What Makes for a Successful Budget?
Here are the 9 Things Your Budget Should Have
What makes a good budget? In all the budget bloopers and blunders I've seen, the same few problems keep rearing their ugly heads. To avoid them, here are the top nine most important features that every successful budget has.
1. Accurate Spending Categories
While budget worksheets can be a helpful resource to guide your budget, someone else's guide is meant to be just that, a guide. The spending categories or listed expenses may not completely fit your personal situation or spending habits, or you may have other financial obligations that aren't listed at all.
Be thorough and thoughtful when creating your budget. Try to account for everything you spend money on so that you have an accurate picture of your starting point. You can only get out of budgeting exercises what you put in.
2. Enough Spending Categories
Along the same lines as accuracy in your spending categories, you will want to be sure to have enough categories or details to make your budget meaningful to you. While you don't want to go overboard, sometimes breaking down expense categories further can give you a better picture of where your money goes and where you might be able to cut costs should you need to. For instance, many budget guides lump all of your utilities together, but you may want to keep your phone bill or data plan separate because you know that you could scale down if you needed to. Just make sure that you don't drown in the details.
3. Accurate Income Projections
Accuracy is a must with a budget, not only for estimating how much you will spend and tracking how much you actually spend, but also with your income.
Your budget will depend on accuracy is all areas, meaning you have to account for how much money you will actually have to spend, not just how much you make or think you will make. Don't forget to take out taxes and other deductions (like employer retirement plan contributions). If your income in not easy to project, always underestimate your income and overestimate your expenses.
You'd much rather find out that you're ahead than behind financially.
4. Inclusion of Non-Monthly Expenses
When creating a monthly budget, it's easy to get stuck in the monthly mindset, but don't forget to include those expenses that perhaps occur one a quarter, twice a year, or even once a year. Remember to account for non-monthly expenses like regular car maintenance or property taxes. To ensure that you account for those expenses, you can annualize the number and then divide by 12 to get a monthly figure. So even if you don't have to make a monthly payment, you're ensuring that you have the cash flow to cover the cost when it does arise.
5. A Line Item for Savings
Your budget should treat savings like an expense, not just as what happens with the "leftover" or surplus cash, if there is any. But treating savings like an expense, you ensure that you are contributing wherever it is most needed. You can have a line item for general savings or break it out into categories like "emergency fund" and "other savings."
6. Accurate Cash Expenditure Tracking
While you don't have to track every dollar you spend down to the penny (though we won't tell you that you shouldn't!), you should try to accurately account for cash spending.
Cash spending is the biggest leak in most budgets. Cash disappears quickly and if you don't write down everything you spend it on, you'll have a distorted look at your spending and where your money goes.
7. Realistic Written Goals
This one is a big one, and it's not a part of most personal budgets. While written financial goals aren't a required piece of a budget and aren't included on most budget worksheets, they are an extremely important piece financial planning, which is essentially what you are try to get a grasp on with your budget. Budgeting shouldn't just be about tracking your costs, it should be about setting financial goals. By setting realistic goals like saving for a downpayment on a house, buying a new car, getting out of debt, saving for retirement, putting your kids through college, or even having a travel budget, you can begin to find ways to save for those goals and track how close you are to meeting them.
Goals can be a great source of motivation for limiting your spending. Instead of looking at your budget and seeing no room for expensive lattes every day of the week, you can see the money being set aside for something bigger. In the end, without goals, your budget is just a pair of handcuffs, and nobody wants that.
8. Regular Review and Adjustment
While most of the previous features for a successful budget were things that should be included in the budget itself, there are also exercises and practices that go along with creating and maintaining a budget. One of those practices is regular review. Your budget is not a set-it-and-forget-it exercise. You should be reviewing your budget and actual spending monthly so that you can track your progress but also so that you can adjust it, if necessary. You're not likely to get your budget 100% right the first time around and, as always, life changes. Regular review of categories to determine if you need more or fewer, review of expenses, and brainstorming about ways to trim costs in each category is an important piece of good budgeting.
9. Positive Attitude
Last, but not least, all successful budgeters approach their budgets with a positive attitude. Budgeting can be a difficult and even a stressful exercise, but it is necessary for financial success. Be keeping positive and staying motivated, you will be well on your way to achieving your financial goals!