Budget is a popular word in the finance world. Love them or hate them, you’re going to hear about them for the rest of your life. Some people believe you must have a budget and stick to it, others believe that budgets aren’t necessary as long as you’re paying yourself first in your investing. Regardless of which side you fall on, it’s simply a fact that a budget allows you to have more control over your money. If you’re not tracking where your money is going, you can never be too sure that it’s going where you want it to.
Once you decide to budget, you may soon realize that it’s not as easy as it sounds. It’s common to struggle with budgeting, especially in the early days, but the good news is that everyone struggles with it. You’re not alone and it’s actually not as difficult as it may feel at first. The main thing is practice and repetition. You’ve got to stick with it even when it feels like you’re failing at it. Fortunately, I’m about to make your budget a lot easier by showing you how to easily stick with it.
First, let’s look at why you need a budget in the first place…
Why budget at all?
Before you figure out how to stick to your budget, you may be questioning whether you need a budget at all. So why is a budget important?
- Accountability – It’s easy to not “feel” like you’re overspending, but until you actually make it quantifiable by setting limits and tracking expenses, you will never really know. Most of the time, without a budget, you will be spending more than you think in every category.
- Maximize Your Income – You’ll get the most out of every penny and maximize your income when you budget. By reducing spending in certain areas, you can increase investing and saving. You may be surprised at how much money you’re wasting without a budget.
- Decrease Stress – A budget gives you the freedom to stop worrying about your finances. When you see it on paper (or electronically), you’ll know exactly how much is coming in and going out. If you have more going out than coming in, a budget can help you fix that.
- Eye Opening – A budget can be eye opening in many ways. Your bad habits and hefty spending will come to light. You may have never realized how much you spent on certain habits until you see it on paper. In return, you’ll be more likely to change your ways.
- Goal Setting – A budget helps you keep your eye on the prize. You should be setting financial goals and writing them down – a budget allows you to see your progress each month. It’s highly motivating to watch your retirement investments or savings grow.
1. You will make mistakes
Mistakes are inevitable. Whether you’ve been budgeting your whole life or if you just started, you will always make a mistake here and there. You may forget to track a purchase, overspend in a category or completely forget to add certain bills into your budget. And that’s okay. It happens.
A budget is an ongoing endeavor that you will always be tweaking and modifying. It’s never going to be perfect, but it will keep getting better. There’s no need to stress over a mistake here and there. Use it as a learning experience and move on with a better budget.
2. You must make constant corrections
If you don’t have a budget yet, start by tracking all your expenses for a few months, then set your categories once you have an idea of how you spend. If you do already have a budget, make sure you’re analyzing your budget each month.
Plenty of people overspend in certain categories for months before it occurs to them that they need to adjust their budget. Overspending one time is fine, but if it’s a constant occurrence, it may be time to make an adjustment.
3. You need to blow some money
Budgets aren’t restrictive, like many think; they are actually freeing if you do it right. Make a category for “blow money” (no, not that kind of blow). This is simply a category for buying the extra wants and impulse buys. Every month you should be allowing yourself and your spouse a certain amount of money to spend on anything you want. It will eliminate those extra buys that break your budget.
4. You will have unexpected expenses
No budget is perfect and just when you think it is, an unexpected expense will come up. It happens to everyone and while they can’t be avoided, the damage can be minimized. An emergency fund is a great weapon against unexpected expenses.
Personally, I would rather pull money out of my emergency fund if something comes up, rather than stopping one of my automatic investments. Every single month my wife and I pay off our credit cards (in full) and automatically invest in several accounts. If we need our emergency funds to make that happen, so be it.
5. You should make it easy
Automate as many accounts as you can. At minimum you should be able to automate your investments, utilities, insurance payments and credit card payments. Once you’ve automated as much as possible, budget the rest of the money. You don’t need to type in what you spent on rent if it’s the same every month – automate it and forget about it.
Don’t make budgeting harder than it needs to be. Sign up for a free account at Personal Capital and get a bird’s-eye-view of your finances. Personal Capital allows you to see all your transactions for all your accounts and credit cards, in one spot. This makes budgeting super easy.
If you love spreadsheets, use spreadsheets. If you use a budgeting app, such as Goodbudget, use that. Do what works for you and what you like, because if you don’t like it, you won’t stick with it.
Automate every bill you can and set your budget with the rest of your money. It’s easier to stick with budgeting a few categories rather than 50. You can always go into detail later if you prefer. One of the main reasons for failure is starting with too much detail, so start with what’s easy and expand when you’re ready.
What are some more tricks for sticking with your budget? How much of your budget is automated?