Budgeting is a word that can strike fear in the heart, but financial ruin because you never know where your money is going is much worse! Knowing how to create a successful budget is key to getting out of debt, creating a savings plan, and, of course, managing to stay out of debt long-term.
With increasingly more people struggling to make ends meet, you might find yourself wanting to learn how to create a budget that works for you! The key to a successful budget is being realistic and really dedicating yourself to sticking with it.A budget is a great way to get yourself on track and monitor your spending so that you can be smart about your money, rather than spending unwisely. These tips will help you create a successful budget and get yourself out of debt and closer to financial stability!
How To Create A Successful Budget
- Sit down and plan on paper
Whether it’s just you, or you have an entire family to plan for, it’s a good idea to sit down and really talk about where everybody is willing to make cuts. In order to plan a budget, you’ll all likely need to make some small sacrifices to free up finances in certain areas, so go in with an open mind and a willingness to contribute to the family fund.
- Print out your last few bank statements
Printing out your recent bank history is a good way to get a better understanding of your spending habits and where you need to cut down. If you’re eating out too much, it will definitely show in your bank statements. It can sometimes be a bit of a reality check, so don’t get too down about your previous spending habits. Keep in mind, mistakes are just lessons for us to learn from! It’s important to note that you’re doing this in order to plan a successful budget, and you ARE able to turn it around and spend wisely!
- Overestimate Expenses
When you go through your previous statements, look at your highest spending for each category. It's better to overestimate your expenses than to only budget x amount for a bill and have to borrow from another category to pay it.
- Underestimate Income
Unless you are salaried, you need to use the lowest income you could receive. I always go with the lowest paycheck we've received in the last 3 months when calculating our income. Much better to have extra money to allocate later than come up short!
- Use budgeting software
Personally, I'm a huge fan of YNAB (You Need a Budget) because I can use it from all my devices. No more trying to remember what my husband has left to spend when he calls to check (he does not keep track of his own money…much to my dismay) – I can just pull up YNAB and tell him what’s left. EveryDollar from Dave Ramsey is another one that comes highly recommended. I haven’t used it yet, but did use & love My Total Money Makeover from him. EveryDollar is free, while MTMM has a small monthly fee.
- Reward yourself
If you are the type of person who benefits from a reward system, absolutely set one up! For instance, if you stick to your budget for 3 months (a quarter of a year!), consider splurging on something you want – within reason or maybe have a nice dinner out. Sticking to your budget is important, but doing something nice for yourself can be important too – just remember to add it to the budget before hand!
- Pay yourself first
I used to hear this and wonder how anyone did it, then I learned the multiple bank account trick. We now have an emergency fund savings account that is connected to my checking account. In the event of an emergency, I can transfer over funds & take care of things. We also have sinking funds: one for the roof, one for the kitchen remodel, and one for my new car. I have automatic transfers set up that match my budget, so that money goes POOF! from my checking account on payday, before I have a chance to miss it. The best part is each of those sinking fund savings accounts earn a much higher interest than my local savings account and the money isn't easily accessible!
- Live below your means
I hear the “rule of thumb” that you need to be saving 10% of your income and your housing (rent/mortgage and utilities) should be 25-45% of your monthly income. The remaining 45-65% is for food, transportation, vacation, etc. That's NOT how we do it. Our housing is 12% of our income. Our total savings is 30%. Our vacation fund is 1% of our income, but our food budget is 17%! The remaining 40% is gas, entertainment, cell phone, internet, clothing, gifts, and charity. By spending less on our housing, we are able to put more into savings. We are better prepared for an emergency, are able to resist going into debt when we need something, and are able to do more for others. Right now, your situation may not allow for much savings, charity, or even the dream of a vacation, but try to keep those things in mind when changing jobs, buying/renting a new home, and purchasing a new car!
If you follow these tips, you'll have a budget that you can stick with without feeling like your family is missing out on the good things in life before you know it!
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