Budget. Say it loud enough and it’s a word that makes even the toughest people cringe, if only just a little. The common misconception is that budgeting is hard, time consuming, and super-restrictive. The good news is that none of those things are actually true — budgeting is as hard as you make it. Fortunately, in the technology age, there are plenty of tools and tips out there to make budgeting pleasant and maybe even a little fun. There are five steps to building a budget the right way from the ground up, as building a budget the wrong way or too quickly can cause you to fall out of it very quickly.
Many people start budgets the way they start New Year’s Resolutions: in great haste, with a hazy goal at the end of it but nothing specific enough to take action upon. They start out excited but as challenges creep in, they get discouraged, distracted, and downright disillusioned with achieving their goal. It doesn’t have to be that way.
Tip #1: Start With Your Mindset about Money
You should begin thinking about your budget from the top down — a budget is all about the state of mind you’re in, as well as how you feel about money. What are your feelings about money? Do you believe that money is plentiful, or that there’s never enough to go around? If you think that there’s never enough money, then it will be difficult for you to develop a savings-oriented mindset. If money is scarce to you, then you will always find it difficult to hold on to money. On the other hand, if your mentality is that money has no value, you can lose it quickly by making impulsive decisions.
Tip #2: Set Realistic Goals for Your Money
Your money has more destinations than just your wallet, but the truth is that having a strong set of goals for your money helps you make better decisions. It becomes easier to pass up impulsive buys when you know what you ultimately want your money to do for you. A goal doesn’t have to be anything serious, though serious goals are important as well. A goal can be a new wardrobe, a new car, a better apartment, getting your teeth whitened, or even buying a flashy new cell phone. The sky really is the limit when it comes to building goals, but it’s important to make them realistic.
Realistic goals differ from their unrealistic counterparts in one major way: achievability. It’s a nice goal to have to be a millionaire tomorrow, but most people cannot become millionaires overnight. Same with purchasing a home — it is difficult to purchase a home without a down payment. A more realistic goal is to retire a millionaire by saving over time, or buying a home in 5 years by saving a certain amount per month.
Tip #3: Find Out All ‘Money Leaks’
Most people are concerned about where their money goes, with good reason: there never seems to be enough of it! The paycheck comes in, but it never really looks like you could have spent all of the money so quickly. These days, people tend to carry debit and credit cards more than cash. To figure out where your money is going, go back and look at your bank’s statement or credit card bill. The biggest expense that seems to accumulate very quickly is food — not just the necessities, but lunches and dinners out with friends and loved ones. This makes it easy to curb back expenses a bit by eating in. However, food is not the only expense. Look through old magazine subscriptions, newspaper subscriptions, extras on your cable or phone bill, and online purchases. It’s easy to spend a small fortune on eBay under the illusion that you’re getting a deal out of it.
Tip #4: Find Out All Sources of Income
Having multiple streams of income makes it easy to reach your goals faster — even if the secondary streams of income aren’t enough to replace your primary source of income, they provide a comfortable cushion against emergencies. You don’t have to be a Harvard MBA to create a secondary source of income — think about what you love doing. If you’re into arts and crafts, there are plenty of sites online to sell your homemade items. If you can create music or write, there are sites to sell music and unique content. There’s plenty of ways to make extra money, and providing a service in your spare time is a great way to bring in a little extra money.
If you’re not ready to take the leap into building a second stream of income, perhaps you can look to see what can be done with your primary stream of income. If you’re working for someone else, you may be able to ask for a raise based on your performance with the company. Be prepared to present a strong case for a raise and/or promotion, such as the direct value your contributions bring to the company.
