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How to Build a Realistic Budget and Stick with it

Personal Insights

At the core of any successful financial enterprise, be it a household or a business, is a sound and effective budget plan used to drive all cash flow decisions on a daily basis. Businesses have profit goals, and families have savings goals, both of which require budgeting and cash flow management to consistently meet those goals.  Using the tools available to you online and in software packages will give you the ability to budget like a pro and manage any surpluses to increase your savings.

Keys to Budgeting Success

Establish Spending Priorities

Establish a clear spending goal for each of your priorities. If your cash flow is limited, target your top priority first, such as to save $500 a month towards a $10,000 emergency fund. With the remaining cash flow, itemize all expenditures into two main categories – Essential and Non-Essential. Begin with essentials such as mortgage/rent, taxes, food, transportation, personal need, debt. Then allocate the balance of your cash flow among non-essential items, such as dining out, leisure activities, household items, clothing, etc

Pay Yourself First

Undoubtedly, you’ve heard this key budgeting tenet many times and that’s because it is fundamental to successful cash flow management. Many people lack the discipline to save what’s left at the end of the month. By depositing a committed amount to your savings as your very first expenditure each month, you are assured of always taking care of savings first. All other expenditures should be budgeted around this principle.

Strike a Balance

If you also have a debt reduction goal, then a portion of your monthly income could go towards paying off debt, but never at the expense of your savings. This would be over and above your regular monthly debt payments. Find a balance between the two and divide your payment to yourself between the two, such as 60% to savings and 40% to debt reduction. The important thing is to maintain the balance and stick with it each month.

Manage Your Savings

Once you have accumulated enough savings to meet your short term goals, such as building an emergency fund, you can begin to allocate additional savings to longer term accounts that offer better rates of return.  Once you begin to meet or exceed your savings goals, you will be further motivated to stick with your budget plan

Stick with the Plan

The key to successful budgeting is maintaining the discipline to keep your expenses in line. The best approach is to strive to live below your budget each month. However, if you exceed a planned expenditure one month, you need to find another one to cut, but avoid cutting your savings expenditure.

Managing Your Budget like a Pro

For about the cost of lunch for two (it’s probably in your budget), you can link all of your online banking, credit card accounts and savings accounts to a computerized budgeting program that will download all of their financial data and organize it into a budget and a cash flow spreadsheet. Once it is all set up, most of your daily entries and financial transactions are recorded directly from your online accounts, saving you a lot of time, and ensuring greater accuracy.

Summary

In practice, a budget is at the core of any successful enterprise – both business and personal. However it is the ability to strictly adhere to it that makes it effective. Budgets that are unrealistic or too difficult to manage are quickly swapped out for good intentions. However, budgets or spending plans that reflect your reality while providing a realistic path to improving your cash flow, can not only be motivating, they can be liberating, freeing you from having to make difficult choices. How? Because your budget decides for you

The views expressed herein are those of Rich Best, as of the date above and are subject to change. This publication is for informational purposes only and should not be construed as a recommendation for any specific insurance product or service. Information has been collected from sources believed to be reliable, but has not been verified for accuracy. These views and opinions do not necessarily represent those of Bryn Mawr Trust, its directors, officers, affiliates, and/or any/all of the contributors to this site. It does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not endorse any third-party companies, products, or services described herein and assume no liability for your use of this information.

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