Monday, 8 May 2017

6 Things to Do Before You Budget

By Miriam Caldwell
Updated July 12, 2016
One of the keys to successful budgeting is to understand why you are budgeting and to give your budget a real purpose. If you sit down before you begin your budget and make a list of the goals that you want to achieve and look at your financial picture you will be more successful at sticking to your budget. It also helps you shape your budget to match your financial goals. After you set up your budget you should analyze your budget to make sure it is will help you reach those goals.

1. Decide Why You Want to Budget

Start by deciding why you want to budget. It’s not enough to know that you should budget because it is the smart thing to do with your money. To be successful you need concrete reasons and new goals that you are working towards. When people first begin budgeting they often have debt to pay off or they want to purchase their first home. Knowing why you are making the sacrifices in spending makes it easier to be successful. It also helps you to continue to have focus after time has passed.

2. Rate the Importance of Your Budget Goals

It may be best to focus on one goal at a time. For example you can get out of debt much more quickly if you apply all of your extra money to one debt at time, because you can roll your payments into larger ones, and save on interest. The same principle applies to the majority of your financial goals, although you should focus on your retirement at the same time as your other goals.

For example, once you pay off your debt, you will have even more money available to put towards a down payment on your home. List your goals and decide which ones are the most important to you. Some of the goals may be of equal importance and you can work on them at the same time.

3. Set a Time Limit on Your Budget Goals

A time limit for your goal helps make the goal concrete. It also lets you divide the goal into specific measures and determine how much you need to put towards the goal each month to achieve it. This will help you when you begin budgeting, because you have a set amount that you need to find in your budget. Choosing an amount to find in your budget makes it easier to cut expenses and will help you work towards your goals more quickly.

4. List Your Fun Expenses in Order of Priority in Your Budget

In order for a budget to be successful, you need to have some activities that you enjoy. The trick is to prioritize what is the most important and to keep the fun expenses within reason. The best way to do this is by making a list of the things, in the order of the most important to you to the least important. For example the night out with your friends may take priority over a new pair of shoes each month or you may, choose your gym membership over a new video game each month. Make sure you aren't forgetting some budget categories, which can make the entire budgeting process stop working. You should work carefully to avoid budget busters so that your budget can work.

5. Brainstorm Areas You Can Cut Money in Your Budget

Before you sit down to write out your budget, come up with a list of areas you may be willing to cut. You can start by listing habits you may be willing to change like taking a lunch to work instead of eating out. Also you can come up with other little habits you can change, for example smoking costs a lot of money, and cutting back and eventually quitting can help your budget. Other areas may be your morning cup of coffee. Come up with a list of possibilities before you budget. It will help making cutting your expenses easier when you need to. This will help you implement a zero dollar budget where every dollar is given a job.

6. Identify Areas of Weakness in Your Budget and Brainstorm Solutions

Every person has an area of weakness when it comes to spending. You may hate cooking and eat out every night, or you may have a shopping addiction.

Some people may have difficulty with impulse purchases at the grocery store. The trick is to identify you weakness and brainstorm ways you can solve the problem. Changing your habits and coming up with a new routine may be enough. If you think you may need more help ask friends for support. You should also set up a category to cover irregular spending like the cost of attending a friend's wedding. You may also want to make sure that you balance your spending with your goals and lifestyle choices, the 50/20/30 method can help you do that.