Reach your financial goals
A Beginner's Guide to Budgeting Success
by Kim Randall
Why You Need a Spending Plan Instead of a Budget
Video: The Envelope Budgeting System in a Digital World
Do You Have a Relationship With Debt?
One of the primary keys to financial success is budgeting. A budget acts like a roadmap to your financial future. Without a good one, it may be very difficult for you to reach your desired destination.
Get the Facts
The best place to start with your budget is to assess where you currently are. If you have been saving your receipts or recording them using software such as Quicken, you are off to a good start. If not, don't worry. Just be diligent in recording all of your expenses for the next 90 days to give you a rough estimate of your spending habits.
Next, separate your expenses by category and calculate a monthly average for each. Add them up and compare the total to your average monthly income. Do you have a lot of breathing room or are you just scraping by? Chances are that even if you end up with a positive balance at the end of the month, you will find that some areas need to be trimmed down a bit.
One of the biggest pitfalls in working with a budget is being overwhelmed with all of the information. Budgeting is about making your money work for you, so you want this to be an enjoyable process (or at least not a highly stressful one!). Therefore, it is important to start by focusing on just a couple of key "problem" areas and fine-tuning your results from there.
Review your monthly expenses and see if any areas seem out of sync with the others. Is your dining expense twice that of your grocery bill? Could you take a mini-vacation for the cost of your telephone bill? These are the types of observations that will help you hone in on areas that need attention.
Also, keep in mind that your largest expense may not always be the best place to focus your efforts. For example, your mortgage is probably your largest monthly expense, but if you've got a competitive interest rate, there may not be much room to maneuver at this time. However, if you are spending close to that much in discretionary expenses such as entertainment, then you have a good idea of where to start. In budgeting, proportion is key.
One of the primary keys to continued budgeting success is accounting for your expenses. If you don't keep track, you may get off course and not realize it until it's too late. This is especially true for discretionary spending.
For example, my family's "problem area" is dining out. Going out to dinner is a big treat for us because we have busy work schedules and enjoy the opportunity to take a break without thinking about the chores that we need to do at home. Since this is an area that we need to keep a close eye on, we make sure our dining expenses are tracked on a daily basis.
We set a weekly budget and everyday we jot notes about what we've spent. In order to be sure that we don't forget, we keep the "worksheet" in a very visible location, on the kitchen counter. At the end of the week, I tally it up in Quicken. Receipts can pile up, but being forced to "fess up" on a daily basis keeps us truer to our goals.
Being creative in how you account for your discretionary expenses can be very helpful in keeping them under control. Try this or a different method for keeping the spotlight on your "problem areas."
Would you like to
pay off your credit cards
in less time
for less money?
The last, but not least, important point is to forgive yourself. Everyone goes over budget from time to time. Budgeting is not an exact science and there is room for error. However, if you find you are continuing to do so on a regular basis, it is time to reassess your goals and to take a look at the accuracy of your estimates.
Finally, be certain that you have set aside some money in your budget for fun and entertainment. Budgets are crafted based on where you want to end up in the future, but they also need to provide for enjoyment of the here and now!
Take the Next Step:
- Begin recording all of your expenses for the next 90 days for a rough estimate of your spending habits. It's important to know where your money is going.
- Start a high yield savings account with Discover Bank.
- Stop struggling to get ahead financially. Subscribe to our free weekly Surviving Tough Times newsletter aimed at helping you 'live better...for less'. Each issue features great ways to help you stretch your dollars and make the most of your resources. Subscribers get a copy of Are You Heading for Debt Trouble? A Simple Checklist And What You Can Do About It for FREE!
Share your thoughts about this article with the editor.
Debt from my past is preventing me from saving for my future! Tell us: Yes, debt is hindering my ability to save and I could use help dealing with it! or No, debt is not a problem but I am trying to get ahead financially!
More Money Tips & Tools
- Could you be losing thousands of dollars a little at a time?
- Is your financial behavior rational? Or not?
- Avoiding the 'same as cash' trap
- Saving-money secrets of the rich and frugal
- 5 low-risk ways to earn higher interest now
- How to save money fast
- 7 IRA withdrawals that don't trigger a penalty
- This week's Readers' Tips