Creating a budget and abiding by it is one of the toughest and wisest things to do to ensure a bright financial future.
Budgeting Success Tips
Set realistic goals – don’t put down $10 for entertainment expenses if you know you are going to spend more than that. Be honest with yourself.
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Always Honor Commitments
Creating a budget is just the start. The only way it will work is if you remember to update your expenses and make changes during the month to make sure you stay on track.
KISS (Keep it Short and Simple)
Putting together a very basic list of readily recognizable monthly expenses can add details to how you want the budget to look like in the future. In the end, the simple things now that you need will be the ones you need in the future. A simple list will also help make sure you don’t exceed what your post-tax monthly income can handle.
Post-tax, Monthly Income
Determining how much you make each month is essential. If you get paid monthly, it’s easy – just use the amount from the check. If you’re paid in a different interval, calculate annual income and divide by 12.Don’t forget to include any other sources of income other than your paycheck that you use for expenses each month (i.e., interest income, alimony, child support, etc.).
List Detailed Expenses
This part can be the most time consuming, because chances are you have more individual expenses than you have sources of income. It’s also likely there are some expenses hiding somewhere in your life that need to be exposed- maybe that soy vanilla latte every Saturday? Look honestly, and small expenses soon start looking enormous. Do your best to group expenses into categories. The best way to start is to simply group “like with like” and get your list in order, don’t worry about estimating amounts just yet.
Select a Time Period to Record Expenses
A month is a common increment of time, but use what works best for you. You need to match all your revenues for the increment you choose against all your expenses for that period.The rule of thumb: If using months, don’t record an expense to the month you paid the bill, but rather record the expense to the month when the expense was incurred. Matching revenues with expenses in the period they occurred, will allow you to determine if your monthly expenses exceed monthly income.
Stay on Track
Keeping track of monthly income and expenses become useless unless updated periodically. Make sure to update the lists in detail and to stick to the budget. In the end, the greatest source of failure for keeping a budget is simply outdated budget sheets.