Budgeting is one of the first steps towards achieving all your financial goals.
Authored by Nityanand Sharma
Budgeting is one of the first steps towards achieving all your financial goals. You may have tried your hand at budgeting and more often than not found yourself drifting from the plan. Honestly, you’re not the only one! The truth is while many of us acknowledge the importance of budgeting, we often fail to do it right.
A lot of people make budgets without taking their financial profile, lifestyle, habits, needs, and wants into consideration. The end result? They fail to stick by their budget and end up abandoning it and along with it their financial goals.
But the truth is, this concept isn’t as complicated or impossible to adhere to. With a little knowledge and forethought, you can come up with a budget that puts you on your path to a better financial future.
So, here are six tips to create a budget that you can actually stick to:
Make it realistic
Despite having the right intention, this is the part where most people go wrong. Wanting to be good with your money is one thing and setting unrealistic budgeting goals is another. For instance, you cannot save 80% of your paycheck when you need to pay rent, afford basic necessities, and cover emergencies.
In order to set an achievable goal, you need to take your income and expenses, both fixed and variable into account. While budgeting, set money aside for your needs first, leave some wiggle room for ad hoc spending but don’t forget your wants. While it’s never wise to live beyond your means, giving up all the fun is not a good idea either. With a stringent budget, you will end up resenting it and give it up sooner or later.
Take all your expenses into account
Doing guesswork when it comes to your expenses can set your budget up for failure. You need to have at least a tentative idea about where your money is going and how much you usually spend on different items.
Don’t forget to account for seemingly small expenses that add up over time. That’s why it’s best to track your expenses throughout the month, preferably daily. If you track your spending, you’ll know when you have reached your spending limit for certain things.
Set up an emergency fund
An emergency expense can derail a good budget, and consequently your financial plans. Once in a while, life throws a curveball that can cost a lot of money. While we can’t prevent such unforeseen events, an emergency fund certainly lessens the damage.
You can put a certain amount of money aside from each paycheck to build up the fund. Ideally, your emergency fund should cover 3 to 6 months of your living expenses. Once you draw from the fund to pay for an unexpected medical bill or repair, replenish it as soon as you can so you provisions for another rainy day.
Customize your budget to your needs
When it comes to budgeting, there is no one-size-fits-all approach. Different people have different lifestyles, income, expenses, and financial goals. So, you need to identify what those things are for you and customize your budget accordingly. Also, with time, your needs and wants will change. For instance, you may get a pay raise or move to a new city leading to additional expenses, etc. So, it’s important you review and tweak your budget to fit your changing lifestyle.
Set the right goals
People usually have more than one financial goal - upgrading homes, vacations and saving for retirement to name a few. However, they often lump all their money into a single “savings” account. If you do that, it’s difficult to see the progress toward achieving a certain goal and stay motivated.
It’s important to have a clear idea about what your plans are, how much they cost and then put money into multiple accounts dedicated to different goals. You are far more likely to succeed if you save or budget for specific goals.
Reward yourself for doing it right
We may not like each and every aspect of budgeting. Let’s say your budget requires you to forgo some of your wants to achieve long term goals, or tracking your spending every day may feel like a chore.
While some of these good habits aren’t enjoyable, they will be rewarded in future. But that doesn’t mean you refrain from enjoyment entirely. Establish a reward system that reinforces good habits and behaviours, making them easier to stick to. For instance, when you reach your monthly savings goal or pay off a debt, treat yourself.
With a sustainable budget and a little discipline on your part, it is entirely possible to not only stick to a budget but also benefit from it. So, customize your budget to your needs and goals and you’ll soon be fulfilling your goals.
Nityanand Sharma is Co-founder and CEO of Simpl. Views are personal
(Edited by : Anshul)
First Published: IST