5 Simple Tips for Creating A Budget That Works

Budgeting is a critical part of personal finance that’ll help you achieve your long term money goals.

But, many people struggle to create and stick to a budget, which can derail their financial plans.

So, from someone who’s helped hundreds of people optimise their spending…

Here are five tips for effective budgeting:

Always Start With Your Objective

Before you begin, it’s important to have a clear understanding of your financial goal.

• Are you looking to remove debt?

• Do you want to start investing?

• Retire early?

Once you’ve identified your goal(s), you can create a budget that will help you achieve them.

Make your goals:

• Specific

• Measurable

• Achievable

• Relevant

• Time-bound

Instead of saying “I want to save money,” say “I want to save $10,000 for a down payment on a house in the next two years.”

Track Your Spending Accurately

The next step is to track your spending.

You can do this using a spreadsheet, or by using a budgeting app like Mint or YNAB.

The goal is to identify where your money is going each month, so you can stay on track.

When tracking your spending, it’s important to be honest with yourself.

Don’t leave out any expenses, no matter how small.

The more accurate your tracking is, the better you’ll be able to create a realistic budget.

Categorise Your Expenses

Categorise your expenses into these three:

• Needs

• Wants

• Savings/Investments

Categorising your expenses will help you identify areas where you can cut back, if you’re short of your goal.

Chances are, you’re more likely to be able to cut back on your “wants”, as these aren’t essential goods.

Some expenses may fall into both categories.

For example, we all need a mobile phone, and we all need clothing, but spending on these things can be excessive.

Be Realistic

Make sure your budget is realistic and achievable so you can stick to it.

There isn’t a lot of point creating a budget if your numbers are inaccurate.

Or, not representative of your current earnings or expenditure.

Honesty is the most important trait you can have here.

If a budget is unrealistic, or inaccurate, it won’t work in the way that you’re going to want it to.

You need a budget that’s going to work for the long run.

Not for a week or two.

Review and Adjust Regularly

Your budget isn’t set in stone, and things change often in life.

Review your budget regularly.

This is to make sure you’re staying on track and making progress towards your goals.

If you find that you’re overspending in a certain category, adjust to better reflect your habits.

It’s also important to celebrate your wins, so don’t be afraid to indulge every now and then.

If you’re able to stick to your budget for a month or hit a savings goal, acknowledge your hard work and reward yourself.

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