6 Tips for Creating a Successful Budget
Creating and managing a budget is one of the fastest and most important ways to achieve financial goals and freedom. Whether you want to pay down debt, save for retirement or plan for your first home purchase, you'll have to be disciplined about your spending in order to reach your goals.
As important as setting a budget is, it's often one of the most overwhelming and intimidating processes for many adults. Many people have lots of feelings around money and spending, and these can make it difficult to see the bottom line on your financial spreadsheet. We've come up with 6 tips to help you create a successful budget that will allow you to set goals and achieve them without stress.
After all, gaining financial freedom and reaching financial goals is extremely rewarding, and will have lasting benefits for you and your family. Follow these 6 tips, and take the stress out of your spending so that you can enjoy your hard earned money for years to come.
Determine How Much You Make
Before you can begin crafting any kind of successful budget, you'll have to start with the total amount of money you have coming in each month. Break out your excel spreadsheet, or consider trying out online tools like Mint or YouNeedABudget to help you itemize income and expenses, starting with your exact income, each month.
How Much Do You Owe
Before you can begin to truly pay down debt, including student loans, car loans and credit card debt, you'll have to nail down the exact amount you owe, including interest. Determining your monthly debt payments simply requires you to calculate the total amount owed on each account, as well as the minimum monthly payment. List these expenses on your spreadsheet, beginning with the debt accounts accruing the highest amount of interest (you'll want to tackle these first).
Know Your Monthly Expenses/Track Your Spending
While this may sound tricky, it's actually fairly simple, but it may require you to become more conscious of your spending than you're used to. Begin by listing rental payments, utility payments and phone bills. Most of these bills will be fixed, although utility bills may go up and down dependant upon the time of year. Track your spending for an entire month, and pay attention to the total amount you spend on gas, groceries, toiletries, household products, clothing, entertainment and more.
While this is the least exciting part of creating a healthy budget, it is often the most eye-opening. When you see how much money goes out the door on items like coffee, dining out and late night Target runs, it can make it easy to see where your extra cash is going, each month. List your fixed costs on your spreadsheet, as well as the fluctuating costs (groceries, gas, etc.). Decide how much you want to realistically spend on the extras like fancy coffee, etc., and add line items to include these dollar amounts.
Define a Bottom Line
Looking at your fixed costs and your income, you'll want to define a bottom line of how much money you're going to spend each month, and no more. This number will have to include everything, so be realistic. If you know that you truly enjoy grabbing a coffee out each morning, plan for it and include the cost in your budget. If you think you can skip it, leave it off and plan to make coffee at home. You'll want to be disciplined without feeling deprived, so make sure that you give yourself the wiggle room you need to still enjoy your life. Once you've defined your total allowable spending each month, you'll want to decide what to do with the money leftover. If you owe a great deal of debt, it may be worth it to begin paying that down. If you don't, you may want to put your extra cash into a savings account, or meet with your bank and discuss other savings and investment plans.
Track Your Budget
Each week, track your budget to keep yourself connected. It may take you an hour or so each week to do this, but it will pay off in the long run when you're able to become debt free, save to buy your first home or create investments that will sustain you into retirement. Choose a time each week to sit with your spreadsheet and review your actual spending against your budget. This will help you to stay on track and feel less anxiety overall about your relationship to money.
Make Adjustments As Needed
A successful budget isn't rigid. In fact, it will ebb and flow with increases and decreases in your income and expenses. If your electric bill is suddenly higher, you'll have to adjust, or if you get a raise or bonus and suddenly have additional income, you'll have to decide what to do with it. The goal is to stay conscious of your money at all times, and make adjustments accordingly throughout the year.
Filed Under: Apartment Living
Mira Roberts studied writing at New York University, graduating with a BA in English Literature before pursuing a career in media, marketing and management with PARADE Magazine, Portfolio Magazine, AltDaily, skirt! and lululemon athletica. A full time mother, writing instructor and part-time freelance writer, Mira lives and laughs with her family in Norfolk, VA.
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