5 Ways to Make Budgets Work For You
Creating a Budget is Neccessary for Financial Success.
From Failure to Success with Budgets
Have you ever been like me and sat down to create a budget with the goal to stick with it no matter what and then a week later you've overspent again? You probably got mad at yourself and figured you would never learn to live within a budget. Don't give up; you're not a hopeless case. You can learn to save money if you identify why your previous budgets didn't work. Here are five common reasons that most family budgets fail.
Tip 1: Be Realistic
The biggest reason that most budgets fail is that you aren't realistic about your expenses when you create a budget. Maybe you're an "optimistic budgeter" that figures in the lowest possible price on expenses and the highest income. If you are, you are setting yourself up for failure.
For instance, look at your utilities and figure in the most expensive month of the year. You can add up the entire year and average them, but the easiest way is just to calculate the highest bill you will pay.
Look at each of your expenses and budget in the most you will pay in the year so that you don't go over your budget when you pay a bill.
Write Down All of Your Expenses
Tip 2: Plan for The Unexpected
What happens when your car needs repairs? If you don't have it added into your budget, you have to find room somewhere. For those who live from paycheck to paycheck, that usually means credit cards or skipping a bill for the month. Neither answer is good for your budget or your credit.
Instead, calculate in a portion of your income for unplanned expenses or occasional costs, like a doctor visit. Put that money in a savings account designated for emergencies. If you put a portion of your income in that account on a regular basis, you won't be in a panic for the unexpected.
How much should you put in your emergency account? That will depend on what your unplanned expenses could be. This includes:
- Home repairs if you are a homeowner
- Car repairs
- Medical bills and/or copays
- Over-the-counter medicine
- Veternarian visits for pets
This is a just a partial list of things that can come up. Think back to anything you have had to spend money on that you didn't know about ahead of time and create a budget item that will have you covered within six months if possible.
Tip 3: Figure in Misc. Expenses Correctly
What does miscellaneous expenses mean? It can be clothing, dog food, medicine, household cleaners or anything else you don't want to figure in individually so you group it under one label. I would advise anyone that has trouble managing their budget to get rid of this category and write everything out separately. At least do this until you know how much each expense is.
The reason people often get into trouble with their Misc expenses is that they just put down a number and don't realize how much they actually spend. This is the area that was the biggest struggle for me until I learned to separate every single thing out. It was a pain, but I had more money when I did it that way.
Tip 4: Plan for Fun
Anyone who thinks they will never spend another dime on fun until they are out of debt or have money in savings is probably kidding themselves. Most people will stop at a drive-through or buy their kids a candy bar no matter how disciplined they try to be.
The fact is that you will be more disciplined with your spending if you add it into your budget. It can be $25 or $50 a month and when that is gone, you're done. Of course, you have to avoid reason #1 by not being realistic. Look at how much money you have and figure how much you can afford to put towards something fun. Then figure out ways to make that last the whole month.
Tip 5: Have a Goal
Most people are better at sticking with a budget when they have an end goal in mind. It gives them something to work towards. It can be saving up to buy a house or a new car or for your retirement. You can also have a goal that you want to put $25,000 in savings "just in case." It doesn't matter what your goal is, but setting one will help you remember why you stick to your budget.
My big goal has been to save for a down payment on a house. It makes it easier to pass by that new outfit or pair of shoes (or in my case, another book) and put that money in savings. It also encourages me to find ways to save extra. I may not use all of my fun money for a month and then that also goes back in savings.
Budgets Can Work
Once you figure out why your past budgets haven't worked, you are well on your way to creating a successful one. It can seem like a challenge, but the payoff of less stress and more money is worth it.
