If you’re serious about becoming financially independent, you know that budgeting is one of the most important financial tools you can use. But did you know that budgeting isn’t just about tracking your spending and making sure that you have enough money to cover your bills each month?
Budgeting can actually help improve your financial situation overall if done correctly, which means it’s more than just simple checkbook math.
Here are 9 secrets to successful budgeting and why it matters to your overall financial wellness goals.
10 Secrets to a Successful Budget
1) Make a list and check it twice
Make a list of all your expenses for the month and divide them into fixed and variable costs. Fixed costs are things like rent, mortgage, utilities, auto insurance, etc.
These are the same amount each month and can be planned for in advance. Variable costs can include things like groceries, gas, eating out or other personal items that may vary from week to week or month to month.
Be as accurate as possible when estimating these amounts by considering past months’ expenditures as well as your current spending habits.
2) Know your income
Before you can create a budget, you have to know how much money is coming in. To do this, you’ll need to know your monthly gross income and your total annual income.
In addition, it’s important to know how much money goes out of your paycheck each month-whether it’s taxes or retirement contributions. By knowing these numbers, you can create an accurate budget that not only works for now but also for the future.
With this knowledge, you’re able to make better financial decisions by doing things like saving more money, setting aside funds for upcoming events (like a vacation), or managing your debt so that payments are more manageable.
At every stage of life, there are different financial challenges. For example, if you’re starting out as a new graduate entering the workforce, then one challenge might be living on less than $2 per day
If you’ve recently become unemployed then another challenge might be finding enough work to pay off debts, and finally when you retire then yet another challenge may be creating enough income from investments to cover your needs.
All these different challenges require specialized budgets designed with their specific circumstances in mind.
3) Set goals
Set goals for the week and month ahead. This way you can see what you need in order to achieve your goal. Find out where your money is going. Look at your bank statements, credit card bills and any other expenses that come up each month. Then find out what you can cut back on or how much more you need to make each month.
Break your monthly income into categories so that it’s easier to allocate how much money goes where. For example, if you’re making $2,000 per month, divide it by 12 and set up a monthly budget of $166 per category: groceries ($25), gas ($50), entertainment ($100), etc.
4) Save what you can but don’t stress about the rest
- You’re not going to spend every penny you have. It’s okay if you don’t, and it’s okay if you need help with this.
- If you can’t figure out how to save money, ask for advice from people who know about this sort of thing.
- Think about what your priorities are and make sure those things are getting funded. For example, food might be more important than clothing when it comes to budgeting.
5) Control spending with credit cards
One of the best ways to control your spending is by using credit cards. It may sound counterproductive, but it will actually help you save money and keep you on track with your budget.
Remember that people are more likely to spend more when they use cash than when they use a credit card. This is because people often feel like there is no cost associated with spending money, so they don’t think about how much they’re buying or how much it’s going to cost them in the long run.
A second way to control your spending is by never carrying more than one credit card at a time. This will help you limit your purchases and avoid overspending.
6) Get organized, in writing
Start with the big picture. You need to know what you want your budget and financial situation to look like in six months, three months, one month, and even one week. This will help you determine if you need an emergency fund or if you should invest in stocks or bonds.
Once you have the bigger picture, start filling in the details. For example, it’s important that your income covers all of your living expenses (rent/mortgage, food, utilities) before making any purchases.
Make sure that your budget is realistic for where you are right now and not just where you’d like to be at some point in the future.
Finally, once everything is set up on paper make sure it’s something that’s easy for you to stick with and enjoy using!
7) Break it down – set mini goals for saving
Starting the process of saving money can be difficult, but it is important to not get overwhelmed. One way you can do this is by setting mini-goals for savings.
For example, say you want to save $1,000 in the next six months. Instead of thinking about how much $1,000 is and how difficult it will be to save that amount, break down your goal into more manageable mini-goals.
If you make an average of $200 every month before taxes, set yourself up with a monthly goal of saving just $100 per month. That way when you look back at what you have saved by the end of the year it will be closer to your ultimate goal than if you had never started at all.
8) When things get tough, ask yourself what’s really important
One of the best ways to make sure you’re staying on top of your budget is by asking yourself what’s really important. If you find that there are certain things that are more important than others, then make sure you have enough money in your budget for those things.
For example, if you’ve been putting off going back to school because of finances, but it’s really important for your future career prospects, then getting into a manageable debt situation will be worth it in the long run.
The goal is not austerity; it is happiness. Everyone has different values and preferences when it comes to their lifestyle choices. As such, there isn’t one right answer when it comes to deciding how much money should go towards saving versus spending.
9) Reward Yourself! (a.k.a. the fun part)
It’s really important that you take the time to reward yourself for your hard work. You deserve it! Here are ten little things you can do for yourself:
- Get a pedicure or manicure.
- Have your hair done.
- Buy something special at the store, just because you deserve it!
- Take time out of your day and do something relaxing like reading or listening to music, taking a bubble bath, or curling up with a nice cup of coffee and watching TV (or Netflix!).
- Put on your favorite pajamas and relax in bed all day long with no interruptions
- Watch your favorite TV show, movie, or YouTube video
- Plan an outing with friends