Posts Tagged ‘budget’

How to Make a Budget You Can Actually Stick To

Making a budget is easy. Sticking to it is the hard part. Even with the best intentions in the world, a lot of people still struggle to follow their budget especially if they have never been conscious of how much they spend each month. So what makes a good budget? The key element is to keep it realistic. What looks good on paper might not be realistic. In this article, we’ll help you make a budget you can actually stick to.

Common Mistakes in Creating a Budget

For many people, they have a dollar amount in mind when you mention the word, “budget”. If they earn $4,000 a month, for example, they immediately compute that “$2,000 goes to the house, $1,000 goes to paying debt, and $1,000 is my disposable income”. This type of budgeting is not really effective. This is because it is important to know where your money is going: how much you’re spending on groceries, how much on clothes, and where you can make some adjustments.

In creating a budget, you have to know where exactly you want the money to go. Having a more long-term perspective also helps. Households have once-a-year expenses such as insurance premium which is not taken into consideration on the monthly budget. Even if you manage to save a certain amount each month, it can be wiped out by the time you have to pay for the insurance.

  • Organizing the Budget

While it is far easier to start from this day forward, it is sometimes necessary to take a look back. Collecting 6 months worth of bills, check stubs, and credit card statement can help you better understand where you stand. The information can be categorized according to: housing, food, hobbies, entertainment, and gas. Housing and gas bills are pretty much a fixed expense so if you want to save, the focus should be on food, hobbies, and entertainment.

  • Know where the Money Goes

If there’s one life-changing thing about the budget, it is to know where your money goes. This has been proven to the true for countless people and it can be in your situation as well. Most individuals have ingrained habits they don’t even think about – whether it is going to Starbucks every morning for coffee or buying an extra treat during lunchtime, it has become part of their lifestyle. The budget isn’t there to dictate your lifestyle though, it is just to let you know how much money you’re actually spending on unnecessary items.

  • Set Financial Goals

Most people understandably have a short-term view. It is immediately more gratifying to buy that caramel frapuccino than to add a few dollars to your bank account. But when this attitude is repeated everyday and in various aspects of your life, then it shouldn’t come as a surprise that you’re not able to spend anything at the end of the day. Setting a realistic budget means understanding your lifestyle and then coming up with ways to meet your monetary goals without sacrificing your enjoyment in life.

Learn more debt secrets to help your financial health.