When you imagine creating a budget, do you imagine a spreadsheet with and endless line of items? The good news is you don’t need to manage an endless line of items, and you don’t have to miss out on your favorite things. You can personalize your budget so that you can still enjoy the things you love most.
[Read: A Few Personal Budgeting Tips]
Referring to this daunting task as ‘budgeting’ isn’t necessary. You can call it whatever you like. Imagine you are creating a recipe for how you plan to spend your money. You wouldn’t try to cook a new dessert without any previous knowledge or experience in doing so! You also wouldn’t want to blindly trudge through your finances without having a guideline. Now do you see how you may benefit from creating a budget?
Follow these five simple guidelines when creating your first budget:
Keep it Simple
Filling the list with too many categories is a common mistake made when people are creating their first budget. Try to focus on making a small amount of categories instead of listing every item you plan on purchasing. For example, when listing gasoline, oil changes, makeup and hair spray, make your categories broader by listing vehicle necessities and beauty supplies instead. Needless to say, the fewer categories you have the better off you’ll become.
If you really want to go to the extreme and create a tight budget, then you could have as little as two categories in all. The anti-budget, the 50/30/20 budget and the side category budget work well with fewer categories. Also, this article has wonderful templates and advice to help you get started.
Set Yourself Up for Success
Don’t create a budget expecting to drastically decrease the amount you spend each month. If you are spending $150 a month on groceries, then don’t expect that you can spend $50 next month. It’s important to set small incremental goals that are easy to follow and stick to. Try to reduce your monthly spending by 5-10 percent each month. This small amount will save you a large amount of money over time.
After sticking to this goal for a month or two, you can adjust your budget further. Over time you will reach your set monthly spending goal. It is much easier to stick to those small incremental changes.
Stick to What You Know
Many people decide to use different types of software and applications that are made to help you stick to a budget. Don’t be afraid to stick to what you know and use the old fashioned method of putting pen to paper. Truth be told, there is no right or wrong way to create and manage your budget. The best thing to do is to find the method that makes you the most comfortable.
Get Your Family Involved
Keeping everyone in your household up to date on your financial decisions is one of the best ways to maintain a healthy budget. After all, you’re most likely not the only person in your house who wants to spend less and save more. Planning a weekly meeting is a great way to get your family involved in making the best financial decisions for everyone. Here are examples of topics that you can discuss with your family at these meetings:
- What is the most realistic way to reduce spending in each category?
- How can we build a solid emergency fund?
- How can we get the most from our retirement and investment accounts?
These meetings will also give you a chance to explain why you purchased that older vehicle versus the newer model. You can remind them of your goal to save for your son to go to college. Your family will feel more at ease when they know that the money you saved is going to such an important investment.
Tweak Your Budget Monthly
Truthfully, you’ll most likely have two columns in your budget:
- the final amount you actually spend this month and
- the amount that you originally planned on spending.
Reviewing your budget every month will show you the amount you actually spent versus the amount you planned to spend. Now you can pinpoint the areas in which you are spending more than you should and adjust those areas accordingly.
[Read: Why a Budget Really Matters]
After I created my first budget, I discovered that I was spending more money than I’d realized at Walmart and eBay. I couldn’t go into Walmart without spending at least $50. Having a budget to review helped me become aware of my spending habits. Now, thanks to my budget, I can go into Walmart with a list of items I need, pick them up and then simply leave the store.
Want more information on how to save money? Check out this YouTube video: