Making a budget isn’t just done for nothing. It is the core foundation of solid personal finance management. A person who knows how to budget (and commit to it) will most likely be on the right track to financial freedom.
Now, what makes a budget successful? What elements should be involved or more so, what shouldn’t be involved? Allow me to share with you the anatomy of a successful budget.
A successful budget follows the right spending categories
Budget categories such as food, transportation allowance, bills and so on are key elements which make a budget more effective. You should be able to name all the categories that apply to your monthly expenses. It’s either you create your own list or download free budget templates you can find online.
It is way better to narrow down your budget categories so you can have a clearer picture of where your money goes.
A successful budget involves accurate income
Make sure that you know exactly how much income you are getting because this is the money you’ll use to make budgets. Thus, studying your payslip can help for you to be able to track down how much you earn, and how much you can spend.
It’s tricky to keep track when you have multiple sources of income; I highly recommend for you to purchase a budget and spending tracker.
A successful budget also has savings fund
Remember the golden formula of financial success: Income – Savings = Expenses. Before you budget your money and put aside what you can spend, make sure that you have a set amount for your savings. I suggest applying with the online counterpart of your local bank so you can easily monitor how much money goes to your payroll ATM.
A successful budget has a spending tracker
It’s not enough that you allocate your money to different categories. If you want to be successful when it comes to budgeting, then you ought to follow where your money goes. And by following, I mean tracking day after day the items you bought and how much.
Once you know where your money is going, it will be easier for you to make quick and smart decisions. Budgeting doesn’t mean you’ll deprive yourself of all the fun, it just means you make priorities and make wiser decisions when it comes to how you spend your hard-earned cash.
A successful budget follows financial goals
I may have written this a hundred times but I am a firm believer that goals make everything possible. There’s got to be a vision involved if you want to be successful in your budgeting (or with anything).
How do we do this?
- Your goal is to buy a car by 2017. With this in mind, you’ll most likely generate steps to make this goal happen. (Write down your action steps instead of storing them in your mind so you won’t forget!)
- Make sure that your goals are realistic goals and can be done with your current income.
- Goals could also motivate you to save more. Since your financial goals will most likely involve big purchases in the long run (like a wedding fund or a house and lot), then it will be easier for you to limit your spending.
A successful budget is followed with joy
I know it sounds cheesy, but you can never become successful in budgeting if you don’t see the joy in doing it. It should never feel like a burden or a chore but rather, a part of your daily routine. Create a monthly, a weekly and a daily budget. The monthly budget can be digital, almost like a template you can visit anytime. The weekly budget and daily budget can be part of your spending tracker. The online community offers a lot of free templates you can use for efficient tracking!
A successful budget is reviewed often
Reviewing is as important as creating a budget. This is actually best done on a weekly basis. In the budget review, you must note which items worked for you and which items didn’t. You can also mark the products and/or services where you used most of your money. If you have tracked your spending, you can also note the items in your budget that you can limit so you’ll have more on your savings. Be very honest with your review. After doing this for a week, try to create goals for the following week to motivate you more.
How to create your first ever budget?
Creating a budget is way simpler nowadays. There are free online apps you can download and try. Here are four apps I found that work well. If you are more comfortable with writing your budget, then you just have to choose a notebook where you’ll write down things.
Make sure you already know the budget categories where you mostly spend your money with. Write them down by priorities (by deadlines, for the bills).
Don’t forget to include your income at the very top of the worksheet. Now you can allocate freely how much money will go for each category.
Why should you budget?
If you want to be intentional with your money, then you need to understand the reason why financial advisers, financial bloggers as well as financial enthusiasts encourage you to learn how to master the art of budgeting. The most important reason for budgeting is to take care of the money you’ve worked hard for. Don’t put to waste what you’ve put your time, heart and soul with.