Most of us already know how helpful budgeting can be when it comes to organising our spending habits. However, if you really want to make the most of your budget, then you can’t just start tracking some of your expenses and hope for the best – you need a real strategy.
Making sure that you have a plan in place before you start budgeting is a great way to ensure that you get the best results out of your strategy. Here, we’re going to look at just some of the important things you should do before you begin working on your budget.
Know Why You Want to Budget
The first step in building a budgeting strategy is deciding why you want to budget in the first place. Having a goal in mind will help you to stay focused when things get a little tougher. After all, restricting your spending habits isn’t always fun, and you might struggle with it sometimes more than others.
Set a realistic goal for what you want to accomplish with your savings strategy and add a time limit to it. For instance, maybe you want to go on a vacation by this time next year, or you want to save up for a deposit on your first home sometime during the next five years.
Make Sure. You’re Not “Overspending”
A lot of people assume that setting a successful budget is all about cutting down on fun expenses like takeaways, or entertainment. While there’s a good chance that you’ll need to compromise on these things if you want to reach your savings goals, it’s important to make sure that you’re not overspending first.
For instance, when you’re thinking of taking out a loan, make sure that you compare the loan products available to you in advance to make sure that you’re getting the best possible interest rates. This will help to reduce the amount you have to repay each month. The same applies for utility bills and other expenses, comparing your options can help to cut costs to an absolute minimum.
List Fun Expenses in the Order of Priority
Once you’ve finished making sure that you’re not overspending on the things that you have to pay for each month, it’s time to look at cutting back on the luxuries. Importantly, don’t assume that you simply have to give up all the fun things in your life if you want to have a healthy budget. In fact, it’s important to have a section in your budget for “fun money” to ensure that you’re more likely to stick with your financial goals. If you try to cut back too much too fast, then you’re sure to fall off the wagon.
The key to success is deciding which things you don’t mind cutting back on, and which things you really want to keep in your schedule. For instance, you might prefer spending a night with your friends each week to spending money on games for your Xbox. Decide what matters to you and create a list so that you can cut back slightly, one thing at a time.
Brainstorm Areas Where You Can Cut Back
Once you’ve got a clear view of all your “fun” expenses and all your essential costs, you can start to brainstorm areas where you may be able to cut back. For instance, there’s a good chance that you’re not going to be able to cut back on your mortgage payments unless you can remortgage into a better deal. However, you might be able to cut your phone, television, and broadband expenses by dropping to a slower speed or getting rid of a TV package.
Make sure that you keep an eye out for any memberships you might be paying for that you’re not currently using. A lot of people end up forgetting about their gym memberships and subscriptions and continue paying for them for months after they’ve finished using them.
Identify Areas of Weakness and Come Up with Solutions
Finally, we all have our weaknesses when it comes to spending habits. Some people prefer to eat out more often than they cook, and others spend a fortune every time they go shopping. You may even have trouble with over-spending when you go to the supermarket.
By addressing the places you’re likely to have trouble in advance, you can come up with ideas that will help you to keep your problems to a minimum. For instance, you could learn how to cook some of your favorite takeaway meals or write a list to ensure that you only buy the right things when you go shopping.