Making A Budget And Sticking To It

You’ve likely noticed that any financial site, book, or professional that you’ve ever read or talked to offer the same piece of advice to anyone who wants to get their economic health in order: begin a budget.

There’s a reason why you’ve been beaten over the head with this advice. It’s essential.

But let’s be honest, it it is hard to………..no matter how many times you’ve been told you should be making a budget and sticking to it.

In fact, the first step is to know how to create a budget. Because no one actually informs you step by step how to do it in all the budgeting tips you’ve read.

Let’s look at what budget is before we go into how to create a budget.

A budget is an estimation of revenue and expenses over a specified future period of time and is usually compiled and re-evaluated on a periodic basis.

Budgets can be made for a person, a family, a group of people, a business, a government, a country, a multinational organization or just about anything else that makes and spends money.

Identify Your Net Income

The first step in generating a budget is to identify how much cash you receive. You can find a great free budget worksheet on Google Docs Templates.

However, keep in mind that it is simple to overestimate what your income is and you should only base it on what you actually receive and not what you expect to receive from all sources.

These include your salary, child support, income from any side hustle which is very hard to estimate since this can fluctuate dramatically. Whether is affiliate marketing or selling Avon, it can be very hard to gage so go low on this one. Remember to include dividends from stocks you own, rental income and so on.

Your final total of the money you receive is referred to as net income, and that is the amount you should use to create a budget.

Track Your Spending

Keeping track of and categorizing your expenditure is useful so you know where to create changes. Doing so will assist you in identifying where you spend the most money and where cutting back might be easier.

Start by listing all of your fixed costs. These are monthly periodic bills such as rent or mortgage, services or payments for cars. It is unlikely that you will be able to cut back on these, but it can be useful to know how much of your monthly revenue they receive.

Set Your Goals

Make a list of all the financial goals you want to achieve in the short and long term before you start sifting through the information you’ve tracked.

It should take no more than a year to attain short-term objectives.

Long-term objectives may take years to achieve, such as saving for retirement or education for your child.

Remember, it is not necessary to set your objectives in stone, but it will assist to identify your priorities before you begin planning a budget.

For instance, if you understand that your short-term goal is to decrease credit card debt, it may be simpler to cut expenditures and put the money from these cuts to pay off your credit cards.

Make A Plan

Use the variable and fixed costs you’ve compiled to help you get a sense of what you’re going to spend in the months ahead.

You can predict relatively correctly how much you will have to budget for with your set expenses.

Use your previous expenditure habits as a guide to predict your expenditure variable.

Needs Vs. Wants

You may choose to further split your costs between things you need to have and things you want to have.

For example, if you drive every day to job, gasoline is likely to count as a necessity.

However, a monthly music subscription can count as a desire. When it is time to make changes, this distinction becomes crucial.

Adjust Your Habits If Necessary

Once you have documented your revenue and expenditure, you can begin seeing where you have cash left over or where you can cut back so that you can bring cash to your objectives.

Want-to-have expenditures are the first region to look for reductions in expenditures. Can you skip a night out at the movies in favor of a night in with Netflix?

Creating a budget helps to give you a full view of where your money goes. That is the crucial part of a budget. Awareness. 

Finally, you can look at changing your set costs if the figures are still not adding up. If you are renting, look for a cheaper rental. Search around for lower car insurance and cut the cable bill. Cable is one of the biggest luxury costs in households today.

Doing so will be much more difficult and will involve higher discipline, but a “need” may be a “hard to part with” on closer inspection.

Such choices come with large trade-offs, so make sure you weigh your alternatives thoroughly.

Conclusion

It’s essential that you regularly review your budget to make sure you’re on track. This does not have to be stressful. If you slip up, do not feel bad. Just remember it and do better.

You can also compare your monthly costs as time goes on to see where you were at 6 months ago, compared to now. You just may find more ways to cut and save money once you see your small successes.

There are few components of your budget in stone: you may get a raise, your costs may rise, or you may have reached your objective and want to plan for a fresh one. (And that is a great feeling when you have accomplished your first goal)

Over time as you see your successes, and yes, your failures you will have a better picture of where your weak spots are and learn how to fix them.

And always, always alott money for yourself in a fun fund that you can spend on yourself AND not feel guilty about it. The fun fund will go a long way to helping you succeed in your budget goals.

Any tips or tricks you can share with me and others on how to successfully stick to a budget, please share in the comments below. Thanks!