I thought an article on “how to make a budget” would be appropriate since it is still the beginning of the year. There are 3 types of people when incomes to making a budget. Those who:
- Made a budget and manage to keep or even beat the budget
- Made a budget but went way off budget
- Never bothered with a budget
If you are in category number one, then it means you know what you are doing. Just stick to it. If you are in category 3, either you have so much money to bother with a budget and have an accountant worry about the nitty gritty stuff like money, or it could be you just never thought a budget can help you towards meeting your financial goals. Somehow you can manage to live within or below your means.
If you are in category 2 and wondered why your budget failed, perhaps this article might point you in the right direction. Besides emergencies that throw a spanner in your money management, there are 2 main reasons your budget failed. And by emergencies, I really define emergencies like someone at home got seriously sick, or something major broke down. Either you were over optimistic how much you can cut down or you gave in to temptation.
Most people make a budget without first tracking their actual spending first. They have no idea what is the current spending on different items, so they just decide and put a figure down arbitrarily. For example, say you decide to spend $300 for dining out expenditure. But before the month is out, the $300 is gone and suddenly a friend from out of town pops by that they haven’t met for a while. You decide it is okay to bust the budget since it is a special occasion. By then, your budget goes haywire.
If on the other hand, you had tracked your actual spending before making a budget, then you are able to identify where money is leaking out. What you want to do is to identify where you are spending money unnecessarily and adjust so that you do spend money of things that matter to you. Another words, your priorities.
The objective is to figure out how much money you need to live the lifestyle you want, not the lifestyle of someone else. Your budget must be comfortable to you. For example, if a $5 Starbucks Latte is a must to you, I know some might gasp here, but if it is necessary for you, then put it in your budget. The key is to determine what is important and what is not. Once you know that, then you can make a budget that works for you. Off course, you’ll need to stick to it and things that you have decided to cut back will be things of lesser importance.
The goal of making a comfortable budget is that you must be happy with it. I’m assuming you are not in dire straits now and need to pay off a mountain of debts here, but even if you are, you still need a budget that you can live on. A shoe string is no fun. By the way, happiness does not equate to more stuff. The next step once you have made a budget that works to figure out what you must do to earn the money to live the lifestyle you decided.
source: How To Make A Budget That Works