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The Ultimate Guide to Create a Budget That is Fail-Proof
A budget is super important to have to control your finance, manage money and live within your means. You need to create a budget as a way to control your money instead of allowing your money to control you.
What happens when you get halfway through the week and start running out of funds? You start to control your spending to make sure you have enough to maintain until the next payday, or worse, you just have to suffer until your next paycheck hits your account.
Do you really want to live like this? … I didn’t think so. You absolutely need to create a budget. I know that this is a big hurdle to overcome. It can be hard to create a budget that you can actually stick to. It takes practice, but guess what? Your budget is not set in stone.
Tweaking Your Budget
If you create a budget and do your best to stick to it and end up failing, you can adjust it. In fact, most people have to and that’s okay as long as you don’t give up. What you need to do is analyze what it is that caused you to not stick to your budget and fix it. Next month you’ll do better.
This process could take a few months to nail down. Please don’t feel like a failure if you don’t get it right the first time. This is totally normal.
The most important factor in being able to stay on a budget might surprise you because it really doesn’t have much to do with your actual budget. It’s more of a safety net to prevent you from giving up when unexpected expenses pop up. That safety net is your emergency savings.
If you don’t have an emergency saving set up, then I suggest you open an account today and add a set amount to contribute to it in your budget plan. I always recommend keeping your emergency savings in an online bank, such as CIT Bank, for two main reasons.
One, you cannot instantly transfer money into your checking account with a simple click of the mouse on your online banking site or hit up the ATM anytime you are short on cash and need a few bucks. This is for an emergency and grabbing a few bucks to make a Starbucks run does not qualify as an emergency.
Don’t worry about not being to access your money instantly. Typically, you can get your money transferred to your regular bank within one business day if you need it.
This will prevent you from dipping into your emergency fund when you want to spend money on a whim, yet you will still be able to get it in time to pay for that “real” reason you may need it.
The second reason is that online banks pay you way better interest rates than a traditional brick and mortar bank. In fact, when I compared the interest rate that CIT Bank was offering compared to my local bank, I discovered that they paid over 18 times more. It just makes so much more sense to grow your money faster, I don’t know why anyone would not want that.
I know many people are a bit apprehensive about online banks but as long as it FDIC insured, it is just as safe as any other bank.
How to Create a Budget
When you create a budget you need to think of all the expenses you pay for on a regular basis. The easiest way to do this is by looking at a few months of bank statements. This way you won’t forget to include everything you need to when you create a budget.
When dealing with irregular bills, like quarterly payments, figure out how much you pay for this in a one-year period and divide that number by 12 to get a monthly payment amount to include when you create a budget.
Don’t forget to include line items to contribute to debt and an emergency fund, and other things that you may be saving for. It’s also important to give yourself some wiggle room in your budget. If you give yourself a bit of padding for small unexpected expenses, you are much more likely to stick to your budget.
Other things to consider when you create a budget…
Another key component to consider when you create a budget is including every single expense that you anticipate happening, this way you won’t forget anything in your budget. This is going to take some reflection into your past as well as foreseeing what is in your future.
Start with reflecting on things that you have had to pay for in the past that are not necessarily regular expenses. What irregular expenses have you had to pay for in the past that you just never thought about until you needed to pay for it or got a bill in the mail?
Jot down anything that you can remember getting blindsided by in the past few years. Think in terms of those quarterly bills or yearly home maintenance items that seem to always sneak up on you.
Here are some examples to get you thinking…
- Vehicle registration/licensing
- Co-pays for yearly doctor’s visits
- Annual membership fees and dues
- Yearly septic system cleaning/maintenance
- Vehicle maintenance such as oil changes and replacement wipers or tires
- Home weatherization projects
- Yearly appliance maintenance
- Annual vet wellness checks for your pets
- Yearly subscriptions
- Gifts for birthdays, holidays and any other occasion that might arise throughout the year.
Check out How to Build a Gift Closet to save more money on gift giving.
To make things easier when you create a budget, you can estimate how much these items are going to cost you, total it up and divide by 12 to come up with a monthly dollar amount you should be budgeting for.
Future Expenses You Need To Budget For
Now try to anticipate what expenses might be in your future that you can prepare for. You don’t need a crystal ball for this, just a bit of knowledge on the life expectancy of products that will need replacing in the near future.
Take for instance your cell phone, have you had it for two years? If it is, then, unfortunately, you will probably be needing to replace it in the near future if it’s a necessity.
How about the roof of your home? Has it been over ten years since the last time new roofing was installed? Is it starting to look a little shabby?
