A very common New Year's resolution that people make is to spend less money. And the most common way people try to do that is by making a budget and sticking to it.
Unfortunately, budgets fail all the time. Here are five tips to help you come up with a budget that you'll actually stick to in 2015.
Set realistic goals
One of the biggest reasons that budgets fail is that they aren't realistic. Instead of "challenging" yourself to get by on the bare minimum, set a budget that you can actually stick to.
This is especially important in areas like grocery shopping, gas for your car, and other areas with some "wiggle room." If you crunch some numbers, and it costs $25 in gas to get you to and from work each week, add in a little extra. Are you really only going to drive to work every week?
The same rule applies in the grocery store. If the bare minimum of groceries you need will cost $100, maybe budget for $10 or more to buy some extras that you'll inevitably want. The idea with budgets is that you should still be able to treat yourself a little, but not get carried away. If your budget is very boring and restrictive, it will be tough to stick with it.
According to one study, only 8% of New Year's resolutions are successful each year. However, people who set clear and specific goals are 10 times more likely to succeed. If sticking to a budget is one of your resolutions, have a very clear idea of what you hope to achieve.
For example, instead of saying, "I want to save more money," a better goal might be, "I'm going to put $50 in an IRA every week." Instead of planning to pay all of your bills on time this year, say, "I'm going to set all of my bills to autopay right after my statements are issued."
Essentially, vague goals simply state what you hope to achieve. Clear and specific goals include the how. And the more precise you can be, the better.
Make it automatic
Speaking of your bills, it may be a good idea to have all of your essential bills automatically drafted from your bank account. If you have a habit of forgetting about certain bills until the last minute, this is a particularly smart move.
Ensuring all of your bills get paid on time will not only protect your credit, but will prevent you from falling behind financially. For example, if you forget to pay your electric bill one month, you'll need to come up with two months of electric bills next month, plus a late fee.
If you budget correctly, the money should be in your account anyway, so why not give yourself one less thing to worry about?
Budget some money for you
Make sure you include some money in the budget for entertainment expenses and other discretionary spending. A recurring theme here is that if you can't stand your budget, you aren't going to stick with it. So, allow yourself to have some fun.
A good way to start is to add up how much money you spent on entertainment, shopping, and other non-essential purchases, like eating out at restaurants, during the past month. Leave out one-time things like holiday shopping. Then, try to make due with half of your normal amount this month. At the end of the month, see how much more you could cut, or how much you need to add back in.
You may be surprised at how much you can stretch your money when you are actively thinking in terms of a budget. Many people find they can still do all of the same things they are used to doing -- just on a lesser scale -- by making simple cuts. Order something a little cheaper when you go out to eat, shop the clearance racks at your favorite stores, or skip the overpriced popcorn and soda at the movies. There are plenty of ways to cut back and still enjoy your favorite activities.
Expect the unexpected
The biggest budget killer is an unexpected emergency expense. Sure, your budget looks great on paper; but what happens if your car breaks down? For a budget to be successful, you absolutely have to have an emergency fund.
If you don't have a sufficient emergency fund (I always suggest at least six months of expenses), make it a part of your budget to build one up. It may seem rather inconvenient to stash some of your hard-earned money in a savings account, but you'll be glad you did if you need it.
It's OK to modify your budget
At first, a budget should be a trial-and-error process. More likely than not, some parts of your budget won't work for one reason or another.
If, after a few weeks, you are consistently going over your budget at the gas station, modify your budget so that doesn't happen anymore. The same goes for other areas of your life, such as utilities, groceries, and even entertainment.
The point of a budget is to manage your expenses while still living comfortably. Making sure your budget allows you to do this on a consistent basis is the best way to ensure its success.
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