Our Guide to Developing a Successful Personal Budget
A good budget should be the foundation for achieving your financial goals. But all too often we abandon our budgets at the very first obstacle, meaning they’re simply not worth the paper – or spreadsheet – they’re written on.
So what makes it so hard to keep to a personal finance plan and how can you give yourself the best possible chance of succeeding?
A moving of the mind
Even once we’ve addressed our own attitudes to personal wealth, sticking to a budget requires a conscious behavioural shift. In that sense, it’s no different to having a plan for achieving any other goal.
Getting the behavioural change that’s needed to make a budget work requires consciously re-programming minds about who we are and what we’re like.
Convincing your mind that you’re a different person isn’t easy, especially if you try it all in one hit. For that reason, getting it use to the changing behavioural shift by starting with – and achieving – small goals along the way to achieving larger ones so that our mind sees that we’re doing well.
Making goals specific and meaningful
Sticking to a resolution is much easier if you’re working towards something tangible.
That means a key part of making any budget work is to tie your milestones to meaningful and specific financial goals. For instance, having a goal of saving $500 a month for a $6,000 holiday in 12 months is more concrete and therefore more achievable than simply aiming to save $500 a month for a year – even though the two require exactly the same budgeting.
Be realistic and precise
Another, more practical, reason budgets often fail has nothing to do with psychology and more to do with maths. Put simply, sometimes the data that goes into building them isn’t right. As an example, to get an accurate record of a power bill you really need to go back over at least 12 months’ worth of bills.
Alternatively, budgets sometimes fail because we’re simply too hard on ourselves.
It’s also worth remembering that things rarely, if ever, go according to plan. For this reason, it’s important to factor in a buffer that can be used for car or home repairs or for that large bill you didn’t see coming.
Consider the possibilities
At its heart a budget is all about living within your means to achieve your financial goals. And if you find your means are grander than you’re allowing for – or if you want to save for something that you can’t afford no matter how you play with the numbers – you really have two possibilities: scale back or bring in more money.
If you’re not prepared or able to scale back, you’ll need to look at ways to potentially create a second source of income away from your primary work: whether that’s a new or second job, a business on the side or an income-producing investment.
Your budgeting checklist
If you’re setting up your own budget, here are the questions you need to ask yourself first:
- What am I saving for?
- What milestones will I hit along the way?
- Is my data accurate?
- Have I factored in what will happen on a rainy day?
- Am I being too hard on myself?
- Will I bring in enough money to stick to this budget?
- What will I do if I stray from my goals?
If you have any questions about the above or would like some help with your budgeting, please get in touch with your Intralink advisor today on 03 9629 1100.