“There are things that you will likely sacrifice when budgeting, but it’s very important to be realistic and understand your own habits,” says Kristin Wong, a contributor to the financial blog Get Rich Slowly.
While a budget can be a great tool for managing finances, it can quickly become overwhelming if it’s overly detailed or idealistic. “If you … start thinking about as a way to concisely create a better environment for yourself using your resources, it will get that much easier,” says Leslie Beck, a certified financial planner at Compass Wealth Management in Maplewood, N.J.Īside from maintaining a positive mindset, here are eight guidelines to help you successfully build and manage a budget:ġ. However, creating and maintaining a budget doesn’t have to be a painful process. Taking small steps now can go a long way in helping you achieve financial security and reach your goals.Just like dieting, budgeting is often associated with deprivation and cutting back. Keep working on this savings strategy until you have enough to cover at least a few months of basic expenses. Torabi advocates allocating at least 10% of your income toward personal savings, which can help to cover an unexpected expense or splurge. I consider it a win if I spend 10% below my estimated budget. Putting aside your remaining money and pretending like it's not there could help better protect your savings. If you're also hoping to fund an emergency account (or any expense), and you know you'll be tempted to spend your net savings, commit to putting a fixed amount in a separate account such as a high-yield savings account, which has a greater rate of return. By spending less on things that weren't must-haves, I could apply the net savings toward another financial goal of mine: an emergency account. For me, being proactive was about understanding wants versus needs. If you guess the answer is no, you can explore areas where you can make spending cuts ahead of time, instead of resorting to credit to pay for the overages. To help, I started each month by asking myself an essential question: Will I make more money than I plan to spend? We'd all like to think the answer to this question will be a resounding YES, but not every month will be a positive cash flow period because of any number of unplanned expenses. Knowing your money habits is different from changing them. While my budget helped me understand my money, initially I had a difficult time using it to improve my savings. Now you're ready to start using the budget, which may be tricky in the beginning. Taking a few minutes to do the math on what you project to earn for the month can be helpful. If you're an hourly or nonsalaried worker like me, your paychecks are probably harder to predict. To finish, I add a fourth column with my expected income for the next month. Leaving space for this "goal versus reality" comparison is helpful for seeing how well or poorly you stick to your budget. Then, I leave a third column blank next to each expense category to fill in at the end of the month what I actually spent in reality. During midterm and finals seasons, I know this category of spending will skyrocket, so I'm able to plan for the increased coffee costs by cutting back in other areas. Every month I allocate $50 for my (overpriced, but still essential) lattes. For me, one of these is solely dedicated to coffee. I also add personalized categories in other areas where I tend to spend relatively more money. Next, using my past spending habits as a barometer, I set goals for my future spending in nonfixed or variable categories, including groceries, dining out and other bills.
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