Budgeting is greatly misunderstood. Many people think that only the poor should be following a budget to ensure that they don’t overspend. Yes, a budget can be used for that, but budgeting is for everyone and even the filthy rich follow a budget.
A budget is actually designed to help you put every single one of your dollars to work. You should know exactly what your money is doing, where to put it, and where it’s going at all times and a budget makes that possible. Your budget can help you stick to your financial goals. It can help prevent overspending and can lead to a wealthier lifestyle without any extra work or investing. Just keeping on top of your money can have drastic effects on your finances. When creating a budget your financial goals heavily influence exactly what your budget will allow for spending, saving, etc. If you haven’t already I suggest setting up your financial goals first before reading this article.
Why Budgeting Usually Doesn’t Work
The majority of budgeting software and spreadsheets that you find today claim to make budgeting easier to stick to. All of the software and spreadsheets that I have tried have all failed at this. And I am sure that you have tried many of the same budgeting techniques and software all to the same effect.
It is impossible when first starting a budget to think of every expense that you have and this can make you miss your target for the first couple of months. This makes keeping up with a budget way too difficult and many people give up on it. When I created budgets for myself I would eventually stop keeping track of my budget because it felt like boring money tracking. Something had to change. I needed to be in full control of money and know exactly where it was all going. I needed a budget if I were to drastically improve my finances.
“Any intelligent fool can make things bigger, more complex, and more violent. It takes a touch of genius — and a lot of courage — to move in the opposite direction.” – Albert Einstein
If a budget is hard to create and hard to maintain its almost impossible to keep up with it. The harder a budget is to create, the harder it is to maintain. So the best budgets are those which are easy to create and easy to maintain.
Creating an Automatic Budget
The first step to creating a budget is having complete visibility of your current expenses. I have an easy template for a budget which you can download free and insert your income, savings, and expenses. Take a month and compile all of your expenses.
Next thing to do is get your budget to the point where it is automatic. This is the hardest part but after this, you don’t will not have to do much. Nothing is easier than automatic.
For example, If you get paid on the 1st and the 15th you are going to want to move all of your bills to the 2nd and the 16th. Call each company and request that your bills be moved to those two days. Most companies will be happy to make this happen. Also, try to get all of your expenses on one account. This will make it easier to keep track of all your expenses. For bills that can’t be moved, like amazon prime, you can cancel it for a month and if you still want to keep the subscription, activate it on one of the two days the with the correct account.
Keep in mind to spread out your bills as evenly as possible between the two days to prevent from being too tight for two weeks.
Things which do not have set days like groceries, oil change, gas, etc. should be paid as close to payday as possible. After you get paid go out and do some grocery shopping. This way as all of your expenses are out of the way right after payday.
I would also recommend that your savings be split for the month and automatically pulled on the 2nd and the 16th. Leaving in your account only the money to spend on whatever you like.
If your savings are not automatic you will skip out on it sometimes. You have no option but to stick to your saving plan if its automatic. Have it transferred to a retirement or emergency fund account. This way it is separated from your spending money.
I have found that this is the best way to keep to a budget. After all of your transactions are made, simply check your bank account the next day and all of the money that’s left is yours to spend. There is no guessing and no going out of budget because you run out of money before you can get out of budget.
How to Make It Work
Now you will be doing more with every single dollar you make, you may be tight on money even though you may have more cash in savings and less debt. Your emergency fund account card should be placed in a safe and left at home. This will make the temptation to use your savings a little harder. Your savings should ONLY be used to make personal investments (increase your income) or for emergencies.
Hopefully, this helps you create and stick to a budget that will help you forever change your financial situation.