How to Create A Budget that Actually Works
Some may view the word “budget” as taboo or kapu, but it doesn’t have to be that way. Like us, most folks out in the world have no idea of where to even start to create an effective budget. Having a budget is a critical financial tool for anyone regardless of their age or financial status.
There may be changes going on in your life right now such as a rise in your rent or the loss of a job. I personally am facing the rising cost of rent due to my lack of financial knowledge and putting things off. I have learned the hard way the cost of not being mindful of our finances. My husband and I both agree that we needed a budget to help keep us on track and reach our financial goals.
Studies have been done such as one by Gallup in 2013, that only a 1/3 of Americans create and stick to a budget. This just goes to show that many of us have no idea where our money is going or be able to account for our spending.
When you have a plan in place for your money it can help keep you on track and avoid any unnecessary spending or pitfalls that can cause you to go into debt or financial hardship. Creating a budget can be a challenge, but it can also be easier than people think. Now to begin.
Review Your Spending and Income
After you have spent some time tracking your income and daily spending, next you will want to review the transactions in your bank account to see how your money is moving. You want to review where you are spending the most. You may start to see a pattern and that you are spending more than you realize. If it seems that you are spending more than you make, a review may help you to see what areas you need to cut back on.
Anything I spend using my debit card, I write down in my planner on the day that money was spent.
Identify Your Needs and Financial Goals
Once you realize what your spending habits are, next you need to determine what your needs are. Needs are things such as food, housing, and clothing. Cable tv (which I’m still trying to get my husband to go without) is not a need but more of a want. I hardly watch tv these days and if I do its certain shows like Supernatural or Once Upon a Time, which I can stream as well.
Many debt or financial gurus will tell you to build an emergency fund, it’s important to count this into your budget. We all have a different set of financial goals and situations. Create clear financial goals so that you know what is happening with your money and the likelihood of sticking to a budget is more realistic.
Sticking with a Budget
When you create a budget don’t forget about it. Using your budget is just as important as the steps you take to create it in the first place. Put your budget in a place such as on the fridge so that you see it every day and can review if you would like to. Sticking to a budget will take work and will not always be easy to stick to. Remind yourself of why you created a budget or perhaps you’re saving for a new or trip you’d like to take.
If you find that you are having a hard time sticking to your budget, then perhaps you can try another approach such as the cash envelope method. With this method, you use several envelopes for things such as gas, groceries, treats, you name it. Each is designated a certain amount, such as $20 for gas and once that money is spent you need to wait till the next month rolls around. A cash envelope method is a great way to live within your budget.
Building Your Emergency Fund
You may have asked yourself, how do I even begin to build an emergency fund when I’m already barely making it? This is a common problem people are facing when they are trying to create a budget. It’s hard to create a budget for many expenses because you don’t always know what they will be in the future. Some expenses fluctuate and aren’t very predictable. An emergency fund can come in handy for unexpected expenses such as needing a new car battery.
A good amount for an emergency fund budget can start at just $1,000 to help with any financial surprise. Have a separate account or designated spot will discourage you from spending it accidentally.
Don’t Forget to Include a Budget for Fun Money
Be sure to include a few bucks at the end of your budget as “fun money”, this way you get to save money to have a little fun with and you don’t feel as if all you’re doing is budgeting. This can be a small portion of your income that is brought into use for anything to treat yourself. A little extra money will make sticking to a budget easier. It doesn’t hurt to treat yourself a little.
What May Cause You to Not Stick to Your Budget
One thing that may cause you to fail at keeping a budget is that your cost of living may be higher than what you actually earn. If you’re constantly spending more than you make then creating a budget and trying to live with the means of your budget may be futile. You can always cut your expenses, increase your income or both to make up for the lack of finances. Another cause could be that you aren’t allowing enough flexibility in your budget or allocating enough funds for emergencies or savings.
For me personally, it’s our cost of living is higher than what we make. We got into a hole and it’s been a struggle to climb out. We got to where we had to make a loan to cover rent, then it begins a cycle. It’s hard to climb up but with a budget in place it’s not so bad.