Do you have a clear set of financial goals? Or are you the type to simply leave your finances to fate, and go with the flow when it comes to spending?
Naturally, those who belong to the first group gain better control of their finances. If you belong to the latter category, now is as good a time as any to change your ways and outline your financial goals. By doing so, you can enjoy a more comfortable, financially secure life without ever falling into the trap of being neck-deep in debt.
The Importance of Budgeting
Before counting down the most effective ways that you can stick to your budget, let’s learn about its basics first. What is a budget and how is it important? How can you create a budget? After creating a budget, how can you monitor it and stick to it?
Basically, a budget is a detailed summary of your income sources and likely expenses for a given period of time. If you’re the head of the household and you are living with a spouse and three kids, you can create a budget which lists down the itemized income and expenses for a whole month. If your spouse is also working, how much-combined income is coming into the house?
What are your monthly rental or mortgage expenses? How about utilities, groceries, the kids’ educational expenses, insurance premiums, household maintenance expenses, etc.? You can deduct the total expenses from the combined income – and you should be left with some extra amount that you can use for savings and putting money onto your retirement fund or the kids’ college fund.
Budgets can be created using old-fashioned pen and paper, or a spreadsheet application on a computer. This will help you prioritize your spending and manage your money – whether you’re living on a paycheck-to-paycheck basis, or if you have plenty of funds left for luxurious purchases or savings.
Another reason why it is important to come up with a personal or family budget is that it will help you determine which expenses are considered wasteful. If you see that you’re spending too much on clothes, for example, you can cut back on it in order to save money for the next month.
A budget also helps you adapt quickly as your financial situation changes. More importantly, it helps you achieve your long-term and short-term financial goals.
If you have unexpected expenses, you know where to get the money from. If you are itching for a vacation, looking at your budget will let you know whether you have funds for just a long drive or a flight to a beach destination somewhere exotic. The clearer your financial picture is, the better control you will gain over your life.
Top 10 Ways to Effectively Stick to Your Budget
Now that you already have an idea about the importance of budgeting, what are the specific ways for you to stick to it? Take a look at the following tips:
1. Know how to create a budget in the first place
Creating a budget involves the following steps: first, identify your long-term and short-term financial goals. Second, know where your money is going. Third, add up your sources of income. The fourth and fifth steps involve adding it all up and making adjustments as needed.
For the first step, it is important to specify what your financial goals are so that you can prioritize the items on your budget.
Let’s say that you are saving up for a down payment for a new car. You can create your budget in such a way that a bigger chunk will go towards saving up for the down payment, because that is your immediate financial need. Once you have enough saved up for the down payment, you can adjust the other items accordingly based on what your priorities are.
The second step is all about knowing where your money is going.
The mere fact that you are writing down a budget is already a step in the right direction. You can divide your expenses into fixed needs, variable needs and wants. Of course, you can always skip spending for the wants in order to have enough money for your more urgent financial needs.
The last few steps are adding up your sources of income and making adjustments as needed. By following these simple steps, you can create and follow a monthly budget that will allow you to monitor the ins and outs of your spending.
2. Learn how to monitor your budget
Budgets need to be tweaked constantly, especially if you are going through certain life changes. If you have a new job at a new location, you need to allot money for the moving expenses. But if the move involves a nice rise in your salary, then you can make adjustments with your spending habits as well. The key is to keep a log of your expenses, and not changing your spending habits without first adjusting your monthly budget.
3. Say yes to using cash
If you’re the impulsive buyer type, only withdraw a limited amount of cash from your bank account. It can be your spending allowance for one or two weeks. You’ll be surprised at how easily you can say no to a new dress or a pair of shoes if you’re committed to spending only the amount of cash that you have in your wallet.
4. Steer clear of bad habits and save money in the process
Nobody’s asking you to skip that after-work drink at the bar, but sipping your favorite brew during happy hour will save you a lot. You can also skip the fancy lattes from the coffee shop and brew your own at home before going to work. Smoking is yet another bad habit that you can try quitting. It’s not only your pocket that will thank you for it, but also your wallet!
5. Pay down your debts
Think twice about swiping that oh-so-convenient plastic card if you know that you cannot pay the bill in full. When you put down just the minimum amount on your card, you are still acquiring interest rates and late fees. If you have acquired more than one credit card debt, pay off as much as you can on the card which has the highest interest rate. This way, you won’t have to pay more in interest rates than you have to.
6. Pay your bills online, and on time
Another way to stick to your budget is to pay your bills online, and on time. There are banks which offer clients incentives when they pay their bills before the due date. Paying online also helps you steer clear of late fees from the companies who you owe money to for purchases, services, utilities, insurance premiums, etc.
7. Make adjustments with your budget as necessary
As mentioned earlier, it is a must for you to make adjustments with your budget as necessary. If you have a college-bound kid, you need to set aside funds for the dorm expenses, books and other school supplies. If you’re a married couple and one spouse loses his or her job, you would need to make certain adjustments with the overall household budget.
8. Keep your receipts
You are most likely to overspend and not stick to your budget if you do not have the receipts to show for what you have been spending on. By keeping your receipts, you can get a better grip of your expenses.
9. Balance your checkbook
If you have a checking account, there’s a big probability that you are spending a lot of money on overdraft charges. These charges can really hurt your bank account, and happen when there are insufficient funds in your account. To steer clear of overdraft charges, make sure that you are balancing your checkbook every time you are receiving a bank statement.
10. Force yourself to allot money on a savings account
Finally, it pays to force yourself to allot money on a savings account. It can be your rainy days savings, an emergency fund, funds for your kids’ college tuition or your retirement money. The best scenario is for you to contribute something towards all of these on a monthly basis – although it still depends on how tight your budget is.
You can force yourself to allot money for these savings accounts by considering the amount as a necessary expense. You can also set up an auto debit arrangement with your bank so that it will be easier to set aside funds for your kid’s college tuition or your retirement money. These two are particularly important and the earlier you start saving, the more money you will have in the long run.
As you can see, there are many ways that you can stick to your monthly budget. Budgeting is a very important aspect of managing your finances so that you can live within or below your means.
Living beyond your means equates to spending more money than what you can actually afford – so you will most likely end up in debt. If you’d like to gain full control of your money and have some funds saved up for the future, you can create a budget and try to stick to it as closely as possible.