7 Tips for Creating A Budget You Won’t Break
May 21st, 2007 | by rachel |
The biggest problem with a budget is not establishing the spending boundaries. It’s living within the boundaries you have set! Here are 7 things you can do to make your budget an invaluable tool.
1. ORGANIZE YOUR FINANCIAL RECORDS
The success of your budget will depend on the accuracy of the information that it contains. In order to achieve and maintain accuracy, you need to be able to put your hands on all records that relate to your finances in any way. There are many ways to organize records and you need to find the way that is the most understandable and convenient for you. Here are some ideas…
· Folders - Use a hanging folder for each main category of expenses and use manila folders inside each hanging folder for all vendors within that category (i.e. CREDIT CARDS = Hanging Folder … VISA, Sears, Home Depot = manila folders). Inside each manila folder, keep ALL the records and statements pertaining to that card/account.
· Three Ring Binder - Use a divider page for each main category of expenses and pockets sleeves for all vendors within that category
· Color code your categories
· Store all your records in the same place. If you do not have a home office, use a portable file box.
· Use a label maker to make your folders readable and easy to recognize
· Get rid of any records that are outdated OR that pertain to accounts you no longer have. For recommendations about how long you should keep financial records, visit www.bankrate.com or http://ask.yahoo.com
Remember, your purpose here is to develop a simple system for storing your financial records so that you can find them when you need them and not be overwhelmed at the thought of having to refer to them. Your organizational system does not have to be complicated or expensive; it just has to be yours!
2. STOP ACCUMULATING DEBT
You cannot live within a budget if you continue spending beyond your means. Accumulating debt is just that, spending more than you make. Your budget will only be successful if you see yourself making progress and you cannot do that unless you stop getting deeper into debt.
3. WRITE YOUR FIRST BUDGETS ON PAPER BY HAND
The idea here is a simple one…you need to make a PHYSICAL CONNECTION to the budget you are creating. If you actually write it out on paper and you use a calculator to manually figure your numbers, it will sink into your mind faster and deeper. When you have to make adjustments, having to erase the numbers and rework the totals manually will make a bigger impression on you than just having the spreadsheet figure it. Once you have completed 2 or 3 by hand and you “make the connection”, you will be more committed to the process. Just remember to use a pencil!
4. BE HONEST ABOUT YOUR NUMBERS
Even if you are the only person that will see your written budget, use exact numbers. Resist the temptation to round up or down. At the beginning of the budgeting process, those extra pennies here and there won’t make a big difference. In the long run, however, those pennies will send the bottom line on your balance sheet upward faster than you might expect!
5. SIMPLIFY YOUR SPENDING CATEGORIES & CONSOLIDATE YOUR ACCOUNTS
If your budget I too complicated, you will decide that it is not worth the effort to wade through it. To keep your budget simple, use broad categories to define your spending. For example, the category for OUTSTANDING DEBT would include credit cards, loans, etc. The HOUSING category would include utilities, furniture/accessories, home improvements, maintenance & repair, etc. Certainly, you will need to identify some sub-categories as you continue to budget, but the large categories will assist you in seeing where your money goes during the early stages.
Along the lines of making things simple, go through your accounts (bank accounts, loans, and credit accounts) and see if it is possible to consolidate any of those accounts. THIS IS NOT INTENDED TO SAVE YOU LOTS OF MONEY (although it might save you some). Rather, having fewer accounts to monitor and manage will make your budgeting process more efficient.
6. PRIORITIZE YOUR SPENDING
AFTER you have identified where your money is currently going, you need to decide what your spending priorities are. If you are like most of us, you don’t have enough money to buy all that you need, all you want, and all that you already have. That means that you will have to decide what you want most and rank everything else in order below that.
There are a couple of ways to do this. One option is to prioritize your ENTIRE INCOME and list housing, utilities, food, health care and transportation (all necessities) as the #1 priority. Then, list any other wants in priority order and fund them as far down the list as the money lasts.
Another option is to ONLY prioritize wants and use a set portion of your income to pay for them. Using this method, you would only list your “extras” in priority order and pay for only as much as your predetermined amount would allow.
7. REVISIT AND REVISE YOUR WORKSHEET
If you are to be successful with budgeting, you MUST understand that this is an ongoing process. During the pay period, there may be adjustments that you need to make. Something will cost more than you thought or less than you expected. Something that you were not planning for will happen. Something that you were planning for won’t happen. At that point, wherever you are in your pay period, you need to revisit your budget and revise it to accommodate the new numbers. The more you are able to do that, the more workable it is and the more you will see it as a vital part of your financial success.