If you’re anything like me, making a budget is something that can be fun and miserable at the same time. It feels great to get organized and make a plan, but when it’s time to figure out how to stick to it things quickly get less exciting. Take the pain and guesswork out of your budget by using this quick and simple method to create a short-term and long-term budget you can stick to.
Before we can figure out how and where to spend our hard-earned money, we have to get an idea of what we’re doing with it now. If you use a credit or debit card for most of your spending, this part will be quick and painless. First, get a copy of your statement showing your monthly charges from the prior 1-3 months. Now, group all of your charges into “buckets” by spending type, such as:
– You get the idea…
Now that you’ve created spending buckets, it will be much easier to see where you may be overspending and make adjustments.
GET YOUR ORDERS
Okay, now we have an idea of where we typically spend (and overspend), so let’s figure out what you have coming up in the future that needs attention. In this step, identify all of the upcoming items that you need to have money prepared for. This can include things like:
– Vacation fund
– Emergency fund
– Vehicle maintenance – tires, brakes, etc
– Paying off debt
– Christmas present fund
These are the things that come up in everyone’s life, but most of us aren’t financially prepared and resort to credit card debt to get through. Instead, let’s plan for it so when the time comes it feels like we aren’t really losing that big chunk of cash.
PLANNING IN REVERSE
This method should be nothing new to veterans or the active-duty crowd. Everything we do is planned in reverse order so we can make some sort of deadline – this is the same thing. Take all of those items that you know you’ll need money for in the future, and divide it by the number of months or weeks between now and then. This converts that $600 worth of Christmas presents into 12 easy monthly savings plans of $50! Not as painful as seeing that credit card bill show up in January, huh?
PUTTING OUR PLAN INTO ACTION
Just like any other budget, putting this to work is the most important part. Here are a couple helpful hints on ways to MAKE yourself stick to it:
1. Setup automatic distributions into separate accounts for things like vacation or Christmas funds. Most banks will now let you have multiple accounts tied to your main account for no charge. Use this feature to put your money somewhere before you have the chance to spend it.
2. Pull the cash out and put it somewhere out of sight. It’s much more difficult to spend your new tire money if it’s sitting at home in an envelope in the closet.
Now you have taken the budgeting process out of your own hands for the future, and you’ll be surprised how quickly you forget the money is being pulled out.