One of the keys to successful budgeting is giving your budget a real purpose. If you sit down before you begin your budget to make a list of your financial priorities and goals, you will likely be more successful in sticking to your budget.
Keeping your financial priorities in mind also helps you shape your budget to match your financial goals. Another tip? After you set up your budget you should analyze your budget to make sure it is will help you reach those goals.
Decide Why You Want to Budget
Start by deciding why you want to budget. It’s not enough to know that you should budget because it is the financially responsible thing to do. To be successful with your budget, you need concrete reasons as to why you are setting a budget, and new financial goals that you are working towards.
When people first begin budgeting, they often have debt to pay off or they want to make a large purchase, like buying a car or purchasing their first home.
Knowing why you are making the sacrifices in spending makes it easier to be successful. It also helps you to stick to your budget and stay focused later down the line.
Rate the Importance of Your Budget Goals
When setting a budget, it’s also important to rank your financial goals in order of importance. When budgeting, it may be easier to focus on one goal at a time, then working your way down the list.
For example, you can get out of debt much more quickly if you apply all of your extra money to one debt at a time, because you can roll your payments into larger ones, and save on interest. The same principle applies to the majority of your financial goals. There is one exception: You should continually focus on saving for retirement as you work toward other goals.
Make a list of your goals and decide which ones are the most important to you. Some of the goals may be of equal importance and you can work on them at the same time.
Set a Time Limit on Your Budget Goals
A time limit for your goal helps make the goal more concrete and gives you motivation. It also lets you determine how much you need to save and put toward your goal each month in order to achieve it by your deadline.
This will help you when you begin budgeting because you have a set amount that you need to find in your budget to allocate to this goal. Knowing the exact amount you need for this goal each month makes it easier to cut expenses elsewhere in your budget because you know you are working toward something.
List Your Fun Expenses in Order of Priority in Your Budget
In order for a budget to be successful, it’s important to have ”fun money,” in other words, money earmarked for activities that you enjoy.
The trick is to prioritize your “fun money” expenses and keep these expenses within reason. The best way to do this is by making a list of the things you enjoy and their costs, in the order of the most important to you to the least important. For example, the night out with your friends may take priority over a new pair of shoes each month or you may choose your gym membership over a new video game.
Worth noting: Make sure you aren't forgetting some budget categories, which can derail the entire budgeting process. Work carefully to avoid budget busters so your budget can be successful.
Brainstorm Areas You Can Cut Money in Your Budget
Before you sit down and write out your budget, come up with a list of areas you may be willing to cut.
You can start by listing habits you may be willing to change, like taking a lunch to work instead of eating out to save money. Also, think of other habits you can cut to save money, such as smoking or getting an iced coffee every day on the way to work. These small cuts add up over time and can make a big difference.
Having a list of expenses you can cut on standby when creating your budget will make the process that much easier, and can help you implement a zero dollar budget where every dollar is given a job.
Identify Areas of Weakness in Your Budget and Brainstorm Solutions
Everyone has a weakness when it comes to spending. You may hate cooking and eat out every night, or you may have a shopping addiction. Others may have difficulty with impulse purchases at the grocery store.
The trick is to identify your weakness and brainstorm ways you can solve the problem or avoid your trigger. Changing your habits and coming up with a new routine may be enough.
If you think you may need more help, ask friends or see a professional for support. You should also set up a category to cover irregular spending like the cost of attending a friend's wedding. You may also want to make sure that you balance your spending with your goals and lifestyle choices.
Updated by Rachel Morgan Cautero.