Budgets are capable of striking fear into the hearts of even the most dedicated of organizers and planners. Making a list and checking it twice is far easier when it comes to buying Christmas presents than it does to budgeting for said presents. However, it is possible for even the most disorganized people to master a budget and stick to it. To do this, you need to create a budget which is within your means and simple enough to use consistently.
Write Everything Down
In order to create a budget you must first gather all of the needed data. Look at receipts, bills, paychecks, and bank statements from several months to get a grasp for how you are currently spending your money. Add up each category within the months to create totals for yourself. Evaluate your income and whether or not the way you are currently spending money fits your income. If there is an imbalance in money coming and going, look for items you may be spending too much on. Once you have done this, gather all of this data up and head to the next step.
Divide and Conquer
Once you have all of your spending, earning, and saving habits laid out in front of you, it’s time to categorize it. Start with the absolutes: your monthly income, rent, bills, savings accounts, and loan payments. These are the essentials to your budget so make sure you are setting aside enough money for these every month. Next, categorize your non-essential spending and set limits. Be firm with yourself and as specific as you need. Some people may only have an Entertainment item in their budget, while others may find it more helpful to have Movies and Leisure Activities in two separate categories. Also, some non-essentials may overlap with essential categories. For instance, Groceries may be an essential category, but Eating Out may also be a category in your non-essentials. Make sure that overlaps like this are taken into account so that you don’t cut yourself short or overfund one area.
Budgets are created to help people manage their money so they can accomplish more with it. As such, a budget must have a goal. Each category should have a hard limit and a plan in place for coping with overspending in one or more areas. For instance, if you have an unexpected bill from the mechanic, will you take from your Coffee Fund or from your Savings? If your goal is to save an extra five thousand dollars this year, you may want to skip the mochas that month. By keeping your goals in mind, you won’t be as likely to spend money without realizing the affect it has on your budget. Goals are also helpful in prioritizing your budget in the long term. If you are more concerned with paying off your student loans than having a nice car you may want to purchase a cheaper car with smaller monthly payments to free up money. As your goals change, your budget can change to reflect those goals.
Finally, be realistic with yourself and your budget. If you find yourself overspending in the same categories each month, adjust your budget. Your budget needs to be the right fit for you. Whether that means using cash in envelopes to budget or having a detailed, two-page spreadsheet, it’s important to make your budget work for you. By doing this, you will be more likely to stick with it and accomplish your goals.