Wednesday, March 13, 2024

How to Make a Budget and Stick to It

how to make a budget and stick to it

Many people associate the word “budget” to something blasphemous, but that shouldn’t be the case. Having a set budget can help you meet your long-term financial goals. However, many people have no clue where to begin. To help you meet your financial goals, here are some simple steps to make a budget and stick to it!

But first, let us take a detour and check out the mistakes that you need to avoid when managing your finances.

how to make a budget and stick to it

Here is a list of the top five mistakes that many people commit when it comes to money management:

Mistake #1: Failure to create a plan

The 2013 Gallup report stated that only one in three individuals can create a well-planned budget, and the number of people who can stick to it is even fewer. This indicates that two-thirds of people in America are not aware of where their money has gone. Failure to keep track of your expenditure is one of the most dreadful financial mistakes you can commit.

If you have a planned budget, you can avoid spending more than you should. One of the reasons behind people’s reluctance to create a budget plan is the assumption that it is too difficult to do. There are free budgeting tools that you can use to make it easier to create your budget plan. Even financial advisors recommend and give advice on using the tools.

Even if you enjoy the substantial income, make ends meet, and pay your obligations on time, having a budget can help you secure your finances. Keep in mind that change is the only constant in life. Your circumstances might suddenly change, and you don’t want to wake up one day and find out that you have no more money left to spend.

Mistake #2: Your personality and budget contradict each other

For a budget to work, you need to make sure that it fits your lifestyle and personality as well as that of your entire family. Having a budget and then defying it in the end just to satisfy your lifestyle is not helping at all.

You need to reform your attitude regarding how you spend your money if you want your budget to work for you. You may allow a small portion of your budget for unrestricted spending, but it doesn’t mean you can touch all of the money you allotted for savings. You need to reform your way of spending money and be strict to yourself in following the set budget.

Mistake #3: You are similar to a yo yo dieter

A yo-yo dieter is someone who follows on-again, off-again dieting that defies the purpose of a weight loss program. Though the person has an ardent desire to lose weight, it will not work if he/she lacks the discipline or will power to stick to the program.

You are a yo-yo budgeter if you are doing the same thing that a yo-yo dieter does. Even though you believe in the benefits that a well-planned budget can bring, you won’t be able to reach your financial goal if you still have instances of going against the budget that you set. Defying the budget once is enough to prevent you from reaching your financial goal.

Mistake #4: You set an unrealistic, inflexible budget

When planning your budget, you also need to provide a leeway for it to work properly. Prices of basic commodities, services, utilities, and other things that you buy tend to rise and fall. You cannot be certain that you will pay for the same amount next month. Your budget must be flexible to adapt to the possible changes that might occur.

When there’s an excess in your budget, keep it in a bank and don’t touch it. You can use that when your expenses for the following month become higher than usual. There are times when a certain month has more expenses than the previous ones. If you set an inflexible budget, you will have a hard time adjusting it to meet your needs.

However, don’t make your budget too flexible just to accommodate your unreasonable spending. Make sure to plan for contingencies to avoid worrying later.

Mistake #5: You have an inaccurate budget

You must come up with a balanced budget to make it work. If you allot a large portion of your budget on certain expenses and not giving enough on others, this creates an imbalance that may drive you to drop the whole budget plan.

If a large portion of your budget is allocated to credit card payments and groceries and savings have too little, there is an imbalance in your budget. This could sabotage your budget and render it ineffective. It is also a complete waste of time to create a budget if you are spending more money than your earnings. You need to resolve the more fundamental issues first. If your income is not enough to cover your expenses, you can do any of the following:

  • Find ways to earn more or increase your earnings.
  • Cut down your expenses, and you can start by removing the less important expenditures in your budget.
  • Use the two suggestions above at the same time.

When you can create a balance between your expenses and earnings, you can start planning your budget.

Planning an effective budget for everyday life

how to make a budget and stick to it

If you are someone looking for a way to effectively take charge of your finances, here are the things that you need to do to help you attain success.

