One thing I've thought an awful lot about these past few years since starting this site is the topic of budgets. I've done a few of them for my family during that time, and not all of them have been successful ones. There are a lot of problems, expenses and other glitches that can crop up when you're trying to figure out your family's finances, and your budget has to be flexible enough to be able to account for them all.
At our house we've been able to get our budget to a point where we're comfortable with what we're saving, spending and giving, but it hasn't happened all at once. It's been a constant state of revision via out monthly budget meetings, and through constant monitoring of what is coming in and going out, and of finding new places to cut, or create new income.
Secrets Of A Successful Budget
So what are some things that we've found are important to having a budget that has staying power?
- It must be realistic: One problem with a lot of budgets is that they just aren't realistic. For example, at one point a couple of years ago we were budgeting for what was a pretty aggressive amount of spending in our grocery category. The problem? It wasn't realistic to spend what we budgeted, and we were constantly over in that category.
- It must account for human weakness: One thing that we've found at our house is that the budgets are much more successful if we don't feel like they're so draconian that we can't enjoy life. Because of that we build in a little fun money or blow money – money that we can just spend for no reason – without consulting the other person. When you have that money you feel a bit more free – and the budget doesn't seem as bad.
- It must account for all your money: One of my favorite type of budgets is the zero based budget because it takes into account all of the money coming in and going out every month. There is never a pile of “leftover money” at the end of the month that just gets spent. Instead every dollar is allocated to a spending, saving or giving category. Every dollar of income is charted, and every dollar of outflow is accounted for, and at the end of the month you have “zero” after everything is allocated.
- It must plan for “unplanned” expenses: If you're going to have a successful budget you need to plan ahead for unplanned emergencies or expenses that only come up once or a few times a year. Build an emergency fund into your budget, and save for occasional expenses (like property taxes or insurance) throughout the year.
- It must be flexible: A budget must be flexible in order for it to be successful. By all accounts most families need a budget breaking in period of at least 90-120 days in order to get their budget right. You need to allow time to track your income and expenses, see what expenses are reasonable, and adjust budgets up or down if you didn't judge them correctly from the start.
- It must monitor your income and outflow: Of all the budgets I've done, the only successful ones that I had were the ones that actually monitored our money from month to month. In order to do that you'll probably want to have a personal finance software of some sort. Some people may want to use an online aggregator like mint.com, while others may prefer the security of using a desktop software like Quicken or YouNeedABudget. There's a software out there for everyone. Check out my “List Of 75 Budgeting Tools, Finance Softwares And Iphone Money Apps
- It must foster good communication and shared goals: If you have more than one person in your household, in order for a budget to succeed it must have good communication between all parties involved. Along with that communication should come some sense of agreement on mutual goals. Without that you'll just be treading water, or in the worst case scenario – sinking to the bottom.
- It must have clear cut goals: If you don't have clear goals of what you would like to accomplish with your budget, you'll end up having a budget that ends up not being used. In order for it to succeed you need to have some things that you're working towards.
Budgeting Basics: Where To Start?
So where do you start when it comes to making your budget? You really just have to sit down and put pen to paper, and figure everything that is coming in and going out. Then try to allocate every dollar to an income, saving, giving or spending category.
- Figure out all your income sources and write down a figure for total net income.
- Write down and allocate for all giving and saving categories. Come up with a total for giving and saving.
- Figure out a dollar figure for total expenses, both fixed regular monthly and irregular expenses. You may need to track this for a month or two before you come up with a number, and you may need to adjust. (Remember, be flexible!)
- Subtract total expenses and giving/saving from total net income. You should come up with zero as the final tally. If the total isn’t zero, allocate the remaining funds to a saving or giving category.
For a more detailed look at doing a zero based budget, read my article, “Doing A Zero Based Budget Will Lead To Found Money“.
What are you thoughts? Do you think there are other keys to having a successful budget besides the ones listed? Are there certain things that you found were bigger stumbling blocks for you? Tell us your thoughts on how to have a successful budget in the comments.