I love the idea of budgets, on paper, mostly. I know I have mentioned how budgeting is somewhat difficult for me in the beginning mostly because I found it too restrictive. Instead allowing some breathing room, I focused on the end result, as a result I would rebel again my own budget and justify purchasing my Macbook, several meals out, movies tickets, etc. Budgets are an efficient tool to help guide financial progress. They provide structure and a roadmap to becoming debt free and achieving financial goals, whether those are improving your credit score, buying a car, paying off your mortgage, saving for a big purchase.
Your Success ?nd Failure Relies ?n ??w ??u Adhere t? ??ur Budget
What is a budget?
?ut simply, it’s ? plan ?n h?w money ?s going t? b? spent. It can be called many different things; budgets, financial budget, personal budget. ?t ??n b? ? good budget ?r ? bad ?n?. Generally, budgets ?r? intended t? bring positive r?sults t? th? ?n? wh? projected ?t ?r t? th? person ?r organization wh??h ?t ?s intended f?r. ?v?r??n? ??n h?v? ?n? ?nd wh?th?r it’s going t? b? f?ll?w?d ?r succeed ?s ?n?th?r story.
The Positive Effects ?f Budgets
One good ?ff??t ?f budgets ?s controlling expenses. It’s ? good w?? ?f monitoring wh?th?r you’re ?n target, spending w?th?n ??ur m??ns ?r you’re ?n th? deficit. ?f ?v?r th? plan veers t?w?rds th? negative side, amendments ??n b? employed r?ght ?w?? t? ?bt??n positive r?sults ?nd bring th? budget b??k ?nt? th? r?ght track ?n?? m?r?. ?hus, b??ng successful, ? potential catastrophe ??n b? averted ?nd ?v?r?th?ng will continue t? run smoothly ?nd ????rd?ng t? plan.
Budgets ??t ?s guides. W?th?ut th?m w? w?n’t kn?w h?w t? ascertain wh?th?r w? ?r? st?ll ?n th? r?ght direction ?r n?t. ?h?? sh?w wh?r? th? money sh?uld g?, h?w it’s going t? b? utilized, ?nd wh?t it’s intended f?r. It’s ? financial planning tool th?t w? ??n us? t? help us t? follow th? course w? w?nt t? chart ?n order t? accomplish wh?t ?t w? ?r? aspiring f?r. It’s th? roadmap t? success. ?h?? reduce stress ?nd g?v? us ? clearer mind ?n h?w t? m?k? th? r?ght decisions vital f?r th? success ?f ?ur endeavors.
Budgets ??n help sh?w us h?w w? ??n us? money t? work f?r us. ??st ?f us kn?w h?w t? us? money but ?nl? v?r? f?w ?f us realize h?w t? increase ?ts spending v?lu?. Doing some online research ??n help us attain th?s. Surf th? internet ?nd l??k f?r budget prices. ??u ??n stretch ??ur dollar s?m? m?r? b? buying th? cheapest option th?r? ?s ?v??l?bl?. I have found items at 1/10 of the price advertised. If you put aside a certain amount for a category and less than that, you save the rest. That’s spending b?l?w th? budget. ?h? brand ?nd quality ?r? totally th? s?m?. ??m? online stores sell th??r goods cheaper th?n others. For example, doing a slight bit of research led me to save a few hundred dollars on my car insurance.
The ?b?v? example sh?ws us h?w w? ??n g?t savings. Budgets help us d? th?t. ?ur spending money allows us t? buy ??rt??n goods ?t specific prices. ?ut ?f w? ??n g?t th?m ?t ? lower price w? ??n us? th? savings t? buy m?r? goods ?nd services f?r ?urs?lv?s. Savings beget m?r? money ?nd m?r? money m??ns m?r? spending power. ?h?s m??ns th?t w? ??n increase ?ur financial targets w?th?ut increasing ?ur budgets. W? live w?th?n ?ur m??ns but w? g?t m?r? th?n wh?t w? bargain f?r.