1. Understand your current financial circumstances

Take a look at your current financial standing to understand your spending power. Look at all the piggy banks that you own, debts, credit cards, bank accounts, and other sources of income to determine your financial standing. To get a better view, it is suggested to track all of your big or small spending for a couple of months or more to see where your money disappears to.

You can use a notebook or ledger to list down all the expenses and income that you incur. You may also want to register for a free budget application or consider using personal finance software.

Aside from cash transactions, you also need to track the purchases you make using your credit and debit cards. Prepare different categories where you can group the expenses you make.

2. Review the flow of your money and set an automatic transfer

After tracking your income and expenses, you need to review the movement of your money. Take a look at the categories where you spent your money the most. This way, you will be able to identify the areas of concern and be able to allocate the appropriate amount for each category.

You can also determine the areas or categories that you need to cut down to make ends meet or save more for the rainy days. Many people are spending more than they earn. If you are one of those folks, it’s about time to conduct a serious financial review and get your life back on track.

If you find it difficult to save money, you can set an automatic money transfer to your savings account. That way, a set amount will automatically get transferred to your savings account from your monthly pay.

3. You need to determine your needs and goals

You must carefully determine your needs, which are things that you absolutely cannot live without. A new TV and other similar items do not fall under the “needs” category. The essential things that you need to have are food, clothing, house, and means of transportation to work.

You also need to make sure to pay your obligations on time. If you want to set up an emergency fund, you also need to include that in your budget as part of your financial goals.

4. List the things you need in order of importance and create a balanced budget

To create an effective budget, you need to make sure that you are giving proper priority to the most important things in your life while maintaining proper balance in your budget.

List the most important things on the top of your list and work your way down to the least important items. Keep in mind that you need to be realistic and just. Don’t put the brand new TV as one of the most important things just because you are dying to own one. You know that you can live without a brand new TV.

When planning your budget, make sure that everything is balanced. Create some changes if you need to keep a well-balanced budget.

5. Keep the semi-annual and yearly payments in mind

If you have items in your yearly expenditure that you need to pay yearly or semi-annually, make sure to always include them in your monthly budget. You need to divide the yearly or twice-a-year payment to 12 or 6 to get the right amount that you need to keep for a particular month. When the due date arrives, you just need to retrieve the money that you keep every month for the said payments.

6. Keep an emergency fund

Your emergency fund should be different from your savings account. You need to keep an emergency fund that you can use for fixing the house, buying a new tire, or other similar emergencies. If you don’t have an emergency fund, your budget might suffer since you need to make necessary adjustments to accommodate the important, sudden repairs. You may have less trouble if you have a flexible budget.

To avoid problems and disruption in your budget, it is prudent to keep an emergency fund.

7. Learn to say “no” and stick to your budget plan

You need to learn to say “no” to unnecessary expenditures or anything that has not been covered in your budget. Creating a budget is essential, but it will not serve its purpose if you won’t use or follow it. Stick to your budget and avoid unnecessary expenditures.

how to make a budget and stick to it

8. Set aside some blow money

Once in a while, it won’t hurt to set aside a few bucks as blow money that you can use to buy anything you want as a reward for a job well done. It is not easy to plan and follow the budget to the letter. A little reward for your effort won’t hurt.

9. Look for financial help

There are various government assistance programs you can sign up for that will help alleviate budget costs. You can get help in the following forms:

  • Food (Supplemental Nutrition Assistance Program [SNAP], or food stamps),
  • Medical insurance (Medicaid)
  • Housing (Section 8)
  • Wireless communication and phone service (Lifeline Assistance Program)

One of the easiest programs to sign up for is Lifeline. Consider signing up with Q Link Wireless, one of the country’s largest Lifeline providers. With Q Link Wireless you will receive 3 Gigs of Data, plus UNLIMITED talk & text. Signing up is easy and can be done in just minutes! Check it out here.

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