A budget can be your first step to financial success, or it can be a rather depressing way to waste valuable time.
A budget, just like any other form of plan, requires action to succeed. The fact that you are reading this article tells me that you are already taking some form of action to improve your financial health.
While a budget alone will not get you out of the Mordor of debt, it is probably the most important step you will take on your quest for financial freedom.
Here are a few practical tips you can use to ensure you are off to a good start and to make sure you don’t fail before you even start:
1. List everything
When compiling your budget, make sure to list everything in as much detail as possible. You might have to take a few hours over a couple of days to make sure you gather all the information for your budget.
Your budget should include a list of your total income and all your expenses and debt. Make sure to include the interest rates for your various debt accounts, as well as the number of months left on all your accounts.
2. Be creative with the layout of your budget
Your budget does not have to be a one-colour spreadsheet filled only with numbers. This is your personal document and you will be staring at it a lot in the months to come.
Be creative with the layout and colours that you use to organise your expenses and debt. You can even add pictures of the items that you are saving for.
3. Prioritise and organise your budget
Once you know exactly how much you spend every month on various expenses and debt payments, organise your items into various groups.
You can arrange your debt from the smallest amount to the biggest, also known as the Snowball budget.
Your expenses can be divided into Necessary expenses (for example rent) and Discretionary expenses (for example a clothing allowance).
4. Be honest and realistic
Part of creating your budget is setting goals and strategies for how you plan on behaving in future. It is easy to get carried away with your new found motivation – and it is great to be optimistic, but you should also keep a sense of realism.
When deciding where you are going to cut, make sure you are honest with yourself. Buying a cup of coffee every day is not good for your budget, but can you realistically say that you will never do it again? Perhaps start with a smaller goal, like only buying a cup of coffee every Friday.
5. Make your budget easily accessible
When I first started using a budget, I often made the mistake of believing that creating a budget is a once-off activity that will somehow solve my financial problems while being tucked away in a folder on my computer.
Your budget is only going to help you change your habits if you look at it often. A budget is not only a reminder of what your current financial circumstances are, it also reminds you of what still needs to be done and how far you’ve come.
Print copies of your monthly budget and leave it where you can see it. You can also save a copy on your phone or tablet for easy and regular access.
6. Record expenses as they occur
When it comes to keeping track of your expenses, you need to find a way that works for you – as long as you can keep an instant record of your spending, even if you only add it to your budget at a later stage.
I still prefer the old-school way of keeping all my slips and capturing the information at the end of the week. You might prefer to save a voice recording, note or photo on your phone to keep track of what you spend, when and where. There are also various budgeting apps available to help you with this.
For more ways to budget, you can also read about the envelope budgeting system.