I know you may be a bit nervous about crafting your budget, but YOU GOT THIS! A budget may feel like a diet, meaning you have to cut back or feel deprived. This is not the case, creating and maintaining a budget is only painful if YOU make it that way. It’s all in how you look at it. If you being to look at budgeting as a way to concisely create your financial freedom, as well as a better environment for yourself using your resources, it becomes much easier. Aside from maintaining a positive mindset, here are 8 guidelines to aid you in successfully creating and maintaining your budget.
Make it Simple
While a budget is the greatest tool for managing finances, it can quickly become overwhelming if it’s overly detailed or idealistic. There are things that you will likely sacrifice when budgeting, but it’s very important to be realistic and understand your own habits. If you have a problem area within your budget, like eating out or shopping, instead of trying to focus on everything and being too hard on yourself, pick that one area. The hardest part of a budget is sticking to it, so the easier you can make it, the better.
Set a Timeframe
My husband and I create a monthly budget and a yearly budget. Establish your budget for a time period that’s long enough for you to see results. I suggest you do the same. Budgeting month-to-month can accommodate everyday living expenses and bills, but a yearly budget can help you also plan for larger and more infrequent expenses, like income taxes or holiday presents. You don’t want things to slip away. Lovell says. It’s better to be approximately right than precisely wrong. With the yearly budget we are able to estimate based off of the prior year and adjust our monthly budget to reflect any yearly changes.
Build an emergency fund into your budget
An emergency fund should be an essential component of every budget. It can help you finance unexpected expenses like medical bills so you don’t have to pull income from other areas. For example, allocate just as much to your savings as your emergency fund. Once you have that in place, it’s a lot easier to maintain the budget if a big expense springs up.
Experiment to find the method right for you
Just as there are many ways to create a budget, there are also many ways to keep track of it. Whether it’s through an online budgeting program like Mint or Quicken or on paper, stick to whatever works best for you. I use a simple Excel spreadsheet. Make sure you approach it in a manner that you are comfortable with.
Make sure EVERYONE is on the same page
Whether your budget affects your spouse, partner or roommate, communication about the established financial plan is crucial. If you have two people who have really disjointed approaches to money, that’s really going to be a problem in the long run. You need to be aware of the other person’s attitudes about money and realize that your own aren’t universal. Everyone needs to be on the same page and after the same goals for the budget to be successful. I even suggest including your entire family. Don’t be afraid to tell your family that you are on a budget, who knows, you may be able to convince them to craft a budget too. Also, being open with those around you about your budget, may help to create a support system while you work to get your finances in order. For example, I have a few friends at work who eat out at lunch every day, they are aware that I won’t make that trip with them, because I have financial goals that I am working toward. If I hand’t been up front with them and told them I was on a strict budget, I would probably still be going out to eat every day wasting money. On occasion one of my friends holds me accountable and asks me how I am doing on my goals.
Make necessary adjustments along the way
If over time, your budget results don’t match your expectations or financial needs, you may assume the plan is wrong. However, it’s likely that you simply uncovered unknown problem areas. Things that pop up will actually let you know what the real norm is, so pay attention to what it is telling you. If you think, for instance, that you spend 12 percent of the family income on discretionary items, and you find after tracking for two months it’s more like 40 percent, then something is off there. If this happens, just go back, re-visit that area and tweak it.
Add income if necessary
Following a budget typically means making cuts in less essential areas or eliminating some costs completely. However, if reducing the amount of money going out isn’t doing enough, look for ways to increase the money coming in. Take a part-time job or sell something that is just sitting in your closet taking up space. People tend to think about just the one side of the equation when working to keep their budget on track, but there’s another side that you can influence too, whether it’s for a temporary or permanent basis. I am the queen of a side hustles. I enjoy earning extra money doing things I love and would do anyway. Earning extra income has boosted mine and my husbands finances and has become an ingrained part of our normal life.
Don’t set yourself up for failure
Making sacrifices is part of managing expenses, but if you set restrictions too high and too soon, you will be less likely to follow your budget over the long term. If you enjoy a latte every day, don’t go from zero to 100 in terms of cutting back. Do it gradually. Nobody wants to stick to a budget that cuts out everything fun in their life. If you keep failing at your budget, you are going to be discouraged and you’re not going to want to do it anymore.
Below, I have crafted a sample budget. I encourage you to download it and use it as a guideline to creating your own.