Negative Effects ?f Budgets
Budgets d?n? ?n th? r?ght w?? will n?v?r fail us ?f w? follow th?m religiously. Budgets ??r se d?n’t bring success ?r failure. It’s h?w w? m?k? th?m ?nd h?w w? respond t? th?m. W? us? th? word “help” wh?n w? refer t? budgets. W? ?lw??s s?? “? budget will help us” but n?t “? budget will g?v? us.” W? s?? “? budget will help us succeed,” n?t “? budget will g?v? us success.”
The m?st glaring negative ?ff??t ?f budgets ?s wrong budgeting. ?nd h?w d??s th?s happen? ?h?s ?s th? result ?f wrong planning. ?h? people b?h?nd th? budgets ?r? ?n th? wrong ?nd n?t th? budget ?ts?lf. ?? matter h?w th?? stay w?th?n th??r budget, b??ng flawed ?lr??d?, th?? h?v? n?wh?r? ?ls? t? g? but fail. ? good example ?s budgeting t?? mu?h f?r n?n? essentials su?h ?s highly plush offices, v?r? expensive cars, ?nd unnecessary vacation travels. ?h?r? ?r? n? returns ?f investments h?r?. ?f th?r? ?r?, ?r? th?? commensurate t? th? spending ?t large? Another frequently misguided step in budgeting is under estimating cost of living expenses. If you normally spend $200 on food every week and you budget $25, you are setting yourself for failure and you will get frustrated or rebel by going out to eat frequently. Same with assuming that you will be able to clear all your debt in a shorter amount of time than is realistic. Budgeting is disciplining yourself to live within the means of your financial situation.
Whats been successful for me
At the beginning I found that taking my original spending pattern, itemizing it, creating a budget that reduced my “life spending” by 20%. I tired that for a month. Then I reworked it and reduced the categories I felt I can reduce further by another 10%. Any savings went in my debt snowball. I also made saving a priority. The ultimate point is that creating a budget is a work in progress, especially if you want to create a realistic and refined one.
Great post. I live and die by my spending plan. I don’t use the word budget because it conjures up negative connotations. I feel many people don’t use a spending plan because they really do not want to change their habits.
I agree that you have to be reasonable in your spending expectations. Small adjustments will add up over time without feeling restrictive, but large changes are too jarring and are bound to fail.
I agree about budgets being a work in progress. I change ours from time to time, even after doing it for almost two years. I know lots of people give up after a month because it isn’t working but it really took me about three months before I felt I had it down.
@Penny – Thats what I am learning. I tried to go really hardcore once and that made me rebel
@Niki – I am helping a friend thru this right now. She has a hard time with the fact that you can adjust as you go
@YFS – Spending plan….nice.. I think I will switch to that.
I just found you through Penny’s blog roundup. Great post! I have consistently rebelled against my own efforts to spend less until just a few months ago, when I finally set up a really detailed spending plan. I had never set up a “budget” before because I have a variable income and didn’t know how to turn it into a reasonable budget. But I finally found my way around that and now things are going quite well. (My own post about that is at http://www.themiraclejournal.com/2011/12/05/budgeting-on-a-variable-income) The difference is that I’m thinking in terms of my positive GOALS (paying off debt) rather than the negative EFFECTS (I have to deprive myself of other things). Turns out I don’t feel deprived as long as I’ve got a focused and detailed plan. Hallelujah! 🙂
Thats an awesome way of thinking about it.
I think it’s much more helpful to track your expenses for a month or two first before you try to budget. Otherwise you’ll have no idea what you usually spend on something (like groceries or eating out), and you’ll be all over the place on trying to budget.
Good point about budgets being negative if not used properly. Are budgets like guns? In the wrong hands, look out below? Terrific breakdown on budgets. Have yourself a Happy New Year!
I am really impressed with the 20% and 10% savings! I have been making budgets since April, but all I did was write down my expected expenses at the beginning of the month, I never followed up to see how I did on them (especially food, gas and travel!). So as of Jan. 1, I’ve been actually tracking my spending and it’s really changing things. I can’t wait to see how I do by Jan. 31. Here’s to 2012!