Many people prepare a budget, stick to it, but fail to achieve results. The continuous failure indicates just one thing - something is going wrong. It is time to review your budget and find those loop holes. The best way to do this is to look at the fundamentals. Always remember, if you have not taken care of the basic things properly, even a well-formed and well-planned budget may turn out to be a big disaster. Here is a brief rundown on how to put your budget on the right track.
Why You Are Setting Up A Budget?
Are you setting up a budget just because your friends and colleagues say it is a good idea? If that is the case, you are less likely to succeed in your efforts. Likewise, even following a personal finance workbook word-to-word may not help much because financial situations vary from one person to another. You just have to stick to the fundamental idea – spend lesser than what you earn. The idea is to find your spending weaknesses and get stronger in those areas.
Do You Have A Long-Term Goal In Mind?
In order to prepare a successful budget, it is very important for you to keep a concrete long-term goal in mind. The goal for you may be to achieve the ability to go for a career change, saving for a house, or paying off your debts. This goal is important because budgeting often requires you to make some difficult choices. You may have to cut down your entertainment expenses. You may have to start practicing frugality. These things can be very easy to accomplish when you know that these little uncomfortable choices will actually result in a major gain. Having a specific and tangible long-term goal will keep you motivated.
Have Accurate Data Of How Much You Earn And How Much You Spend
The amount of your annual salary is not the correct figure for your actual income. For example, if you are making $60000 a year, it does not mean you earn $5000 a month. In order to find the accurate figure, you should subtract the amount of income tax and other charges, such as health insurance and auto insurance. Once you do this, you actual income may fall down to $4000 or even less per month. You have to plan your budget considering this figure in mind. Likewise, you should also calculate your expenses in real numbers. You can do this by looking at your regular and irregular bills.
While you are adjusting the expenses in your budget, you should also make some room for the “unexpected surprises”. You can do this easily by stocking away a little amount every month in the emergency fund.
Last, but not the least, you should always remember, budgeting is like diet planning. If you have unrealistic goals to achieve, you will never be able to succeed. You definitely cannot reduce your entertainment expenses by 80%. Go slow while trimming down your expenses. Start with a 5% reduction and trim it a bit more after some time and some success. The idea is to make sure that your budget is not based on false assumptions.