Most things that are considered worthwhile are anything but easy. Take making a budget, for example. Not only do you have to limit your spending but creating a budget that works for months or years is no easy task. That being said, discovering the keys to a successful budget is a venture that will benefit you enormously in today’s economy and save you from commonly encountered money problems out in the world for years to come.
Not sure where to start? These 3 time-proven elements are considered essential keys to a successful budget.
1. Choosing the Best Tool for the Job
It seems like every week a new program comes out that pledges to make it ridiculously easy to develop and maintain a budget. But how do you decide which one is right for you? Here are a few different options!
Known as the ‘squirreling away’ method, a cash-only system leaves nothing to chance. People who employ this method want to be extra-sure that their money spent on their budget, rather than splurging on things unnecessarily. This method can be as simple as taking an envelope and depositing a set amount of money into it for bills and savings each paycheck or keeping a piggy bank. The downside? Your money won’t gain any interest and it’s easier to lose in the event of a burglary or home invasion.
Many people see using completely electronically automated services as the key to a successful budget. Debit cards specifically designated for using on your bills can be convenient, particularly if they’re set up to pay automatically each month. Several people also report that using spreadsheets and graphs is helpful for developing their budget, seeing which expenses they can cut down on, and is much more flexible and less hassle than using traditional record-keeping. The downside? Forgetting to back up your files safely can cause them to be lost. Also, depending on what financial information you have stored electronically, hackers and identity thieves have a chance of making off with your hard-earned dollars.
All of us have probably seen our grandparents poring over old receipts and check stubs as they balanced their ledgers and got ready for a new year of financial planning. Although it takes considerably more effort than the previous ways mentioned, many people have found that the traditional way is still one of the best keys to a successful budget and your money maintenance. Ledgers and keeping constant records of your financial transactions can lead you to actively search for ways to save money, reveal your spending habits, and provide an accurate budget each and every month. The main downfall of using this tool for planning your budget is in the time spent having to double-check your figures and keeping an eye on unexpected or numerous expenses.
2. Realizing That Life Happens and Planning Ahead
Flexibility in your finances is one of the keys to a successful budget. Although you will always have fixed expenses, such as car payments, insurance, and rent, there are many variable expenses that can pop a hole in a budget very quickly. Put simply, life happens and so do problems. Whether you’re having unexpected car trouble, accidentally ruined your work clothes, or broke your leg and ended up in the emergency room, this is where expenses can really make or break budgets. Include a section into your budget each month as an emergency fund. Most experts agree that a minimum of $500 is a good cushion for emergencies although creating a financial nest egg equal to your expenses for six months is a smart and achievable goal. Even if nothing happens one month, resist the urge to ignore that part of your budget and add the money into your ‘rainy day’ fund. You’ll be glad you did.
3. Having Patience and Staying Motivated
Although this may seem odd to add as one of the keys to a successful budget, not having enough patience and getting discouraged with your finances is one of the main reasons that even carefully planned budgets can fail. Remember that a budget is a way to build wealth and ease your financial burdens over time, not overnight. If you owe money, this waiting game can be especially frustrating but the important thing to remember is that even if it’s just a little, you are slowly pulling yourself out of debt whereas by doing nothing you would only be sinking further into it.
So, if patience is the key to a successful budget, where does motivation come in? By keeping you excited about your budget! Track your project and celebrate with rewards for each milestone. Set short and long-term goals so that you have something to work towards or make your budget into a game where you can see how much you save each week.