What do you really want? Maybe you’d like to build a $25,000 emergency account, go on a $5,000 vacation, or put $40,000 down on a new house. The key to sticking to a budget is to decide what you really want and set goals. You might enjoy your daily latte, but if you’re saving for vacation, you need to skip it! Set a realistic goal—buying a house in five years, going to Disneyland next year, getting a newer car in three years—and stick to it.
Once you’ve established your goal, you need to make a detailed plan and follow it. Work backwards. If your goal is to buy a house, talk to a loan officer to figure out exactly what you need to do to get to that point. If that means saving $200 a month over the course of the next year, then start there. If that means improving your credit score, start taking steps to do that, too.
Keep it simple. While you can easily create multitudes of budget categories, it’s not really necessary—especially if that level of detail will stress you out. Start with three categories—household, debt, and savings—and go from there. Your household category should include your monthly bills and expenditures. The debt category should include any ongoing debt (e.g., student loans, car payments, or mortgage). Your savings category should include your reserve funds. Once you’ve balanced your monthly expenditures and debt against your reserve savings, you can add in how much you can realistically save each month to reach your goal. Don’t worry about keeping track of it on your own—there are plenty of apps out there that can help. You can use a free tracker like this one from Mint.com to automate your budget.
Most importantly, be honest with yourself and your spouse. If you have a spouse or partner, it’s crucial that you’re both openly working toward the same financial goals. Be transparent about your income, expenditures, and recurring bills. Print out your bank statement for the past thirty days and highlight any purchases that involved fast food or impulse buys. More than you expected, right? Once you’ve identified the money you’ve literally thrown away in the past month, it’ll be easier to say “no” to those purchases in the future.
Evaluate your budget on a monthly basis and make adjustments where needed. If you’re having trouble saving in one category, see if you can make changes in another. There’s no right or wrong way to save!
Leave your budgeting tips in the comments. I’d love to hear them!