After considering where we are and where we want to be, we need to determine how we will get there. You're probably expecting me to share the secret to wealth and success. I actually have it. The true secret is preparation.
Use a guide
A budget serves as our guide to helping us get to where we want to be. There are numerous ways of setting up a budget. We need to choose the one that works best for our own personal lifestyles so that we are more likely to stick with it.
Many beginners choose to start off with the envelope system. With this method, all of our available cash is divided among our expense categories based on our budget. As bills need to be paid, money is taken from the appropriate envelope.
If we have budgeted correctly, the money should last through the end of the month. However, once the envelopes are emptied, we should not spend any more money in that particular category.
This method does help create a sense of discipline when it comes to spending. With cash, we are better able to see how we spend our money. We are also much more careful with our purchases because we are immediately accountable for paying the bill. We are less likely to overspend when we use cash instead of credit.
If a computer-based budget is most comfortable, then we can choose from numerous versions of personal finance software that are available online or in our local stores. We need to shop around and choose the program that we feel would work best for us.
I personally prefer a manual, or handwritten, budget. It is the easiest for me to customize because I can design it to make the most sense for me.
Keeping tabs
To get a good budget established, it is best to monitor our spending habits. For two or three complete months, we should keep track of every purchase we make, regardless of whether we use a check, credit card, or cash. Each purchase should fall into one of the categories on our list.
This may seem to be a little bit tedious to do, but the results will really help get us to the right budget. By monitoring our spending, we will accomplish two things.
First, we will be able to confirm that our original estimations are accurate. If our first calculations were off, then we will be able to make the necessary changes to the budget so that we have a budget that is easy to stick with. Remember, a budget is not meant to be a constraint. We want a budget that actually reflects our spending habits.
Second, we will be able to see where we are making mistakes. Since we have never really kept track of where our money goes, this exercise can be an eye-opening experience. We will begin to see how those little purchases add up.
Watch out for impulse purchases
Small and impulsive purchases are usually the reason that our money does not make it through the month. Lots of little purchases can end up eating away a significant chunk of our monthly income because we don't really see it happening. The money disappears a little at a time, so it doesn't hurt until we look at the big picture.
To make this monitoring exercise easier, we should ask for receipts for each purchase we make. In the interim, we can keep the receipts in envelopes labeled for each category. Then, we should take time at the end of each day (or at least once each week) to review our receipts and tabulate the totals for each category.
At the end of each month, we calculate the grand total spent in each category. After two or three months, we will have more information to work with. We will then be better able to find trends in our spending habits. We can compare our actual spending to the original estimates and make any adjustments that are necessary to make our budget accurately reflect our spending lifestyles.
The most important thing that we should remember is that all of these things take time. We need patience in the preparation process. We need patience in identifying our habits. We need patience in the process of getting on the right track. But we can do it.
Use a guide
A budget serves as our guide to helping us get to where we want to be. There are numerous ways of setting up a budget. We need to choose the one that works best for our own personal lifestyles so that we are more likely to stick with it.
Many beginners choose to start off with the envelope system. With this method, all of our available cash is divided among our expense categories based on our budget. As bills need to be paid, money is taken from the appropriate envelope.
If we have budgeted correctly, the money should last through the end of the month. However, once the envelopes are emptied, we should not spend any more money in that particular category.
This method does help create a sense of discipline when it comes to spending. With cash, we are better able to see how we spend our money. We are also much more careful with our purchases because we are immediately accountable for paying the bill. We are less likely to overspend when we use cash instead of credit.
If a computer-based budget is most comfortable, then we can choose from numerous versions of personal finance software that are available online or in our local stores. We need to shop around and choose the program that we feel would work best for us.
I personally prefer a manual, or handwritten, budget. It is the easiest for me to customize because I can design it to make the most sense for me.
Keeping tabs
To get a good budget established, it is best to monitor our spending habits. For two or three complete months, we should keep track of every purchase we make, regardless of whether we use a check, credit card, or cash. Each purchase should fall into one of the categories on our list.
This may seem to be a little bit tedious to do, but the results will really help get us to the right budget. By monitoring our spending, we will accomplish two things.
First, we will be able to confirm that our original estimations are accurate. If our first calculations were off, then we will be able to make the necessary changes to the budget so that we have a budget that is easy to stick with. Remember, a budget is not meant to be a constraint. We want a budget that actually reflects our spending habits.
Second, we will be able to see where we are making mistakes. Since we have never really kept track of where our money goes, this exercise can be an eye-opening experience. We will begin to see how those little purchases add up.
Watch out for impulse purchases
Small and impulsive purchases are usually the reason that our money does not make it through the month. Lots of little purchases can end up eating away a significant chunk of our monthly income because we don't really see it happening. The money disappears a little at a time, so it doesn't hurt until we look at the big picture.
To make this monitoring exercise easier, we should ask for receipts for each purchase we make. In the interim, we can keep the receipts in envelopes labeled for each category. Then, we should take time at the end of each day (or at least once each week) to review our receipts and tabulate the totals for each category.
At the end of each month, we calculate the grand total spent in each category. After two or three months, we will have more information to work with. We will then be better able to find trends in our spending habits. We can compare our actual spending to the original estimates and make any adjustments that are necessary to make our budget accurately reflect our spending lifestyles.
The most important thing that we should remember is that all of these things take time. We need patience in the preparation process. We need patience in identifying our habits. We need patience in the process of getting on the right track. But we can do it.
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