8 Tips for Improving or Starting a Budget
Budgeting is boring and takes precious time out of our busy schedules. But let me tell you something — having a solid budget works incredibly well for your finances. When done properly, budgeting can help you save, keep you motivated, and increase the chances that your finances are headed in the right direction so eventually, you have time to do what you want to do. And who wouldn't want that? If the whole budgeting process is just not cooperating, check out these eight pointers that will make your budget work for you. (See also: If Budgeting Isn't Fun, You're Doing It Wrong)
1. Be Realistic with Your Budget
Some people like to setup their dream budget instead of one for their current situation. Remember that a budget needs to be tracking what you are actually spending so you can make changes.
2. There's No "Fun" Fund
This again goes back to being realistic. Can you actually live without having fun for years and years? Allocate a portion of your monthly budget so you can spend it however you want. After all, the whole point of saving money is to use it.
3. Adjust It Regularly
In order to grow, you need to continuously improve on your system. This includes changing limits on your budget and adding/subtracting categories of expenses as you see fit to make life easier for yourself. You don't have to start off with the perfect budget, but the goal should be to always try to make it a little better.
4. You Need to Allow for Budget Busters
How would you handle the months when you have no choice but to go over the allotted limits you set on your expenses? You have to plan for that so it doesn't throw your finances upside down. You need to have an emergency fund set up, and another way is to actually have the exceeded amount "spill over" to future months, so you don't forget about it. For example, if you spent $500 over your budgeted amount on entertainment, the $500 would be added to the following month, which reminds you to spend less in the future to make up for it.
5. Focus on the Process Instead of the Tool
There is no perfect tool. There, I said it. The key is you — the data you put in, and your commitment to follow what you have set up. Some people use a plain spreadsheet while others buy software like Quicken. Do whatever works for you, but don't obsess over which way is best.
6. Keep It Simple
Unless you love tracking your budget and can spend hours every week on this task alone, please don't have too many categories, and try to simplify the process of logging your expenses. The simpler you can make your budget, the better! The key is to really think about your categories and whether separating them makes sense for you. Some people may consistently buy skin care products, so it makes sense for them to separate them into their own category so they can monitor how much they are spending on those products. Others may find that it makes little sense to have a category even for beauty products because they almost never spend anything in that area. Make it personal, but keep it simple!
7. Give the Budget a Chance and Some Time to Thrive
Very rarely do you see people executing their budgeting process to perfection right out of the gate, so those who expect everything to work out perfectly are setting themselves up for failure. As with anything, it takes constant monitoring to improve, and eventually, it will work well for you.
8. Make Progress
Whether it's lowering your spending or increasing your income, make progress! Having better finances will be the number one motivator to keep doing your budget. Always think how you can do things better, and you will be financially free in no time. Let me repeat — budgeting is boring, but it's an easy way to improve your finances. Here are seven more reasons why you need to start budget tracking.