Three Steps to Start Budgeting Effectively

When people start to get their finances in order, the first thing that they usually do is to implement a budget. They chart out their income and expenses and set some savings goals. Then they either ignore it completely or they stick with it for a one month, see that they exceeded their budgets, and then ignore it. A couple of months go by and the cycle starts again. Instead of falling into these cycles, here are three steps to start budgeting effectively.

1. Identify a budget that works.

The first thing to do when putting together a budget is to review your prior spending activity. This allows you to see how you have spent your money so that you can set a benchmark to base your budget on. Next, you should identify your budgeting goals. Why are you making a budget? What are you trying to accomplish? Once you know your goals, you can start to plan out your budget. Identify what needs to change from your historical spending activity to meet your goals. If your goal is to save $150 a month by spending only $100 a month on entertainment instead of the $250 you have historically spent on entertainment, how are you going to change your habits in order to make this budget work?

2. Keep with it.

Once you have identified a budget that has been developed based on prior spending activity and targeted to your goals, you need to keep with your budget. I recommend using budgeting software like Mint or You Need A Budget to help you keep up on your budget. However, whatever tool you use should work for you. If you work better with a budget on physical paper instead of the cloud, then use paper. Check your income and expense activity against your budget regularly throughout the month. Don’t wait until the end of the month to see if you came within budget or not. If you check your budget regularly you can make adjustments in your spending to ensure that you do not go over budget.

3. Don’t Give Up.

Budgeting is a lot like dieting. At first, you are committed to spending within your budget. However, Fido needs to visit the vet and you throw a surprise birthday dinner for your loved one. The end of the month comes around and you went over budget. It would be easy just to quit, however, small failures should not stop you from continuing to keep a budget. Just like changing your diet, changing your spending habits isn’t going be smooth sailing. You will overspend from time to time, but by keeping a budget, you can try to limit those times when you spend more than you should. Just a like a diet, have a friend keep you accountable to your budget.

The goal of the budget is not to be perfect or to not have a budget failure, but to steer your personal finances to the goals that you want to accomplish. By identifying a budget that works, keeping with your budget and not giving up, you can start budgeting effectively.