Lately I’ve received tons of emails and texts asking me to write an article about good budgeting practices. After giving it some thought and more research than I’d care to admit, I came up with what I think are 5 of the Best Budget Principles. Sure, responsible spending can be uncomfortable and at times may actually hurt. So does a vaccination safeguarding against polio and both are quite a bit better than their alternatives. Think of budgeting in the same way. If overspending and debt devastation are the diseases, building a strong budget is the cure.
While saving money and a suffering credit rating does not interest everyone, I hope you’ll see the value in adding a few game changing tips to your arsenal in the war on debt. This commentary could change your life and help to get your financial house in order. Budgeting is a tool which, if used correctly, can get you where you’d like to go financially. Like a car, a budget can sputter or stall depending on how it’s driven. The lists of budget principles are as numerous as the economists and writers who’ve formulated them. Fortunately they all work to some degree. The five concepts I’ll discuss today should benefit your plans to save money than you ever have, build a bridge over debt and maximize your success throughout the process.
1. Set Reasonable Goals
All goals, financial and otherwise, have to be attainable, measurable and time bound, i.e. never open ended. If your goal is missing any of the three components, it’s not a goal. What you have is merely an idea, a hope, and good intentions. Neither of which can stand up to the smallest of well-conceived goals.
2. Motivation is Key
- Mission Statement - What you want to achieve by using best budget principles?
- Purpose Statement - Why you want to do it?
- Fiasco Scenario – What happens if you fail?
Know your motivation. A good mission statement might include: saving $5,000 over a 12 month period in order to pay off all revolving debt, buy a reliable used car with cash, or pay for the new kitchen you always wanted. Purpose statements that work usually take aim at the end result. Living ‘credit card free’ is always a good one. Earning financial freedom from suffocating debt is another. Remember, the why is just as important as the how. The Fiasco scenario, the worse imaginable outcome for failing to reach your goal, should be kept in the back on your mind, especially when times get hard or you see something on sale that you really-really-really want to buy. That’s a good time to parade your fiasco scenario around to the front side of your brain so it can’t be overlooked, pushed aside or forgotten.
3. Be Concise, Challenged and Committed
When filling out your Monthly Budget Worksheet, list all reoccurring obligations over $20 (every one of them), even the newspaper delivery. Challenge yourself to eating out at least half as much as you did before making a budget then decrease that frequency whenever possible. Stay committed to your budget even when you begin to work your way out of the debt trap you’ve fallen into. Don’t lose sight of your goal or your purpose statement.
4. Mandatory vs. Discretionary Spending
It is extremely important that you spend money according to the budget you’ve built. Troubles often arise when people stray from the promises they make in the beginning. Discretionary spending means you do have a choice on making the purchase or not. If remaining true to a financially responsible debt-reduction savings plan were easy, we’d all be pulling it off with unanimous tranquility. Avoid unplanned discretionary purchases at all cost. Emergencies will arise and force you to wobble on your commitments as it is. Don’t make matters worse by shopping for things you don’t absolutely need.
5. Monitoring and Measuring
Establish time lines throughout the year to help monitor your budgeting successes and your overall performance as your financial situation changes. Set some benchmarks to grade your efforts then check them at least once a month. For instance, if you promise to save $1,000 in the next quarter, that’s approximately $333 a month. If at the end of two months, you haven’t managed to save around $666 dollars, then you’re either spending too much or not putting enough aside. Consider reevaluating your goals or making some corrective changes to your budget. If you’re serious about living well, on less (not with less) then get started on building your budget worksheet today. The less you spend equals more you get to keep and that’s always money in the bank.
Written By Victor McGlothin Victor writes money management tips and other financial hints for ace cash express. Before joining ace, Victor wrote several bestselling novels and worked in upper management in the banking industry. When Victor is not helping consumers with responsible spending ideas, he’s working on a “Talking Money Tips” audio book. Follow him on twitter @iwritemoneytips and @acecash www.facebook.com/acecashexpress