer money between categories. Take the time toward the end of the month to adjust next month’s budget so that it will work for you.
Evaluate Your Budget
After a month you will have to take a look at your budget and evaluate it. When you evaluate your budget, you compare what you spent against what you planned to spend. Ideally, you should reflect on your budget at the end of every month and use that information to plan your budget for the next month. You should also sit down and assess your total budget and your overall financial goals at least once a year.
If your expenses exceeded what you had allocated, you may be able to reduce expenditures in any spending categories that were consistently higher than you had budgeted. Similarly, if you spent less than you had planned, there may be an opportunity to increase expenditures for the next month in any spending categories that were lower than you had budgeted.
If you spent what you planned to spend, you’re on the right track, but your budget may still require changes depending on your financial picture for the next month. There is nothing wrong with twerking it.
Do not forget to include planned splurges in your budget to avoid depriving yourself and give yourself an incentive to stick to your budget. Assess your new budget at the end of the month to make sure that the changes are actually working.
Routinely performing this monthly financial check-up won’t take up much time and will help you optimize your budget over time. You can take yourself out on a date and take a look at your budget.
Set New Goals for Your Budget
Creating and sticking to a budget is the best thing you can do to get on track financially. If you have already mastered your budget then it may be time to evaluate your budget and set new financial goals. Now that you have reached your original goals it’s time you set new ones.
By continuing to set new goals in the future, you will continue to progress your financial habits in the right direction. Always reward yourself for reaching your goals as it will motivate you to stay on track.
Reduce Your Spending and Increase Your Income
When you’re living paycheck to paycheck, finding anything to cut from your budget makes a huge difference. But when you’re just getting started, you might struggle to find places to cut back. It might seem like making minor cuts to your budget won’t make a significant difference in your finances. But you might be surprised by just how many benefits there are.
There are ways to reduce your outflow so you can devote more money to your goals and less to purchases that don’t improve your life or long-term financial situation.
Even if it’s just by a small amount, increasing your income can make big changes to your situation. After completing a budget it’s worthwhile to investigate ways you could increase your income. Bringing more money in can often seem a lot easier said than done, but it is possible in many cases.
You can enroll in our free budgeting course and many more other free courses that we offer for free.
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