At some point in time, you've likely made the decision to put aside excuses and start making sincere efforts to improve your financial situation. You probably made some form of budget for your monthly expenses and set some ambitious savings target, only to find the perfect excuse to spend outside your budget and/or pilfer your savings. Sometimes the reason for cheating on your budget is legitimate - emergencies happen - but a truly effective budget accounts for crises.
Even if your budgeting has not gone to plan, there is still plenty of time to get things back on track. Here are our top tips for effective budgeting and saving.
First, you need to determine whether your budget was realistic to begin with. Have you fallen down because it was unachievable, or are you simply spending more than you should be? Many people set a budget and savings plan without fully evaluating their current finances. If you have not met your saving objectives, then this is the exercise to go through, as it sets the record straight and lays the foundation for all your financial planning.
Gather every financial statement you can. This includes bank statements, investment accounts, recent utility bills and any information regarding a source of income or expense. Next, record all of your sources of income. This could be from employment, rent or shares. Record the total take-home pay as a monthly amount.
Create a list of all your monthly expenses. This may include your mortgage payment or rent, car payments, auto insurance, groceries, utilities, entertainment and dry cleaning. Use your bank statements to ensure that these figures are accurate. You then need to break this down into two columns - fixed and variable. Some expenses are the same each month and are essential spending to maintain your way of living. Then list your variable expenses. These expenses will change from month to month.
Finally, you need to total your monthly income and monthly expenses. I hope that your income is greater than your expenses, so you have the potential to save. This means you can look at what you are doing with this excess - if the money is not going into savings, then what are you spending it on? If your income is less than your expenses, then you need to make urgent cutbacks to avoid growing debt.
Once you have examined your fixed expenses, it is time to look at your other expenditures. Are these areas where quick cutbacks be made? Whether you are budgeting to stop yourself from getting into debt or budgeting to put money into savings, cutbacks are the way to free up funds. For example, are you spending all of your disposable income on meals out? Your bank statements and credit card bills will show you where the areas of overspending are. Once you have identified these areas, you can take steps to curb your overspending.
Many people who fail to reach their savings goals are impulse buyers. In order to become an effective saver, you will need to address this behavior. Impulse buys eat into disposable income and can often mean wasted money. Never act on impulse when making purchases. If you see something you want, avoid buying it right away. Take a day to decide on the purchase. If the cost is significant, search for discount sites that may sell it for less money. Become.com and Pricegrabber.com are two sites that can help you hunt out a cheaper deal online.
Several months have passed by and your budgeting has slipped with time. To ensure that you stay updated for the rest of the year, keep daily logs of what you spend so you get a true picture of your spending habits. This will allow you to see if you are slipping into bad habits. If you do see a pattern - take action. Do not let months pass without addressing the issue.
If All Else Fails
We all use our plastic all the time. This makes it very tricky to get a feel for what you are spending. A way to combat this is to turn to cash. Every Sunday, take out your allotted spending money for the week, work out what your daily allowance is and remember that if you over/under spend one day, it will either give you more or less money later in the week. This is an effective way to understand your finances better.
The Bottom Line
Sticking to a budget and making savings is the only way to put yourself on a firm financial footing. At this halfway point, re-evaluate your budgeting goal. A combination of short-term and long-term goals will make the task ahead easier. Why do you want to save money and how much? Are you trying to clear debt or save a house deposit?
Write this down and pin it on your office desk - or on the fridge - maybe even put it in your wallet or purse. These notes will serve as a reminder of your goals and should make it easier to stay the course financially.