Perhaps you've talked about creating a budget but have yet to take the leap. Or maybe you've tried budgeting in the past but haven't had much luck keeping up with it. There's no question about it: Budgeting takes time, effort, and, most of all, a commitment. And yes, budgeting can be both frustrating and tedious, which is why so many people abandon their budgets once they realize their systems just aren't working. But if you're determined to make 2016 the year you not only draw up a budget, but actually follow it, then here are four tips to keep in mind.
1. Be realistic
A successful budget is both accurate and realistic. There's no sense in deluding yourself into thinking you'll be able to cut costs in certain areas if you've consistently failed to do so in the past. If, for example, your monthly grocery bills tend to hit the $600 mark, then you'll be doing yourself a disservice by budgeting $300 a month for food.
Your budget needs to truthfully reflect your lifestyle, and if your circumstances are about to change, so, too, will your costs. Say you're upgrading to a bigger home with a higher price tag. It's not just your mortgage payment that's bound to go up. The larger your space, the more it'll cost to maintain. Heating and cooling a 3,000-square-foot home, for example, will cost more than doing the same for a 1,500-square-foot townhouse. Similarly, if you're buying a vehicle, then you'll need to account for more than just your car payment. When drawing up a budget, be sure to include expenditures such as gas, insurance, and auto maintenance.
Of course, this isn't to say you can't, or shouldn't, try to cut corners to save money. Just don't assume you can simply cut your bills in half, because chances are you can't -- at least not in one fell swoop. Instead, try taking small steps. Reducing your grocery costs by 10% will go a long way, and that's a goal you're more likely to achieve.
2. Eliminate guesswork
The best way to ensure that your budget is as precise as possible is to use hard data. Rather than guesstimating your expenses, look at your bank and credit card statements to see how much you've historically spent on everything from utility bills to medical care. Once you have some numbers in place, weigh them against your current circumstances to see if they're likely to rise, drop, or stay the same. If, for instance, you're moving to a nicer neighborhood, then you can expect your housing payments and property taxes to go up. On the other hand, if your new job no longer requires you to wear stuffy business suits, then you'll probably save money on dry cleaning bills.
3. Keep a record of everything
Establishing a sustainable budget means keeping tabs on your spending, and this is something you should plan to do on an ongoing basis. Get into the habit of saving or recording your bills and receipts and comparing your totals to the various amounts you've allocated in your budget. Or, if you'd prefer the simpler digital route, there are a number of budgeting apps that can help you track your spending. You simply link the program to your various accounts, and your payments will automatically be logged and categorized for easy viewing. Many budgeting apps are available on mobile devices.
Say your budget includes $200 a month for gifts and obligations. What you'll want to do is keep a running tab of how much you spend each month to see if that $200 is indeed accurate. If there's a month when you spend only $80, don't jump to give yourself $120 of wiggle room in another category. Instead, keep tracking your purchases over time to figure out your average monthly spend. You can always shift some numbers around once you have a larger sample set to analyze.
4. Don't count on a bonus
Some people are lucky enough to get holiday or performance bonuses on top of their regular salaries. If you're among them, you may be tempted to take the total amount you're anticipating and divvy it up over the course of 12 months to give yourself more spending cash throughout the year. Here's why that's a bad idea. First, a bonus, by nature, is not something you should ever count on -- ever. If you draw up a budget with a bonus factored in and yours doesn't come through, then you'll be up that proverbial creek with a monstrous credit card balance to boot. Secondly, if you treat your bonus as an unexpected but welcome surprise, you'll be in a great position to use it wisely. Find a way to create a budget based on your salary alone, and you'll have a prime opportunity to save or invest for the future if that bonus arrives in full.
Let's say you wind up with a $5,000 bonus, and that money isn't needed to pay your basic bills. If you invest it somewhere that gives you an 8% return, you'll have close to $10,800 over the course of 10 years, even if you don't put in a penny more.
Your budget is only as good as your ability to stick to it. Many people make the mistake of creating budgets and forgetting or ditching them a few months in. Your budget should serve as your financial roadmap as you navigate life's many expenses. Not only should it be a source of guidance, but it should also give you some key insights into your spending habits and the pitfalls you tend to encounter. And the more you study and adhere to your budget, the more opportunities you'll uncover to spend less and save more. Now that's something to strive for.
