Now that you’re ready to create your own budget, let’s examine the characteristics of a good spending plan. By doing so, you have a guide as to how to create a budget that is suited for your personal circumstances and one that can easily be followed.
First of all, a good budget is realistic. It should reflect your present circumstances and lifestyle (with some alterations, of course, if you’re overspending). A budget should not be stifling—it should still give you a little elbow room to spend for things that you can’t do without once in a while. This is especially true in the early part of your budgeting when you’re still getting used to spending less.
Next, it should be flexible. A budget is not set in stone. When your income level or marital status changes so should your budget. If you started budgeting when you were still single, you can’t use the same budget when you already have kids—you’ll have to factor in their needs in the picture. If you suddenly lost your job, you might need to readjust some portions of your budget to be able to ride through this rough time. When you finally get another job then you can readjust your budget to reflect it.
Third, preparing the budget should work for you. That is, if you are the type who does not like to delve on the specifics then your budget should focus on the general items without losing track of the purpose budgeting in the first place. However, if you are the type who likes to write every detail then go ahead. Prepare a budget that is as detailed as like it.
The reason? Preparing a budget should be fun. It should not be something that you dread each month but something you look forward to doing. There is no right or wrong way to make a budget. For as long as you have the necessary categories there and have customized it to fit your income and lifestyle then you’re all set.
Fourth, a budget should include both expenses that occur on a monthly basis and those that don’t. When you make your budget, you normally include categories like groceries, utility bills, credit card bills, mortgage and car payments, and childcare payments. Because these expenses are recurring, they are naturally included in your spending plan.
However, there are expenses that don’t occur on a monthly basis but on irregular times throughout the year. This includes auto and home maintenance expenses, personal property taxes, homeowners insurance, and even the money you spend for gifts at Christmas. When your car breaks down, for example, and you don’t have the allocation for it, you have to dip into your savings to get it repaired. So when you’re making a budget, make sure that you include these items. Go back to past records to determine how much you need to allocate each month for such categories. If you don’t have them, research on the current national estimates given by experts. For instance, you’ll have to prepare at least $100 a month to make sure that you have enough standby funds for minor home repairs. It’s easier to break down the total expenses on a monthly basis so that you don’t get confused or forget to include these in your budget.
Finally, a budget should include a way of tracking your expenses. This is one of the most forgotten areas of budgeting. Make sure that you have a little notebook and pen to carry in your bag wherever you go so that you can list everything—yes everything—you have bought and paid for, either by cash or credit card. You don’t have to do it right then and there. But do keep receipts and remember everything so that you can do your recordkeeping before you go to bed that same day. By doing so, you will be able to check if you are really following your budget or not.
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