Having a budget isn’t very much fun, but it is important. It can ensure you don’t overdraw your account at the end of every month. Unfortunately, because it’s hard, people don’t always stick to it, which means they end up spending way more than they should.
If you want to make a budget work, you have to arm yourself with the right tools and mindset. Here are five tips that will help you make your new budget work so you can meet all of your financial goals.
Choose the Right Financial Institutions and Money Services
If you want to make a budget work, you have to make sure your financial institutions aren’t sabotaging your every move. That means finding a bank with low fees.
Some accounts have checking account and other fees that can really add up by the end of the year. Those fees can make it difficult to stick to your budget. Find a bank that has low or no fees so you aren’t paying money above and beyond your budget.
If you regularly send money to other people, make sure you choose a money service that has low fees as well. For example, if you send money to family and friends in Mexico, look for a money transfer service that reduces or eliminates fees for large transactions and offers a good exchange rate.
Track Your Actual Spending
When most people start creating a budget, they have ideas about how much they should be spending on what. Often, what they are actually spending and what they think they are spending doesn’t match. All those shopping trips can really add up!
Before you start your budget, or if you notice your current budget isn’t quite working, you should track your actual spending. That means keeping track of bills, but it also means logging spending like:
- Subscription services, such as magazines, TV, and music
- Coffee, candy, and other spur-of-the-moment treats
- ATM fees
- Eating out
Know Your Take-Home Pay
What you make at work is misleading. Just because your job is going to pay you $40,000 a year, for example, doesn’t mean you’ll actually see that amount. If you don’t know this important fact, you’ll doom your budget from the very start.
When creating a budget, you have to use your take-home pay instead of your gross annual income. That simply means the actual money that ends up in your bank account each month.
You do this by taking a close look at your pay stubs. They include the subtraction of taxes, benefits, and other contributions that are automatically removed from your check before it even lands in your hands. This is the amount you should use to budget because it’s the actual money you get to spend.
Have a Budgeting Goal in Mind
Sticking to a budget isn’t easy, and it’s not fun. If you don’t have a reason to keep doing it, you won’t maintain your budget for very long.
That’s why having a goal is so important. It can encourage you to keep skipping the Starbucks drive-thru every morning so you don’t end up spending more than you make.
What kind of goal should you have for your finances? A few ideas include saving money for:
- A home
- A home remodel
- A big-ticket item, like a boat
- Your dream vacation
- Your child’s college education
- An early retirement
If you choose a goal you feel excited about, you’ll be much more likely to stick to your budget because you won’t feel like you’re going without. Instead, you’ll feel like you’re one step closer to getting what you really want out of life.
Adjust Your Budget When Necessary
After you get your first budget all worked out, you’ll probably feel accomplished, and you should! However, just because you’ve checked this chore off your to-do list doesn’t mean you won’t have to revisit your budget ever again.
It is extremely important for you to adjust your budget if your income drops, but that isn’t the only reason to revisit your finances. If you get a new job that pays you more, if you have a baby, and supporting an aging loved one are all reasons why you should go back and change your budget. In addition, you should always add new recurring expenses to your budget.
Your budget is a living, breathing document that you have to pay attention to every day. If you want to meet your financial goals, follow these tips and you can increase your chances of making your new budget work.