A common budgeting mistake is not basing your budget on reality. We all want to be able to set aside $200 a month to save for a down payment on a home or our children’s college education. But, if you have to cut your food budget in half to afford to do so… you may find you come up short each month.
The key in budgeting is avoiding this common mistake. In order for a budget to actually work, it needs to be first based in reality. During your budget planning, realize that certain things just aren’t in your budget, at least not to the level you want them to be.
Sit down with your budget and compare it to the last couple months of actuals. Determine which of your budget categories are the most off from reality. Start by adjusting those, either up or down.
Next, look at your total budget. Divide each category into either a volatile expense or fixed. With these two lists, rank each expense on a scale of 1 to 3 based on the level of flexibility to change. An example could be a car loan and a rent payment. The car loan is flexible by the ability to sell the car or refinance. The rent is possibly flexible if you can move. Most likely the car loan is more flexible than the rent payment. You may give the car loan a 2 and the rent a 3.
Once you have organized each expense into a fixed or volatile and given it a rank, then you can determine which ones have the most opportunity for change. This is a far better system for creating room in your budget than simply saying – I could spend less money on groceries.
Once you have identified the ones you want to change, be sure your goals are reasonable. If you can refinance your car loan to a different interest rate or loan payment, the fixed category is now going to be different. If you think you can spend less on gas by taking the bus to work, try it for a few months before you actually change your budget.
Changing our lifestyle is easier said than done. It takes a real commitment. Be sure to be realistic with your own abilities.
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