Budgeting sounds easy enough in principle, but we all know that life's realities make saving and clamping down on monthly expenses harder than expected. Transforming your budget into a system that works for you requires knowing why budgets fail in the first place, and taking steps to prevent the missteps that get you booted from the budgeting bandwagon.
Decide What's Important
You need a roof over your head, food to eat and a way to get to work in the morning. These basic expenses should take up between 50 and 66 percent of your income, leaving you with a good chunk of your paycheck to distribute elsewhere, but you may still find yourself falling short at the end of the month if your financial windfall gets spread too thinly. Define what's important to you, then dedicate a suitable portion of your discretionary income to meet those goals, whether they include saving for a down payment or squirreling away some retirement savings.
Pick an Expense Tracking Method
Your budget won't work if you get lazy and stop tracking your spending, so find a method that fits your lifestyle. Some people cut out debit and credit card spending in favor of cash, filling jars or envelopes with predetermined amounts for food, transportation, entertainment and other expenses at the beginning of each month. This strategy makes it easy to review how much you spend in different categories, without the hassle of keeping and tracking receipts. For others, spreadsheet programs or even a paper-and-pencil calendars prove effective methods for keeping spending in check.
Make it Flexible
You figure out that $125 a month is enough to cover your gas and car insurance payment, but when the transmission suddenly breaks, so does your budget. When you foresee large costs down the line, you're less likely to throw out your budget out the window when hardship strikes. Plan ahead for big expenses, like Christmas, by reducing your gift allowance in other months so you have plenty in reserve for the holidays. Set some money aside in a savings account for emergencies.
Pay Off Debt
If you're carrying high-interest consumer debt, you're not doing yourself any favors. Reduce the amount that's going to creditors by making a plan to pay down your debt. Money might feel tighter for awhile, but you'll have much more for fun and savings when you get rid of debt with an 18 percent (or higher) interest rate. Consolidate your debt to your lowest-interest line of credit and make phone calls to negotiate lower rates with credit providers.
Make shopping around for the best deal part of your life, whether you're buying groceries or Internet service. Clip coupons and peruse grocery store fliers to find the best deals. For services like cable, Internet and telephone, research what different providers offer and see who has what you need for the lowest price. If you sign contracts for any of these services, start looking around when your contract's coming to an end. See if your provider is willing to knock prices down a notch to secure your business for another year.
Budget for Fun
No matter how aggressive you want to be with your savings or debt repayment plans, don't get rid of your fun money altogether. Just like diets without the occasional treat are doomed to long-term failure, so are budgets that never allow you to buy the things that you love. Maybe you don't need a specialty coffee every day, but budgeting for one every Friday could help you stay committed.
Get Support from Others
Tell your friends and family about your financial goals. The more people you tell, the better, especially if you ask these people for help with staying on track. With more eyes on you, you'll feel less tempted to splurge and veer off course. If you have a like-minded friend who's committed to getting her finances under control, the two of you can support each other and offer advice when sticking with it gets tough.
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