Tough economic times call for tough personal finance measures. People that survive, andthrive, are those that can successfully navigate the big “B”. Budgeting. Families with babies and children and weekly grocery shopping trips need budgets. Independent single working professionals need budgets. CEO’s and CFO’s and company board members need budgets. Having a successful working budget might mean the difference between financial catastrophe or financial freedom. Do you have a hard time sticking to a budget? Most people do! If you can avoid these three budget killers, you’re on your way to establishing a successful framework for your finances.
1. Avoid budgeting without first setting goals
A lot of us klnow we need to be on a budget. It sounds responsible, right? So we announce we need a budget, we plan to cut back on expenses, we set some parameters…and then fail to keep them. Why? Because we didn’t set any goals. Setting goals is the “fun” part of putting together a budget. Sit down with a sheet of paper and dream of what you want to do. Will you renovate the kitchen? Put a down-payment on a new car? Or will you pay down some of that crippling debt? Would you like to take a cruise to Alaska? Put a child through college? Or pad your savings account balance for that inevitable “rainy day”? If you have something to look forward to, you are more likely to stick to your financial plan. For example, let’s say that you’ve decided to cut back on eating out each week so that your family can afford to go to Disney World. The next time you think of ordering a pizza to avoid making dinner, think about your goal. Which means more to you? Seeing the kids’ faces light up when you walk through the gates of the park? Or having pizza? Is it worth it to pull out the pans and look through the pantry if it means saving the extra $20 towards your goal?
2. Avoid being a mental record keeper
It’s important to track your progress as you budget. Once you’ve decided on your goal, work out how long you want to take to get there. Do you want to go on vacation next year? Or are you saving for a college education that’s still five years away? Whether your goal is short term or long term, determine how much money you need to set aside each month in order to get there. Then, be sure to keep track of whether or not you’re actually doing what you planned.
Example: You and your partner have really been wanting new living room furniture. You decide to save up for the next 18 months and pay for it all at once. You establish that the $3000 set you want will mean putting aside an extra $170 each month. By packing lunches, making dinner at home and putting off buying a new television you think you can make it work. Over the next two months you brown bag your lunch, and have dinner at home. You feel great! Surely you’re saving that $170! But you forgot about the trip to the spa, the three times you went to the movies and the unexpected car repair that came up. The point is this, you might FEEL like you’re saving money. But unless you sit down and keep track of where the money is actually going, you are likely to forget some expenditures and develop a inaccurate idea of your savings.
3. Avoid setting your expectations too high (at first)
Even if you avoid the first two no-nos, it is possible to defeat your budgeting goals if you set your expectations too high. If you set a goal, establish how much you need to save each month and think that you’re going to follow your plan exactly to the letter, every month, and never have unexpected setbacks…you’re likely to fail. It helps to figure in the occasional splurge and count on expenses popping up that you didn’t expect. Similarly, don’t set a goal that’s completely unreachable. If you know you can only realistically put back $80 each month, it isn’t a good idea to set your hopes on a three week trip to Europe in six months.
That said, grab a pencil, some paper, a calculator and have some fun. Allow yourself to dream a little, plan a little and start seeing some great results. Sacrificing in the short term is worth it if you’re working towards something big that you want in the long term. Avoid setting your budget without goals, avoid being the mental bank statement, avoid defeating yourself with unrealistic expectations…and start seeing your dreams become a reality!