You desire to be finan cially fit. You want to dump the debt, build your savings, and invest like never before. But before all that, comes the difficult task of creating a budget. How can you start a customised household budget that fits your life?
A budget will never create itself. YOU must be the one to put it together. You are an expert on your life and should develop a household budgeting system that challenges and works for YOU. You're going to have to sit down and begin the process sooner or later — why not sooner? If you're married, make sure that both you and your spouse work on this together.
The first thing you have to look at is your spending. Are there any areas that you can cut back on? Cutting back expenses sometimes requires a non-biased viewpoint on how you spend your money. Ask those closest to you where they think you might be spending too much money. Find out where all your money is going and slash your spending!
Once you have figured out where all your money is going, it's time to categorise your spending. If you're stuck, try starting with the following budgeting categories: Charity, Housing, Utilities, Food, Transportation, Clothing, Medical, Personal, Recreation, Saving, Debt and Investments.
You're going to want to categorise this list from highest priority to lowest priority. I have not ordered these by priority on purpose — try thinking through what's most important for your life!
Loose budgeting methods tend to always fail. If you want a strong budgeting system, you're going to have to rethink everything about the way you handle money. Here are a few budgeting essentials that have proven to be helpful for real people in real life:
Four things
Write it all down, track everything. This is the most obvious tip. Don't wing it, you need to track EVERY PENNY. Track it as it comes in and goes out. The best way to do this is collecting receipts. There are four things you need to track about every transaction: date of purchase, merchant name, amount of item/service, and budgeting category. Many of these things are on the receipt, but you might have to add your particular budgeting category to it. Try spending this month's income next month. This helps those of us who have variable incomes.
Any income we have coming in this month is put into an "income" category in our budgeting system. Then, at the end of the month, we distribute the money among our prioritised categories. This makes it easy to see how much money we really have available for our budget and lowers stress — we don't have to worry about the having money to pay our bills on time!
Significant change
Revise it monthly. Nearly every month, my wife and I make a significant change to our budgeting categories. This happens as we learn where we can cut back, what we're lacking, and how we can redefine our categories. This is a normal part of the process. Changes are okay, but attempt not to raise your overall budgeted expenses on a month-to-month basis.
Failure IS an option.
One of the most beneficial ingredients for creating a strong budget is time. Your budget won't be a brilliant work of art overnight. It will take time to learn where you can cut back and what categories you need to implement. Don't be afraid to fail. Henry Ford once said:
"Failure is simply the opportunity to begin again, this time more intelligently."
So true. If you struggle holding to your new budget, don't stress! Just learn and move on. Nothing makes a strong budget like true determination. Though you may fall many times, just dust yourself off and strive towards success.
Take care of the budget, and your finances will fall into place with time. You'll lower your debt, build your savings, and invest like there's no tomorrow.
