How To Create A Fail-Proof Budget
Do you have a fail-proof budget? If you don’t, this post is going to show you exactly how to create one.
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For the past few weeks, we have been talking about budgeting.
Budgeting is a critical step in breaking the paycheck to paycheck cycle. Your budget is a way to assess your spending habits and determine what your money needs to do before you get paid again.
Many people make the mistake of thinking they don’t need to budget because they don’t have much money. The thing is, that’s when you need a budget the most.
Check out How To Create Your First Budget if you don’t have a current budget.
When my husband and I only had one income, our budget kept us afloat. Before making any purchases, we consulted the budget.
During this time, we never missed a payment, and we found a few creative ways to add money to the budget outside of our regular income.
The feeling of security is what a budget provides.
A fail-proof budget won’t happen overnight, but with the right mindset and a strategy, you will have a working budget in no time.
Let’s jump right in.
Set financial goals
Before you create your fail-proof budget, it’s a good idea to set a few financial goals. Financial goals give you something to look forward to and make budgeting a bit more fun.
The key to setting goals with your finances is to make them SMART. Smart goals are specific, measurable, attainable, and realistic.
An example of a smart financial goal is to purchase a house with a 20% down payment in five years. Another example is to pay off a $1,000 medical bill in three months.
Both of these goals are very specific. You can measure them by the amount of money saved and the time frame.
Now it’s your turn.
Set two or three short term goals and one or two long term goals to work towards in the next few years. Your goals will give you something to look forward to when you feel frustrated with your budget.
Track all expenses
In a recent post, I wrote about tracking income and expenses in your budget. I can’t stress how important tracking is for a fail-proof budget.
Tracking your income and expenses is the only way to get a real-time picture of your spending and saving habits. It is also the only way to make sure you’re not spending more money than you make.
There are two steps for tracking your expenses. The first step is to gather your transactions. Keep all of your receipts and log into your bank account to find your online transactions.
The next step is to record your transactions. Enter each of your receipts into your budget and subtract the money from the corresponding category.
Tracking your expenses daily or at least every other day will help you maintain a fail-proof budget.
Make adjustments to fit your lifestyle
The best thing about budgeting is the fact that budgets are flexible.
Things come up, and your categories may need to be adjusted to accommodate them. That is perfectly normal.
When you have unexpected expenses, adjust your categories to cover the cost.
If you notice that you go over your grocery budget every month, adjust a less used category, and add that money to the grocery category.
It may take you a few months of tracking your expense to know which categories need to be adjusted, but it will become apparent the more you work at it.
Creating a fail-proof budget means making adjustments to fit your lifestyle and rolling with the punches.
Pay off debt
Another way to create a fail-proof budget is to pay off debt. Debt is a huge burden when it comes to budgeting.
Things like medical bills, collections, credit cards, and student loans all have to be paid and don’t take any consideration into anything else that you have to pay.
The best thing to do about debt is to get rid of it. You will free up so much money to put towards things that are important to your family.
Create a plan of attack to pay off debt. An easy way to get started is to pay off balances in order of smallest to largest.
Another option is to pay off balances based on interest rates. In this case, you would pay off the balance with the highest rate and move on to the smaller ones as you go.
Whatever you choose, don’t forget to update your budget to reflect these changes.
Automate payments
This one may sound scary, but another way to create a fail-proof budget is to set your bills on autopay.
I have done this for almost all of my bills. In the past, I have missed payment dates and had to pay late fees. The money was in my bank account; I just forgot to make the payment.
Forgetting to pay bills was very frustrating and a waste of my money, so I decided to try out autopay for a month. I haven’t looked back since that day!
Automating payments is a great way to save time and money each month. All you have to do is contact your bank or the individual companies to get started with autopay.
You will receive your statement a few days before your due date that includes the amount that you owe. The money will automatically come out of your bank account on the due date.
Autopay is so convenient, and if you have already set up your fail-proof budget, the money is there and ready to go.
Once you set up the automatic payments, they will continue until you notify your bank or the companies to cancel autopay.
Before you automate your payments, be sure you have a grip on your budget and enough money to cover the bills that you would like to automate.
Save for emergencies
If you don’t have money set aside for emergencies, I suggest starting an emergency fund today.
Emergencies happen so unexpectedly, and your budget may not survive if you don’t plan for them in advance.
Although it’s not fun to think about, things like job loss and illness do happen. It’s a good idea to start saving for emergencies when things are going well.
A starter emergency fund should have at least $1,000. A fully-funded emergency fund should have 3-6 months of expenses.
If you have trouble wrapping your mind around saving a large amount of money at once, break it down into smaller chunks.
Create a goal to save $100, and when you reach that goal, increase it.
Keep in mind that you should only use your emergency fund for emergencies.
Things like oil changes and vacations are not emergencies. Do not use your emergency fund for something that you know is coming up.
Any time you experience a real emergency, use your emergency fund to get back on your feet, then replenish it as quickly as possible.
Reduce expenses
A fail-proof budget means that you are continually adjusting. You want to make sure you have the best rates, and you’re getting the most bang for your buck.
Take a look at your budget a couple of times a year to make sure you are spending your money wisely.
Do you use all of the services that you pay for monthly? I can’t tell you how many months I paid for a gym membership that I never used.
Paying for unused services is just throwing money down the drain. Reduce your expenses by canceling these services.
It is also a good idea to call your cable, cell phone, and insurance companies to make sure you are getting the best rates.
Most companies come out with new promotional offers all the time.
Ask about discounts or specials and what you need to do to switch over to those rates.
It never hurts to ask. The worse thing the company can say is no.
Create sinking funds
The last and probably most important way to create a fail-proof budget is to use sinking funds.
Sinking funds are like small savings buckets. You use these buckets to plan and save for things that you know are coming up.
Sinking funds are my favorite part of my budget. I use them for everything from vacations to oil changes and doctor visits.
I know for a fact that these things are coming up and will require money upfront. Saving for them ahead of time keeps my budget intact.
Let’s take Christmas, for example. It comes on December 25th every year, which means you have a whole year to save for it.
Create a sinking fund for Christmas, decide how much money you want to spend during that time, and save the money throughout the year.
When Christmas comes around, the money is available for you to spend.
If you use budgeting software like YNAB, it is easy to separate your sinking funds from your regular budget.
Otherwise, some banks allow you to keep multiple savings accounts to house your different sinking funds.
The bottom line
It is pretty easy to create a fail-proof budget as long as you have a budget plan and a few goals.
The most important takeaway is to create a budget that works for you and can be adjusted to fit your lifestyle. Don’t beat yourself up if you get off track.
Continue to track your expenses, and you will begin to see trends and patterns that will help you tailor your budget. You will be budgeting like a pro in no time!
Do you currently have a fail-proof budget? What things do you need to change to solidify your budget? Let me know in the comments.
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