Decide Why You Want to Budget
Before you start budgeting, decide why you want to budget. It’s not enough to know that you should budget because it’s the financially responsible thing to do. To be successful in your budgeting, you need clear reasons for why you’re budgeting and new financial goals you’re working towards achieving. When people start budgeting for the first time, they often have debt to pay off or want to make a big purchase like buying a car or their first home. Knowing the reason behind your spending sacrifices makes success easier. It also helps you stick to the budget and stay focused later on.
Evaluate the Importance of Your Financial Goals
When budgeting, it’s also important to rank your financial goals in order of importance. When budgeting, it may be easier to focus on one goal at a time, then work on achieving other goals in succession. For example, you may be able to pay off debt faster if you apply all extra money to one debt at a time, as you can consolidate your payments into larger payments and save on interest. The same principle applies to most of your financial goals. There is one exception: you should continue to focus on saving for retirement while working towards other goals. Make a list of your goals and decide which ones are most important to you. Some goals may hold equal importance, and you can work on them simultaneously.
Set a Time Frame for Your Financial Goals
Having a time frame for your goal helps make the goal clearer and gives you motivation. It also allows you to determine how much you need to save and allocate to your goal each month to achieve it by the deadline. This will help you when you start budgeting because you have a specific amount you need to find in your budget to allocate to that goal. Knowing the exact amount you need for that goal each month makes it easier to cut back on expenses in other areas of the budget because you know you’re working towards something.
Prioritize Your Fun Expenses in Your Budget
It’s important to have “fun money” in the budget, which means money set aside for activities you enjoy. The trick here is to prioritize your “fun money” expenses and keep those expenses within reasonable limits. The best way to do this is to make a list of things you enjoy and their costs, from most important to least important. For example, going out with friends in the evening may be a higher priority than buying a new pair of shoes every month, or you might choose your gym membership over a new video game. You should make sure not to overlook certain budget categories, which can derail the entire budgeting process. Work carefully to avoid things that derail the budget so you can achieve success in it.
Consider Areas Where You Can Cut Expenses in Your Budget
Before you sit down and write your budget, make a list of areas you might be willing to cut back on. You can start by identifying habits you might be willing to change, such as bringing lunch to work instead of eating out to save money. You can also think about other habits you can curb to save money, such as smoking or buying iced coffee every day on your way to work. These little cuts add up over time and can make a significant difference. Having a list of expenses you can trim when setting up your budget will make the process much easier, and it can help you implement a zero-based budget where every dollar is assigned a specific job.
Identify
Weaknesses in Your Budget and Thinking of Solutions
Everyone has a weakness when it comes to spending. You may hate cooking and eat out every night, or you might have a shopping addiction. Some may struggle with impulse buying at the supermarket. The trick here is to identify your weakness and think of ways you can solve the problem or avoid your trigger. Changing your habits and establishing a new routine may be enough. If you think you might need more help, ask friends for assistance or consult a professional for support. You should also set up a category to cover irregular spending, such as the cost of attending your friend’s wedding. You might also want to ensure that you balance your spending with your goals and lifestyle choices.
This article was updated by Rachel Morgan Cotter.
Source: https://www.thebalancemoney.com/things-to-do-before-budget-2385677
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