Traits of a Successful Budget
Managing your finances is extremely important, especially in tight economic times. Because of money’s limited qualities, you must decide on where you are going to spend your money every month. A budget is what ensures that your choice will be an informed and planned decision.
Especially, if you find yourself in financial trouble, creating a budget can give you financial direction and allows you to spend your money in a controlled way. Simply put, by comparing your income and expenses, and trying to balance them, you are able to stabilize your finances by covering your expenses and saving money on a regular basis.
However, a budget is really helpful only if it reflects your real financial situation. If you don’t include all sources of income, fixed and variable expenses or any sort of cash expenditure every month, your budget is not accurate and realistic. Ultimately, it cannot serve as a tool to help you set a spending plan for your actual expenses.
Here are some key traits of a successful budget:
1) Income
Any source of income should be included in your budget. If you have multiple sources of income on a regular basis, make sure to include all of them in your budget because your income determines how much money you have available to spend. If you cannot meet your financial obligations every month, you will be probably forced to raise you income limits. If you are able to meet all of your liabilities, you are very likely to have an amount of money left to use it as you wish.
The typical categories of income included in a budget are salaries, hourly income, bonuses, commissions, savings income, investments income, and tax refunds. If you have a hobby that provides you with monthly income, you should include it in your budget. If you have received any money gifts, include them in your budget.
2) Expenses
Make sure to include all kinds of expense in your budget. By knowing exactly how much money you spend on fixed expenses including rent or mortgage, gas, utilities, and insurance you can adjust your variable expenses accordingly and spend less on groceries, auto maintenance, entertainment or personal care. Besides, make sure to include any sort of cash expenditure because cash spending is often a key reason of unsuccessful budgeting.
The typical categories of expenses included in a budget are:
- Housing including mortgage or rent; second mortgage or rent; utilities (phone; electricity; cable TV; gas; water & sewer) supplies; waste removal; maintenance/repairs; furniture, electronics, cleaning Products and other
- Transportation including car payments; car insurance; fuel expenses; maintenance/repairs; bus/taxi fares; licensing and other
- Insurance including home insurance; health insurance; life insurance and others
- Loans including home equity loans, personal loans; student loans; credit card expenses and other loans
- Savings / Investments including contributions to retirement account; investment account; college; and other
- Taxes including federal taxes; state taxes; local taxes and other
- Food including groceries; dining out and other food-related expenses
- Children including medical expenses; clothing; school tuition; school supplies; lunch money; child care; toys/games; and other.
- Pets including pet food expenses; medical expenses; grooming expenses; toys; and other.
- Personal Care including medical expenses related to personal care; hair/nails; clothing; dry cleaning; health club; and other.
- Entertainment including video/DVD; cds; movies; concerts; sporting events; live theater; and other.
- Travel / Vacations
- Professional/Legal Expenses including attorney expenses; alimony; payments on lien or judgment and other.
- Charities
- Gifts for others
3) Realistic
There is nothing wrong in setting your aspirations too high, but it is far too discouraging to failing meeting your goals because your income cannot accomplish them. Your budget should set realistic expectations. If you earn a moderate income, you should set moderate goals. Consider your budget as a guide to offer you financial control, not financial suffocation. By controlling your expenses and meeting smaller goals each month, you will be able to build upon those goals and set higher ones as the year progresses. In that way, not only you will be able to keep your finances within your budget, but you will also stay motivated to set new, slightly higher standards.
4) Accurate
If you earn ,435.25 annually from multiple sources of income you should accurately input the figures that sum up to this amount of money in your budget. Don’t round up or down and don’t exclude decimal points. When you sum up one or two numbers, decimals may not make a big difference. But, when summing up a lot of numbers, decimals can produce an entirely new figure, which will then be used in another arithmetic operation and produce a completely wrong figure. At the end of the day, the picture you will have for your financial situation will be incorrect. It is critical that your income and spending figures are accurate.
5) Flexible
Your budget is a plan on how you will most efficiently spend your money every month. It is not a plan to suffocate and deprive you from your basic needs and wants. Focus on your end goal and be prepared to make any necessary adjustments and revisions to ensure you stay focused on your end-goal. Be ready to change your budget and understand that it requires a great degree to flexibility to be successful. If you need to spend more money on groceries one month to save on gas, just do it. And do the opposite the next month. At the end of the year all you need is to meet your goal and when you do that it will be so irrelevant how you did it. Just remember you were flexible enough to achieve it.
6) Be motivated
If you see that your budget does not meet your end goal, do not abandon ship. Keep on trying. Stay positive. Be motivated. Consider your budget as a routine plan that you keep on following to the point it works perfectly. When it starts deviating from your end-goal, make the necessary adjustments and start over again. See it that way: if you stay motivated, you are more likely to compensate yourself and meet your financial goals; if you abandon effort to pay off your credit card, you know that your debt will accumulate even more. Which one would you choose? Motivate yourself and offer yourself a gift at the end of the tunnel. If you pay off your card, buy yourself something (little) you have always longed for. Keep the fire burning and the excitement to go on trying keeping your finances within your budget.
In conclusion, successful budgeting can help you keep control of your finances. If you set up a successful budget, you will be able to answer questions such as “How do I budget for unexpected expenses?” “What do I do when my income is cut?” “What do I do if I started a budget and still don’t have enough money to pay the bills?” and many others. By reviewing your budget periodically you can organize your actual expenses and set your future spending goals. A successful budget allows you to make long- and short-term projections about your financial situation and plan for major financial changes.
Written by Christina Pomoni
Financial Adviser – Freelancer Writer
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