Steps To Making Budgets Work Effectively
When a budget, used correctly and effectively, can be one of the most meaningful, relevant documents and components of financial planning. With that in mind, here are key steps that will help in making a budget work far more effectively.
1. Analyze Needs: Relevant budgeting must begin with a willingness and ability to consider and analyze the needs, goals, priorities, strengths and weaknesses of your finances.
2. Ananlyze Previous Expenditures: The knowledge of what and how monies were expended in the past helps to understand where your priorities lie. Some of the most popular methods include the good ole’ fashion pen and paper, keeping a spreadsheet, using your check register or downloading an app.
3. Zero-based: This type of budgeting forces you to give every dollar a job. You decide how much you want to save for a given goal and assign how many dollars you want to save towards that goal. You do that with every category until you have no more dollars left to budget. Budgeting this way, keeps you from over-spending.
4. Revenue Options: A budget must look at both expenses as well as income. Consider various revenue options which might enhance your fiscal picture. Especially if you are wanting to save for an upcoming event. Utilizing all your options to add more income to your budget can be so beneficial to reach your short-term and long-term goals quicker.
5. A Living Document: A budget must be regarded as, a living, working, guiding document which directs one’s income and expenses. It is continually being adjusted with the ebb and flow of a person’s financial priorities.
Will you let the budget be your friend or will you continue to avoid tracking your spending to only run out of money before the end of each month and possibly to continue adding to ones debt. Only when you do the former, will you become successful at your financial goals.
Best Budgeting Ideas to Eliminate Debt
To eliminate your debt, you have to have a plan. You must create a BUDGET and use it. Here is a list of my best budgeting tips to help you succeed.
– Choose a Budget Method
Choose the budget format that fits for you. Just because all your friends are using Excel means that you need to use it too. If you are unfamiliar with spreadsheets, use your trusty pen and paper. Nowadays, there are many online budgeting tools such as Mint, Every Dollar or You Need a Budget. Find something that is comfortable and easy to use. You do not want to struggle with a learning curve when you are getting started. This will only frustrate you.
– Account for All Income
Account for all of your family’s income. Leave nothing behind including bonuses, overtime, child support, side hustles or any other money that can be considered income. However, make sure it is net income (after taxes) and not Gross Income (before taxes) that comes into your budget. Using Gross Income gives you a false sense of total income coming into your account.
– Account for all Spending
Be sure to take into account all your purchases or expenses. Every last dollar you spend must be allocated within your budget. Payment of mortgages, rent, electricity, cars, credit cards, insurance, babysitting, medical care, trash, water, car maintenance, and any other monthly expenses. Similarly, if you make a one-time purchase, you need to understand where it is in the budget. Example, if you buy a hammer at a hardware store, it is best to have a line item in your monthly budget that counts for that purchase such as Household Purchases.
– Budgeting for Debt
A portion of your income should be set aside for repaying debt. All your credit cards, auto loans, school loans, money that you borrowed from family and friends and lines of credit should go to this category. Your mortgage or rent can be included here if you wish, but I would suggest that you put that in a category of it’s own so that you can track the percentage you spend on housing costs.
– Budgeting for Sinking Funds
You should always have a “Sinking Funds” category. Sinking funds are for expenses that you know are coming up. You want to incorporate a savings plan for the future into your budget for holidays, birthdays, vacations, or your next car, etc. If you know an expense is coming up, this is where you prepare for it. Example, we all know Christmas comes every year like clock work. Saving a portion of your income every month for this category will set you up with enough money in November to purchase gifts with cash instead of being tempted to charge your gifts or deplete your savings.
– Lastly, Use it!
Get in the habit of using your budget daily or weekly. It needs to be adjusted, edited, studied, modified, adapted and reviewed monthly. At first, you can even refer to it weekly and sometimes daily depending on the incoming and outgoing expenses of your household. It takes the average person 3 months to get use to a budget and to refine it according to your needs.
While budgeting can see overwhelming, it’s a game-changer when it comes to the success of your financial picture. It causes you to be more intentional with your hard-earned money. It helps to create wealth, stay out of debt, and plan for the future. If you’re not sure where to start, partner with a Financial Coach. They can help you analyze where you are financially and give you some tools to get financially organized once and for all.