(Tiny Tips) – Successful Budget – A budget is one of the most important tools in your financial planning arsenal. Without a budget, you run the risk of overspending. It can be more difficult to achieve important financial goals, such as saving for an emergency fund or buying a home if you don’t have a budget to control your spending.
Mastering the art of budgeting starts with understanding the key components of a good budget. When creating a home budget, remember to include these nine features.
What Makes for a Successful Budget?
Accurate expense categories
While budgeting worksheets can be a helpful budgeting resource, they may not exactly fit your spending habits. When creating your budget, focus on spending categories that reflect how the funds will be used. Tracking your spending using a budgeting app is a great way to understand how much you spend each month.
Sufficient consumption categories
Not only does your budget need to have accurate spending categories, but it also needs to have the correct number of spending categories. While you don’t want to go overboard, breaking down broader spending categories into smaller pieces can give you a clearer picture of where your money is going. This can help understand your spending habits and also help identify areas where you can reduce your spending. Just be careful not to get lost in the details.
Accurate revenue forecasting
Expenses make up half of the budget; revenue is another matter. Accuracy is a must, not only in your spending but also in your income. You need to think about how much you have to spend, not just how much you make or think you deserve. Don’t forget to subtract taxes and other deductions (such as employer 401(k) contributions). If your income is inconsistent, you might consider creating a monthly budget based on an average of your monthly income.
Categories of non-routine expenses
It’s easy to get stuck in a monthly mindset when creating a budget, but don’t forget to include expenses that might only happen once a quarter, twice a year, or even once a year. For example, you might pay for your car insurance every six months, while your homeowners association contributions are annual. To make sure you account for these expenses correctly, annualize the number and divide by 12. Factor this amount into your monthly budget and put it into a separate account so you can account for these expenses as they come due.
Line items saved
It’s not a budget if it doesn’t include savings. Your budget should treat savings as expenses, not just “leftover” or excess cash (if you have any). By treating your savings as expenses, you can ensure that your money goes where it’s needed most. For example, you can set up line items for general savings and categories for emergency funds or home down payment savings.
Cash Purchase Tracking
You don’t have to track every dollar to every penny you spend. However, you should try to keep accurate records of your cash expenditures. Cash outlays are easily the biggest hole in most budgets. Cash disappears quickly, and if you don’t write down everything you spend, you’ll develop a distorted view of your spending and where your money is going.
Realistic Written Goals
This is a big deal and not included in most personal budgets. Although written financial goals are not a mandatory part of budgeting and are not included in most budgeting worksheets, they are an extremely important part of financial planning. By setting realistic goals such as: saving for a house, buying a new car, getting out of debt, saving for retirement, sending your kids to college, or even a travel budget, you can find ways to save for these goals and make the most of it. Maybe stalking them to achieve these goals is meeting her.
Goals can be a great source of motivation for keeping your spending in check, and they give meaning to every dollar that goes in and out of your bank account.
Review regularly
Most of the features of a successful budget should be contained within the budget itself. But there are also exercises and practices related to creating and maintaining a budget. One of these practices is periodic review.
Your budget is not a task that you can set and forget about. You should review your budget and actual spending at least monthly so you can track progress and make adjustments as needed. Life changes can increase or decrease your expenses and income, and reviewing your budget regularly ensures your hard-earned money doesn’t go to waste.
The right attitude
Last but not least, all successful budget makers approach budgeting with the right attitude. While you may think your budget is limited, it’s a way to take control of your money so you can tell your paycheck what to do, rather than the other way around. Budgeting can be difficult and even stressful. But it is necessary for financial success. If you adopt a positive attitude towards your budget and stay motivated, you will be well on your way to achieving financial security through your budget.