Why do you think people have a hard time sticking to a budget?
The main reason that people have a hard time sticking to a budget is because they have set unrealistic goals. They try to go from bad money management to good money management all in one shot.Â It is important to realize that changing a habit takes time so you shouldn’t rush it. Start with a realistic budget that you know you can follow. Maybe it’s cutting back on the amount of money you spend on lunch or maybe it’s cutting out cable but keeping Hulu, Netflix and the Internet. Start with some very small steps and just make sure you are moving in the right direction. As the saying goes, slow and steady wins the race.
What are the first things a person should consider when creating a budget?
Besides identifying needs versus wants it is important to identify your ‘spending leaks.’ Many people waste small amounts of money on spontaneous things like eating out, cab fare, and hanging out with friends. Realize that these things are throwing off your budget and create a system that will allow you to stay focused. I recommend that everyone should start their budget by keeping a spending diary for one month in order to understand where their money is really going. Once they have a month worth of spending tracked, you will be in a better position to effectively create and stick to your budget.
What should be in their budget?
A budget should have a section that shows how much money you are bringing in monthly whether it’s wages from a 9-5, business income, tips, gifts, or money from your side hustle. Then you should breakdown your expenses by category:Â Savings – paying yourself first, housing expenses,Â transportation, health cost, charity/gifts, subscriptions, daily living, entertainment,Â and miscellaneous. Once you have all of your expenses down, tally them up and subtract them from your income to make sure that you are not going over. If you have money left over it should be allocated to savings. If you are in the negative then you need to adjust your expenses.
What are some of the things people can do that will help them stick to their budgets?
The best way that people can stick to their budgets is to make it automatic. I suggest that everyone have three bank accounts. A savings account, a bill account, and a spending account. After you create your budget make sure that the money that is allocated for savings gets automatically transferred to your savings account. Your savings account should not be easily accessible and should not have an ATM card attached to it. The goal is to make it inconvenient to access these funds. Second, you should have all of the money allocated for bills go into your bill account and again you should not have an ATM/debit card attached to this account. Simply pay all bills with online banking or via check. Lastly, the money that is allocated for spending goes to your spending account and this should have a debit card attached. Separating your accounts in this way allows you to only focus on the money that is allocated for spending and removes the temptation of robbing Peter to pay Paul. This is ‘out of sight, out of mind” at its finest.