Creating a budget is key to meeting you financial and savings goals, but the real trick is staying within the boundaries of your budget. Unexpected events, such as a car repair, crop up and make you change your plan for that month. These events don't have to blow your budget if you can stick to plan long-term; budgets help you slowly build savings so you can be prepared for the unexpected.
There's something psychologically more difficult about paying cash for items than swiping your debit card. Once you've set your budget, place cash in envelopes to separate your everyday spending amounts. One envelope may be for groceries, while another is for going out to eat or buying clothes. Once you've spent all the money in the envelope, you're finished with that section of your budget for the month. This technique helps you visually see how much is left to spend. People don't typically overspend on their monthly bills, so continue paying those online or by check.
Separate by Paycheck
Instead of creating a monthly budget that shows a list of bills and expenses, separate those expenses by date to help you budget throughout the month. If you get paid twice a month, group your budget into two sections showing which bills get paid out of which check. You likely have one check with more expensive bills, such as a mortgage or car payment that you pay on the first of the month. In the second paycheck, set aside your savings amount to help even out the total amount spent out of each check.
Even though your budget likely incorporates incidentals and entertainment expenses, such as your daily trip to the coffee shop or weekend movie night, track your spending by category. Even if you're using the cash system, you could discover that your budget is unrealistic. If you're consistently running out of money in one category in the second week of the month or you always have half the budgeted amount left over, you might need to re-allocate funds in your budget to match your actual usage. You could also discover that your coffee shop funds might be better spent on groceries. Tracking each purchase and categorizing it helps you see at a glance where your budget is working and where it might need tweaking.
Putting money aside for savings is essential to staying within the boundaries of your budget. Even if you only put a small amount aside each paycheck, your savings can build up quickly. This is the only way to stay within your budget when you experience an unexpected expense, such as an emergency medial deductible or a new air conditioning unit for your home. Draw money from your savings to pay for these unplanned expenses to keep from blowing your budget for that month. Build the savings back afterward for the next unexpected event.
- Hemera Technologies/Photos.com/Getty Images