Many people would rather visit a dentist than put together a household budget. Figuring out how much you owe on your debts and adding up what you spend at the store can be an awful chore. Putting together a budget, however, is the best thing that you and your family can do to get in control of your finances, pay off debt, and build wealth.
Fortunately, putting together a budget and sticking to it does not have to be too bad. In fact, many people think it’s easy to do. If you’re having trouble getting a good budget together, or if you’re just having trouble getting started, try these tips.
1. Adjust your attitude. Budgets aren’t meant to be stifling or even restrictive. They’re meant to be a plan of how to spend your money. If you frequently end the month wondering where all your money went or asking yourself why you don’t have any money left, your restricting yourself to a life of living paycheck to paycheck. With a good plan of how to spend your money, you’ll always know how you’ll be able to pay your bills and how much money you have left to spend on entertainment. Think of a budget as a tool, not a hinderance.
2. Find your own path. There are plenty of different ways to budget, and the one that works for your parents or your friends might not be the right one for you. For example, some people do really well tracking every single purchase they make in order to figure out how much they spend. Other people can never remember to write everything down and wind up overdrawing their checking account. Some people like to take out a set amount of cash from the ATM at the beginning of every week, while other people find it easier to track everything by using their debit card and their bank’s tracking software. It doesn’t matter how you follow your spending plan, as long as you find a way that works for you.
3. Don’t tackle everything at once. Solving your financial problems will take some time. If you can’t pay your bills, start by making sure you make enough to cover your basic expenses. Once you have that under control, move on to cutting back on your discretionary spending and freeing up cash to pay off debt. After your high-interest debt is paid off, start saving money. Trying to save money when you don’t know how you’ll pay the electric bill will just leave you frustrated.
4. Give yourself some flexibility. If you hate budgeting because you hate counting down how much you’ll spend on every little category, stop dividing your money into so many little categories. A budget where you pay your bills, have a set amount for debt repayment, then use the rest on whatever you choose might be a better option for you.
5. Set a few goals. Having a giant goal, such as becoming a millionaire or owning a house without a mortgage isn’t helpful if you don’t have some smaller steps to help you get there. Think about some small goals to help you get where you want to be. For example, many people make goals to pay off each of their loans, in order of interest rate. As each loan is paid off, they reward themselves by taking the money they would have spent on the minimum payment and buying something they want. If you’re trying to save, plan several milestones, such as saving the first $100, $1000, and $10,000 in order to keep yourself motivated. If you’re trying to reach a big goal, such as saving the down payment on a house, post pictures of your dream home where you can see them every day.
6. Don’t set unrealistic goals. Expecting to pay off your mortgage in a year or not buy clothing for an entire year will probably result in failure. If you regularly make budget that give you nothing for entertainment then wonder why you haven’t reached your goals after several months, you need to rethink your approach. Remember that a budget is a spending plan, if you make an unrealistic plan, you won’t reach your goals. Planning a budget that may take you longer to reach your goals makes sense if you’re more likely to follow it.
7. Plan for emergencies. Just like any plans you make, life will probably mess up your budget. An unexpected car repair, a sick relative, or even a spending mistake can mean you have to spend money you don’t really have. By having some money set aside, you can pay for these expenses without resorting to credit card debt. Start saving small amounts of money; even $50 in a savings account can cover a surprise bank fee or extra tank of gas. If you want to pay off debt, set aside $20 a month just to make sure you don’t have to build up debt again.
Don’t be discouraged if you find yourself emptying out your savings account to pay for an emergency. Be happy you’re not scrambling to find a friend to loan you money or adding debt to your credit card balance. After you pay for your emergency, start saving again with your next paycheck. Eventually, you’ll have enough money saved up that you don’t have to completely empty your accounts to pay for things.
8. Stick with it. Give your new budget a chance to work. Try it for at least three months before making significant changes. Of course, if you find that after month one you just cannot cut your grocery expenses as much as you thought, or that you underestimated your electric bill, make some small adjustments. Before deciding to buy a new car or make another type of major purchase, see if you can follow your new budget that accounts for this purchase for four months before deciding to buy.
Budgeting doesn’t have to be a chore. Look at budgeting as a good way to plan what to do with your money and reach your saving goals.
Michael Gritchie enjoys saving money more than your next personal finance blogger but he also loves to learn new ways to invest his money. He has bookmarked the following sites to help him gain more knowledge in different investing arenas that include forex trading and generating a positive return on investments; OANDA, Investopedia, and the numerous personal finance blogs on the internet.