Preparing to Budget
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Preparing to Budget
When you think about budgeting as a positive rather than a negative, it’s easier to make the time to build at least a simple spending plan. That’s because budgeting can set you free from worrying about your finances and from getting into debt over your head. Budgeting is a tool designed to help you feel better about your finances by understanding what you are spending and helping you better match that spending with your income.
Things To Know
- Budgeting has many positive benefits.
- A budget should have some extra money for occasional splurges.
- Budgeting realistically helps a budget be more successful.
Preparing for budgeting
Before you begin to build a budget, there are some issues to consider. Firstly, it’s very important to distinguish between what you want and what you need in your budget. Budgeting is focused on meeting your financial needs and some of your wants, but the needs have to come first.
Financial needs include paying for housing, utilities, food, transportation and other basics. Financial wants include things that you’d like to have, which could include anything from a sports car to a designer purse to a daily stop at your favorite coffee shop.
That being said, every budget should include some room for splurges. Without some so-called mad money, it is all too easy to rebel against an overly strict budget, and just take out a credit card and spend, regardless of the consequences. Some room in the budget for splurges is a safety valve against reckless overspending.
Be realistic when budgeting
When thinking about budgeting, it’s important to be realistic. Sure, who wouldn’t like to save half of their salary or include a lot of splurges in their budget? Another side of an unrealistic budget is one that underestimates expenses. It would be great if you could get by with spending less on gas, but it’s unlikely that your daily commute will get shorter or gas prices will fall significantly. If you include unrealistic numbers in your budget, the budget won’t work and will lead to a sense of failure.
Budgets should also be flexible so that they can be adjusted due to changing circumstances. A budget shouldn’t be something that is carved in stone; think of it more like it is more a living, changing document. In fact, tinkering with a budget is encouraged.
Circumstances, situations and bills change over time. For example, you might switch cell phone providers for a better deal—in that case, your budget should be adjusted to reflect that you are spending less on your cell phone. Or, you might get a raise at work and decide to allocate that toward your emergency fund or up your contribution to your retirement plan.
