Your budget is at the root of your financial success or failure. Having the right budget can be the determining factor in the outcome of your personal finances. Often times we hear about people who earn significant more than the median national income, yet they are struggling. These are the people who, regardless of what they make, manage to spend much more of it. I would think that people smart and fortunate enough to earn a good salary would know the importance of a budget. But knowing is half the battle. You must stick to you budget for it to work. If you bought a treadmill but did not run, you wouldn’t expect to lose weight. Budgeting is not that different.
Five ways you can stick to your budget
Be honest: The first step in having a successful budget is being honest with yourself. Don’t be unrealistic about how much money you’re going to make. Your overtime pay is not your salary. Hours can be cut at any time due to budgetary restrictions or new hires to fill the missing position. If you’re used to making an extra $5,000 a year in OT, don’t say your salary is $60,000. It’s $55,000 because the extra $5k is not guaranteed. Any budgeting that’s based on your OT pay, can create serious problems. My cousin once got a car repo’d after she included her OT income to determine whether or not she could afford it. When the company started cracking down on OT around the time of the recession, she couldn’t make her payments and lost the car.
Change your vocabulary: It is time that we learn to use the correct terms when we talk about a need versus a want. You don’t NEED these shoes. You want them. The only time you NEED shoes are when you have a hole in the ones you have. For example, just the other day my mom bought a coat rack online. When it was delivered she said: “I’m so happy! I needed this.” When I said: “No you didn’t. You wanted it.” She tried to go into this lengthy explanation about how important it was for her to have a coat rack. That’s an artificial need. You went years without a coat rack. It’s not a need. Needs are shelter, clothing, food, health care and the things that go along with them like heating your home, etc. Everything else is frivolous.
Set specific attainable goals: If you make $12/hour and are drowning in debt, don’t say something vague like “I want to be a millionaire.” Instead, start small and specific. Maybe you can say: “I want to pay off my credit card debt.” The difference between those 2 goals is that one of them is realistic and specific while the other is vague and appears unachievable. This is not your mom saying you can be and do anything you want in the world. This is real life. You have to learn to start small and work your way up. I won’t tell you to shoot for the moon. You will not end up among the stars. You will be frustrated at your lack of success and give up.
Re-train yourself: Give up on instant gratification and do it immediately. “I deserve this.” You also deserve to not live in squalor in retirement. You also deserve to not be hounded by creditors. You deserve to save money on your loans by having a favorable interest rate and good credit. But instead, you focus on what you think you deserve now and not what you deserve in the long run. Instead, keep your eye on the prize. Invest in financial freedom and not stuff.
Live by the 48-hour rule: This is the best way to kill your inner impulse shopper. If you see something you want, sleep on it for 48 hours. If you wake up in 2 days and the excitement has worn off, then it’s something you can go without and you shouldn’t buy it.