People tend to talk about budgets as if they’re miraculous. You have a budget, and you stick to it, therefore it automatically follows (miracle of miracles) that you should have great savings.
Things don’t always work out that way. Having a poorly developed or unrealistic budget is realistically going to have little effect on your finances. So don’t invest the time and money into something slapped together- here are some tips to make your budget watertight,
Everyone should have a budget, but somehow they’ve become a little like our approach to keeping healthy. Instead of everyone eating healthily and exercising, people don’t eat carb for a week or exist solely on egg whites. Budgets, and financial wellbeing, follow the same track. People tend to ignore the slow and steady and instead budget to spend $5 a week. It’s never going to work. Understand that the best place to start a budget is in the fundamentals- you must spend less than you earn. That’s it, simple. If you can cut down your expenses to be less than your income, then you’ve made the most important first step.
Having a budget is a lot easier to live with if you know why you’re living with it. Sick of your boring job? Need some improvements on the house? Want to get 100% debt free? Whatever your long-term ambition may be, make sure your budget centres on it and how it can be achieved. That way, when faced with the temptation of takeaway or buying a DVD, you can remember why you’re budgeting in the first place.
Get It Down
I can’t emphasise this one enough- until you know what you spend, you’re unlikely to have a realistic budget. Where is your money going? Keep a daily diary of everything you have spent and earnt. Once you know, you can see areas where you can afford to cut back and make savings from without being unrealistic. Don’t go overboard; just make necessary, realistic cuts. If you find you still have room to move in that area a couple of months down the track, then trim it again.
The 5% That Counts
Being in it for the long-term means you can afford to do things properly. So, start with the 5% rule. Instead of refusing to ever go out or see a movie, cut down your entertainment expenses by 5%. Live with that for a while, see how it goes. Then cut it by another 5%.
Repeat the procedure, until you’re saving reasonable money but don’t feel as if you’ve entered purgatory prematurely. If you can find a comfortable balance, you’ll find it easier to live with it long-term.
The thing that’ll scuttle your budget pronto is if you have no emergency allowance. Sure, you can put money away in a term deposit and feel like you’ve achieved but then someone gets sick and you need to put all the medication on your credit card. Or you lose your job.
Then you end up right where you started- in financial difficulty, with increased debt. Don’t make life harder than it needs to be. Set aside some of your savings every week into an emergency fund. Your financial wellbeing will skyrocket.