It’s one thing to tell yourself that you need to start budgeting, and another thing entirely to put that decision into action.
While most people know how difficult budgeting can be, they still struggle to handle their finances accordingly. More often than not, we sit down and look at our bills, panic and then decide that we’re simply doing the best we can with what we have.
The truth is that almost anyone can improve their spending habits with a little bit of care and attention. Even if you think you’re getting the most out of your money now, you could benefit from going back to the basics, and getting to the bottom of your spending problems.
Before you Begin your Budget
Before you even start creating a budget, the first thing you need to do to set yourself up for success is get into the right mindset. One of the biggest reasons that people fail when it comes to budgeting is that they tell themselves right from the start that it isn’t going to work.
If you don’t believe in your ability to save money, then you’re not going to see the best results – no matter what you do. Decide from day one what you want your budget to do for you and think about how you can make your goals a reality. This might mean setting a plan in place with milestones you can achieve along the way. For instance, if you want to have £5,000 for a house deposit in the next two years, then you’ll need to save £2,500 a year.
To start your goals on the right foot:
• List things you want to achieve in one year, five years, and ten years.
• Decide on one thing you can accomplish in the next month (like quitting your credit cards)
• Implement regular changes that will help you achieve your long-term ambitions.
Setting Up your Budget
Now that you’ve got your goals in mind and the right attitude about budgeting to push you forward, you can start to set up the best possible spending habits. The guidelines that you set in place above will help you to figure out the specifics of what you need to sacrifice, and what you can continue spending to make your budget work.
Remember, to set up your budget; you’ll need as much information as possible, this means gathering:
• Information about your income from wage slips
• Regular monthly bills and expenses
• Irregular expenses like haircuts, and clothes
• Extra costs for entertainment and “wants.”
Try to be as accurate as possible with this initial planning stage. This should help you to make a more sustainable budgeting plan.
Tracking your Budget
Once you know what your current spending habits are, and where you need to make changes, it’s time to start tracking your budget. This can be one of the most difficult parts of budgeting, but it’s also one of the most crucial when it comes to making lasting changes to your financial health.
The key to successful budgeting is keeping track of everything you spend – even if the fees only seem very small. For instance, although a regular cup of coffee might not seem like a big deal at first, it quickly adds up to as much as £20 at the end of the week. Take time to review your spending at the end of each day and keep track of how your habits are affecting your goals.
If it helps, you can download apps for your smartphone that do the majority of your tracking for you.
Evaluating and Adjusting your Budget
After a month, it’s time to sit down and evaluate your budget to make sure that it’s working. Unfortunately, this isn’t something that you can simply do once. You’ll need to consistently go back and review your budget to make sure that you’re adjusting your strategy to suit any changes in your spending habits.
The more you go back and look at your spending activity, the easier it will be for you to pick up on weaknesses that you might need to work on. For instance, you might discover that you’re good at saving money on eating out, but you’re less disciplined when it comes to spending on clothing. When you find out where your trigger areas are, you can begin to use more caution in these space.
After the first month, review your budget every three months, as well as whenever there’s a major change in your lifestyle.