5 Tips for Effective Budgeting

When it comes to your budget if you fail to plan you are planning to fail. Think of a budget like a roadmap. Without it, you really have no idea where you are going or the slightest clue of how you are going to get there. However, effective budgeting requires a little more finesse than merely listing out your income and expenses on a piece of paper, and when it comes to successful budgeting there are a few tips to live by.

Choose Your Management Strategy

Budgets fall in the realm of personal finance; thus, a mechanism for budget management is a very personal choice. In order to make certain you access and use your budget wisely, regularly, and effectively, you will need to find a solution that is not only customizable but user-friendly; whatever your definition of the word “user-friendly” might be.

Spreadsheet gurus, for example, might find the best success using Microsoft Excel. This gives you options for creating a budget from “scratch” or searching among the thousands of free downloadable templates on Microsoft Office online.

If you aren’t a fan of spreadsheets, consider an online budget management solution such as Mint.com. This website is free to use, easily customizable and it tracks and manages spending and overspending alerts based on your habits and preferences.

The trick is to find a management strategy for your budget that works for you. After all, I you don’t like the tools, you are less likely to use them.

Make a Mini Budget

Create a monthly budget, from which you glean all of your recurring and planned expenses, and then dissect that master budget a little more. Create mini budgets based on your pay periods and due dates for your bills. If you own your own business, first start by deciding if you will be paying yourself first on either a weekly, bi-weekly, or monthly basis. For example, if you collect a paycheck weekly, draft a budget outlining your pay, and subtract the expenses for that week. Individuals paid on a bi-weekly basis would create mini budgets under the same principle. This method allows you to account for and track expenses on a timetable, so you stay on track with the monthly master budget.

Make Sure You Save

Most people do not save enough money, and others do not save any money at all. Commit to “paying yourself first”. Treat your savings like a bill; in other words, input a line item in your budget directly underneath your income for your savings, and withdraw that money before you pay bills, go grocery shopping, or account or entertainment expenses.

Cut Out Overspending

Nearly every budget has some glaring faults related to overspending. In the majority of budgets, this is in direct proportion to entertainment expenses like dining out, going out, cable bills, and clothing purchases. These seemingly small variable expenses sneak up on people and can be the catalyst in blowing even the most effective budget. It’s imperative to review these expenses and stick to the budget, using your master and mini budgets.

During your evaluation, also take a peek at those tiny unaccounted for expenses. For example, that morning cup of coffee, that dollar in the vending machine, or trips to the convenience store. These are also budget busters, easily avoided once assessed.

Overestimate

When accounting for monthly bills and expenses, nearly every person has some variable expenses when it comes to utilities, gas, or groceries. Not budgeting enough in any of these categories unhinges even the best-laid plans. An effective budget overestimates these variable categories. The best overestimation is to review the last 12 months’ worth of bills and select the highest or second-highest you have received during that timeframe. Use that amount as a guide on your monthly budget. This way, if you come in under budget, you have more money to apply to savings, while at the same time, never being short of funds when one of these expenses is a little higher than average.

By using these five common-sense budgeting tips, your budget effectively becomes your map to long-term prosperity and wealth, without a lot of work.