- Home repairs/replacement
- Heating System
- Water Heaters
- Fuel Tank
So how do you budget for things that you aren’t sure when or if you are going to need? Well, this can be a bit tricky but here is what I do. I try to anticipate the things that I feel might need replacing within the next two years. I total the replacement cost of those items, then divide that by 24 to come up with a monthly amount to budget.
Of course, something unexpected could need replacing that you hadn’t planned for. But then again, there could also be other items that you expected to have to replace that are still going strong.
Balancing your budget
Now that you have thought of every single expense that you need to create a budget for, compare the total of all expenses to your total income. Do bring in enough money to cover all your expenses?
If you said yes, Great!! Do you have a surplus? If you have debt, then this is the first expense you should apply those additional funds to. Once your debts are paid, you have the freedom to use that money to save for other things that you have been wanting, putting your money into a high yielding money market account will allow you to grow your money even faster.
If you don’t make enough to cover all expenses, then you will need to do some work to reduce your expenses, so you are able to live within your means.
By reducing your expenses, I don’t mean reducing the amount of money you budgeted for these expenses without actually cutting back. This will definitely lead to failing at your budget. What you need to do is find ways to reduce the actual cost of these expenses.
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Tips to reduce monthly expenses when you create a budget
First, take a look at any items that you pay for on a monthly basis that are not necessities. Are there any items that you can do without? Can you find ways to reduce the amounts you pay monthly by downgrading or getting rid of altogether? Are there cheaper alternatives that will save you money?
Take your cell phone plan, for instance, you can downgrade your data plan to save money. You can even shop for a plan with a different carrier such as Republic Wireless which can save you somewhere between $30 & $50 every single month.
Next look at the expenses that might vary from month to month such as entertainment and groceries. These are two areas that are super easy to cut back on if you are trying to reduce expenses.
Instead of going out to eat with friends every weekend, host potluck at your home. Try taking your kids to places that are free such as a local beach or park instead of paying for entertainment.
You can start meal planning to cut back on your food budget. Meal planning is one of my all-time favorite ways to cut back on groceries because it is so easy to do when you actually have a plan. Check out the Meal Planning Made Easy bundle to learn how to meal plan like a pro.
Reducing Fixed Expenses
Lastly, look at your fixed monthly expenses. They are called fixed expenses because they are items that you need or simply should not cut out when you create a budget. This doesn’t mean that you can’t look for less expensive alternatives.
A few key items that come to mind are insurance premiums and electricity bills. These are both things that you need but there is also some flexibility in how much you need to pay for them.
You can save money by shopping around for better insurance rates, reducing your deductible (if it makes sense to do so) or bundling your policies for a cheaper rate.
Electric bills can easily be reduced by simply turning your thermostat down a few degrees and installing LED light bulbs. You can also use power strips to prevent wasting energy when electronics are not in use or line dry your laundry. Check out 13 Ways to Reduce Your Energy Bills for more tips.
More Budget Tips
Keep a spending log
Keep a log of everything that you spend money on so you can easily calculate your budget at months end. You can do this on paper, create a spreadsheet to track expenses. There are also a ton of apps that can help you to make things easier. It really doesn’t matter which you choose, as long as you find a way that works best for you.
It can be a tedious job to track your spending and balance your budget every month. Luckily I’ve come up with a way that you can do both with the least amount of effort possible. I call it the Budgeting Made Easy spreadsheet. This spreadsheet allows you to track all your expenses while automating your budget. All expenses entered flow directly into your monthly budget spreadsheet so it is up to date all the time. No more spending hours at the end of every month sorting through receipts, categorizing everything and updating your budget.
Get out of debt
Debt can be a real budget buster, you will be able to create a budget and stick to it much easier once you are out of debt. It will allow you more wiggle room in your budget and will give you the freedom to save for things that are important to you and your family. Check out How To Get Out Of Debt Fast When You’re Broke as Hell for some great tips.
Automating payments is one of the easiest ways to save time and money every month. Simply sign up for auto-pay through each one of the companies you do business with. They will automatically withdraw payments every month. You can also do this through your bank.
This is a one time set up. Then after you are good to go and you save time every single month. In addition, you will never miss or make a late payment saving you from late fees and interest rate hikes. You can find more tips on How To Automate Payments To Save Time & Money.
Start a side hustle
Bringing in extra income with a side hustle is a good way to plug any gaps when you create a budget. Especially if you don’t bring in enough money to cover expenses. It will also help you pay off debt faster to free up more money or allow you to contribute to your emergency savings.
We all need to create a budget to be in control of our money. the key is to create a budget you can live with. If you don’t succeed the first time, don’t give up. Keep at it analyze what didn’t work and adjust your budget from there.
Before you know it you will be budgeting like a pro. You will become the master of your money instead of being controlled by it.
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