Finance Globe

U.S. financial and economic topics from several finance writers.
3 minutes reading time (676 words)

Overcome Budget Frustrations

One of the best pieces of financial advice is to budget your money. Budgeting is the foundation of financial health and the key to accomplishing most, if not all, of your financial goals. Unfortunately, when you’re budgeting for the first time, things may not turn out the way you think they should. It may be the budget itself or the way you’re approaching it. Don’t give up. The problem can usually be fixed.

Confirm you've created your budget with realistic numbers. It's hard to have success with a budget that's overestimated your income or underestimated your expenses. Review your budget again, being sure you have the most accurate amount of income (all reliable income sources). Some expense categories are hard to estimate. With these it’s better to overestimate and spend less than to underestimate and end up spending more.

If you’re having trouble coming up with accurate estimates, base your budget on what you’ve spent in the past. Use bank statements, billing statements, and your online checking account information to see what you typically spend on certain expenses. Or, track your spending for a month or two, then add up the spending to figure out what to put in your budget categories.

Are you trying to stick to it? For a budget to be successful, you actually have to spend according to it. Refer to your budget throughout the month to check your budgeted amount before spending. Fixed monthly expenses are easier to stick to since these are always the same. But, the expenses that vary each month are more susceptible to overspending, especially those occur throughout the month rather than all at once. Groceries and eating out are good examples of this.

Throughout the month, keep track of how much you’ve spent in these categories and note what you have left to spend. Be disciplined enough to stop spending when you’ve reached the budgeted amount.

The envelope budgeting system is often effective if you find it difficult to successfully budget using your debit card and credit card. With the envelope system, you put the budgeted amount of cash in an envelope. Then, when the envelope is empty, you’re simply out of cash for that category. You can borrow between categories, but you can’t take more money from your checking or savings account if you run out. This system is effective because you see the physical cash you have left to spend and can manage it better.

Continue tracking your spending, at least until you get your budget under control. That way, you can easily identify the areas that you’re overspending. Then, once you pinpoint the troubled area(s), figure out what you can do to reduce your spending in that area. Be sure you aren’t categorizing expenses incorrectly. For example, if you purchase paper towels, tissue, or magazines on a grocery shopping trip, be sure not to list these as groceries.

Don't forget infrequent expenses. Some expenses, like taxes or tag renewals, only occur a few times a year or maybe even just once a year. Plan for these expenses so they don't sneak up on you. You may have to start putting money aside a few months ahead of these periodic expenses so they don't break your budget the month they're due. So when you're planning your budget, think ahead for the next few months to prepare for upcoming expenses.

Don’t treat your budget like a financial prison sentence. You’re still allowed to spend money, but you’re planning ahead so you have fewer surprises. It’s ok to spend money on entertainment and other leisure activities, but a budget will help you decide how much you’re going to spend in those areas and ensure that you can comfortably afford it. If you’re overspending in those areas, tracking your spending will indicate that.

If you’re new to budgeting, don’t give up the first month. Think about what could have gone wrong and take actions to fix it. Once you have your budget and spending under control, you won’t have to spend as much time analyzing your finances.
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Thursday, 14 November 2019

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