Budget is the foundation stone of every financial plan. Most people think they don’t need a budget, fooling themselves how everything is under control. While there are persons with healthy financial habits naturally ingrained in their behaviour, that is rarely the case; the rest of us simply have to adjust, thinking about our steps and making sure we don’t become prey to the consumerist society. In other words, we have to find a way not just to create a budget, but to stick to it. Here are some tips.
Set Clear , Concise Goals and Keep It Real
Budgeting is similar to fitness – extremely radical plans never work. You need to make realistic goals. Yes, goals and targets are important for motivation. However, setting yourself for something impossible will be counter-productive. For a start, set something easily achievable as your goals, especially if you are new to this budgeting thing.
Good goals to have are for example, paying off your student loans and other personal debt, or setting up a savings account. If you already have all these, you are one lucky person! In that case, you probably don’t need this article. But still, you can start new goals! Saving for a year-off work, travelling the world, or something similar and equally inspiring.
Whatever you choose, make it realistic and doable, both long and short-term. Like a good diet will never make you feel hungry, a proper financial diet will not ruin you – there must be room for entertainment, eating out, vacations, you only need to make few healthy substitutions.
Start Tracking Everything
You can’t manage what you don’t measure. In order to create a successful budget that will work, you must track know how much you earn, and how much you spend. The earning part is easy – it’s your take-home salary plus any side hustles you might be doing that creates income.
The spending part is much harder. You have to track your regular spending for at least a week, ideally a month. Don’t change your behaviour just because you are tracking, be honest, and simply track your regular expenses. After the first week, when you have all the “ingredients” you need to start categorising them – bills, groceries, entertainment, etc.
Make sure you track EVERYTHING – use budgeting or a note app on your phone, since that is probably the only thing you have with you all the time, and start writing down every expense you make. It will be annoying the first couple of days, but pretty soon you will get used to it.
Use Tracking Tools
We have mentioned tracking apps since you carry your phone with you, but if you are not that tech-savvy, and don’t want to complicate things too much from the get-go, pen and paper will work. The key is regularly tracking everything you spend, without exceptions. When going grocery shopping, don’t be lazy to categorise every item – just save the bill slip, and do it when you get home, it will take five minutes. Doing this will tell you exactly where the problem lies.
Tracking apps, on the other hand, will synthesise everything in one place. They have cross-platform support, and cloud syncing, plus you can put all your credit cards in them, tracking all your expenses in a single app. We will have a separate article reviewing the best tracking apps soon, so stay tuned.
Focus on Problem Areas
Now that you have collected the information with your tracking system, it is time to analyse it. There are certain parts of your budget that are non negotiable – for example , electricity bills, fuel expenses. You can only do so much to cut the spending on these if you choose to drive less, but that is hard to do.
But then there are the negotiable spending. Collect your bills, and study it. Look at your internet package, your cell phone plans, Foxtel/Netflix, insurances. You can probably reduce some of the costs by selecting a different provider that has a better offer (or asking your existing provider to match it), or if you really want to live lean… you can go the hipster route, and “cut the cord”
For most people, overspending happens in these categories: eating out, clothes, gadgets, and entertainment. Take eating out as an example: you can reduce the frequency and/or switch to cheaper alternatives or by going to a venue out of expensive/touristy area. Alternatively, you can ditch the eating out entirely, and invite your friends to a home-cooked dinner at your place – that way you will keep the socialising part alive while eliminating the spending out of the equation.
Have Cheat Days
The whole point of creating a budget is the ability to do things you like, without sacrificing too much, while still being able to save money or clear your debt. In other words, the whole point of making a budget is being able to live your life, while still keeping your finances in balance.
Again with the dieting parallel – cheat days. Make room in your budget for shopping, eating out, entertainment. Like with diets, having cheat days will let you let off some steam, keeping you happy and motivated, knowing that you have a day-off to look forward to
The critical thing here is having the activity pre-planned. You shouldn’t just randomly go out and eat, calling it a cheat day. That is not a cheat day, that’s just plain cheating, and it will ruin your financial goals. Plan your “cheat” activity, and make sure it does not break your budget. It will be a planned luxury, that will not get you off the track, but rather serve as a well-deserved break on your journey. Goals and plans, not randomness.
The fact that you are reading this article means you are on the right track; you are already thinking in the right direction. Creating a budget and sticking to it looks harder than it actually is. It merely is about sticking to a healthy plan, over an extended period of time, by making micro decisions that will not affect your daily life too much but will tremendously improve how your (financial) future looks. Just be patient and diligent, keep it steady and we have no doubts that you will be able to reach your financial goals.
Need more help with budgeting? Check out our article on Ways to Save Money without Sacrificing Your Lifestyle and Ways to Reduce your Grocery Bills