A classic piece of advice for people who want to manage their money and improve their financial situation is to create a budget. While this is generally good advice, budgets in a traditional sense might not be necessary for everyone.
For example, people who are already managing their money successfully may not need a written budget. They may just pull their savings off the top and live on the rest.
However, if you’re new to managing your finances and you’re not sure where your income is going, creating a written budget can help. Tracking your spending will give you more insight into exactly how you’re spending your money.
Finding out where your money is going can be an eye-opening experience. You may realize you’re spending a lot more on restaurants, clothes, or groceries than you originally thought. Mental accounting doesn’t always work.
Need a few tips on how to get started budgeting? Here are a few recommendations to set yourself up for success:
1. Keep It Simple
It’s easy to become enthusiastic about tracking every minor detail in your budget. You might feel like you need to create 20 different expense categories for accuracy. It’s important not to complicate things. You might find your enthusiasm waning by the second or third week when you’re going through all your transactions.
Instead, keep your budget simple by restricting the number of categories within it. Ten expenses are ideal.
For example, you can lump health and fitness together in the same category. This can include expenses such as doctor’s appointments, co-pays, medications, and your gym membership.
If you do a lot of shopping, you can lump all your retail purchases together, regardless of what function they serve. This can include items like clothing and makeup, and basic toiletries like paper towels, toothpaste, and shampoo.
2. Stay Realistic
Many people become overly enthusiastic about budgeting in the beginning and create unrealistic guidelines for themselves.
For example, they may decide they’re only going to spend one day’s wages on their monthly electricity and gas bill. Unfortunately, this could lead to many cold nights spent shivering in bed because they don’t want to turn up the heat.
It’s okay to relax a little bit. The key is to create a budget that realistically reflects how you’ve been spending in the past that’s also sustainable for the future.
You don’t want to go on the financial equivalent of a juice fast or a cleanse. That won’t help you develop good long-term sustainable spending habits. Instead, focus on making small changes in your spending that you can maintain over the long haul.
3. Include Occasional Expenses
A lot of people create budgets around the expenses they have on a weekly or monthly basis. They make the mistake of forgetting about one-time costs. These can be anything from traveling for holidays, to buying presents, to insurance premiums. Don’t forget these long-term costs when you’re creating your next budget. Planning ahead helps.
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