Budgets: friend or foe?

Are you in the height of your career or just getting started?  No matter where you are in life, creating and maintaining a budget is a must.  A budget will help keep spending under control, bolster your savings account, adequately plan for retirement, and keep debt at a manageable level. But, creating the budget is the easy party, maintaining that budget is the hard part.

We’ve all heard about the benefits of budgeting, but how do you create a budget that you’ll actually use? One of the keys is your mindset. Stop looking at a budget as a negative and look at it as the way to reach your financial goals.  By putting both long-range goals and short-term goals in your budget, it will help keep you engaged in the results today and tomorrow.

So how do you create a functioning budget – one that you will utilize in the coming months and years?

Here are a some tips:

• Personalize it. Don’t just accept the default categories that are typically offered in most budget templates. If you don’t spend a lot of money on vacations, but you like expensive dinners out, make sure that you include dining out as an expense category. If you find that you begin to take more vacations, you can always add that category down the road.
• Make sure to include one-offs and other incidental expenses. Most of us are aware of how much money we spend on clothing, on entertainment, or for our mortgage and utilities. But what about the things that can pop up and potentially derail any budget if they’re not accounted for properly? Things like an emergency trip to the vet for Sparky, a replacement vehicle after your car simply dies in the driveway, or even unexpected school expenses your child forgot to tell you about. These things happen and in order to account for them properly, they need to be included in any budget that you create. 
• Don’t inflate your income projections. When we’re budgeting our income, it needs to be the income that we know, or reasonably expect to earn. Not the commission you may earn, not the year-end bonus that you may or may not receive, not the income from the part time job that you intend to get, but as of yet, don’t have. Only include the income that you are currently earning.
• Make sure you track the “actual”. This more than anything can help you stick to your budget. Take the time at the end of the month to enter all of your actual expenses and compare them to your budgeted amount. If you’re under, congratulations! If not, take a look at where you fell short and see if you need to make an adjustment, or just scale back your spending a little bit more. 
• Include retirement savings in your budget. It’s so important to start planning your retirement early. While younger folks may be willing to put this off, don’t. The sooner you start to plan for retirement, the earlier you can retire (if you want), or simply have the lifestyle that you wish. Even if you’re on a tight budget, include retirement savings.
• Add a fun component.  Include something special you want to work towards – whether it’s a vacation, a new big-screen tv, or gift for a special someone.
• Make your budget fluid. Like everything in life, things change from year to year, and sometimes from day to day. Make sure that your budget reflects your situation today, not your income level and expenses from five years ago.
• Make it a habit to review your budget once a month, where you can make any changes, add to remove categories, or even adjust budgeted amounts. 

It’s time to stop looking at a budget as a negative and start using it to achieve your financial goals.   Celebrate the monthly victories when you stay within your budget. 

Next week we’ll outline some budgeting tools that are available.  Which one is right for you?