When it comes to personal finance, people have varying opinions about how to manage your money. One thing pretty much all personal finance people can agree on, though, is that budgets are an absolute necessity. Thankfully budgeting is very flexible and everyone is free to manage their budgets differently, but there are a few key takeaways to becoming a successful budgeter.
Consistency
Without consistency, budgeting makes no sense. You need to make sure you are tracking and monitoring your budget for the same period or else the comparisons are useless. For example, if you decide sometimes to budget weekly then biweekly then monthly, you will never truly know if you are overbudget or underbudget. Choose a timeframe and stick to it. For me, monthly budget works best, with periodic checks on my bank accounts and credit card transactions to ensure there are no fraudulent transactions.
Find the Format That Works Best for You
Some people use applications like Mint, YNAB or Personal Capital. Some people use Microsoft Excel or Google Spreadsheets. Others prefer using a journal or physical piece of paper of some sort. Use whatever format you think you’ll find easiest in order to keep up with managing your budget. I personally like excel because I like to manipulate the data in there myself. However, if you are not comfortable with excel, you may be better off using an app that does most of the hard work for you.
Be Realistic and Update Accordingly
When setting your budget, be realistic about how much you truly think you spend on each category. A great way to do this is to download past credit card or debit card transactions and take the average over the last 6 months to a year for each category. If you know certain spending peaks just once a year for occasions or holidays, make sure you account for that in those months.
For example, the month of December is a higher spending month for my family because of Christmas gifts, so we make sure to change our budget to reflect that for December. We also increase gift spending for the month of May where we have multiple family birthdays.
Furthermore, if you set the budget for dining out at $100 a month and see that you consistently keep spending $200 a month on dining out, change the budget number to be $200 and try to stay around or less than that amount. Setting budget numbers that are way lower than your actual spending is actually more hurtful than helpful, as it can lead to overdrawing your account or not being able to cover your credit card bill.
Make an Effort to Be Underbudget
When it comes to personal finance budgeting, the goal is to be as underbudget as you can because it leaves you with excess cash to put towards savings. This is why it is important to set realistic budget numbers and then try your best to beat that number by spending less than you planned. However, if you do go overbudget in certain categories, do not let it discourage you. Try to be mindful when spending and if you know you will be overbudget in one category, see if you can make up for that deficit by spending less in other categories.
Budget for Savings
Many people assume budgeting only accounts for expenses, but it’s extremely important to budget for your savings, as well. As I mentioned above, coming underbudget allows you to put excess cash towards savings. This excess I am referring to is above and beyond what you should already be planning for. For example, if you are trying to save up for a house or a car or retirement or even just a larger bill you know you have due (i.e., property taxes if you don’t escrow), the cash needs to be budgeted out so you don’t accidentally spend that money. Ideally, beyond just budgeting for these savings, I also recommend setting up automatic withdrawals so the money isn’t even there to tempt you.
There you have it, my 5 tips for being a successful budgeter. What does a successful budgeter look like? To me, you’re successful if you make a true effort. Personal finance isn’t about perfection; it’s about progress.
