As you begin to put together your personal budget and begin the journey toward better financial stability, there will be plenty of advice on where to begin and how to proceed. Sometimes too much information can be a bad thing, especially when you're already feeling overwhelmed by the prospect of finally confronting your spending and savings habits. With all the "rules" out there about the best ways to create a personal budget, there is really only one you need to follow: keep it simple.
Here is why "keep it simple" is the number one rule, along with tips on how to avoid getting lost in complicated budgets:
Why "Keep It Simple" Is the #1 Rule
When people decide to make a positive change in their lives, they have a tendency to overdo it. Instead of changing just one thing until it becomes a habit, they try to completely overhaul every aspect of their lives. While ambition is a noble thing, taking on too much can lead to burnout. You aren't going to become a millionaire overnight, but you can make meaningful changes that will have . Keeping it simple will help you meet realistic goals and build confidence as you move toward tackling larger challenges. If your budget is complicated from the start, you're more likely to resort to old spending habits and get in the way of your own progress.
How to Keep It Simple
- Calculate your net income
Before you even start thinking of ways you may be able to save money, you first have to understand how much money is coming in each month. This is especially important if you are self-employed or your monthly income varies for other reasons.
- Track your spending
Don't make the mistake of simply estimating how much you spend on certain items each month. Take the time to actually sit down and add up how much money goes toward regular monthly bills, such as rent or mortgage payments, car notes, utilities, insurance, etc. Next, see how much you spend on items that may vary more widely based on changing prices and consumption. These might include gas and groceries. Tracking your spending can help you get a more accurate view of your habits.
- Set some clear goals
Before you start diving into comparing how much you make compared to how much you spend, set some short-term and long-term goals. This will help you start with a sense of purpose and a clear vision of why you are creating a personal budget in the first place. Again, setting short-term goals will allow you to reach important milestones and give you the confidence and sense of accomplishment you need to stay motivated and work toward those bigger, long-term goals.
- Create your personal budget
Look at how much you earn and how much you spend and develop a plan for moving forward. Decide whether some of the expenses you have listed are needs or wants. If you don't have a lot of money left over each month, you will have to take a closer look at how many "wants" can be eliminated so you have more money to spend on needs and put toward savings.
Creating a personal budget doesn't have to be overwhelming. Tackle it by taking steps in the right direction and remember that keeping it simple is always the best route. You are just getting started, so take it slow and always keep your goals in mind.