Forming good habits isn’t an easy process. Our instincts tend to work against us, whether we’re trying to improve study habits, get in shape or — perhaps most importantly — get a hold of finances once and for all.
Change doesn’t happen overnight. That’s part of the reason why around 90 percent of all diets end in failure. Quickly changing habits might work for the short term, but in the end, we go back to our previous habits. Forming good budgeting habits is exactly like a diet. You can quickly try to make a 180-degree turn, which probably won’t work. Or you can make slow and incremental changes that set you on a positive course for the rest of your life.
Those people who claim to have the “one simple trick” for getting rich or the “ultimate secret” in how to budget your money shouldn’t be believed. There are no easy fixes or fast hacks. Instead, forming budgeting habits is a series of habitual changes that should be attained over time.
Here’s exactly how to get started down that path.
“Audit” is a scary word that brings to mind a team of bureaucrats going through someone’s financial records. On a personal level, an informal audit is far less intimidating. All it requires is taking a good, hard look at your finances from the previous few months.
Take a look at your credit card statements. Do the same for your bank balances. This will help give you a good look at your financial situation. This “audit” doesn’t need to be overly complex. Instead, it’s to give you an idea of how much money you’re spending and what you’re spending it on.
Are there recurring payments you don’t know about? Find out exactly what they’re for. Are you spending a lot of money on going out? Make a mental note and keep that in mind for later. Don’t forget to look at all your bills, whether it’s for the internet or for college, to see where those stand.
Money going out is important, but it’s also critical to look at the money coming in. Take a close look at your net pay — after taxes, health insurance, etc.
Consider this something of a fact-finding mission. You don’t need to take any action yet. Instead, this is to give you a full picture to help influence later decisions.
Get Some Help
Doing something new on your own isn’t fun. Fortunately, there are plenty of financial tools out there that can guide you. You won’t even need to open a spreadsheet.
Programs like Mint — which is free — and You Need a Budget — not free, but many people say the price is worth it — do a great job of automating the budget process. They show you exactly what you’re spending your money on and then set spending guidelines based on your habits. These programs can be set to autopilot, but you’re better off tinkering with the settings to see what works best for your situation.
Start Deciding What’s Most Important
It’s not uncommon to be a little freaked out with how much money you’re spending. Most people never pay too much attention to this, so it’s something of a shock when they see the figures placed in front of them. Even those tiny daily purchases add up over time. For example, a cup of coffee costs about $2.70 on average. Multiply this daily ritual over 270 workdays and that’s more than $700. Maybe it’s time to start brewing your own?
Coffee is a small price to pay for comfort in the scheme of things, and it’s low-hanging fruit. That’s why you need to be judicious about the big purchases you tend to make. Clothing, restaurants, tech gadgets and other items might be eating into your finances more than you think. With a budget, you’ll have a guideline for how much to spend.
Set Attainable Goals
It’s hard to stick to a routine if you aren’t being rewarded. That’s why you should set simple, attainable goals to your budgeting process. Are you under budget with clothing purchases? Then treat yourself to something you love — and that isn’t too expensive. If you went above the minimum payment for a loan, then you also deserve something.
This is all a way to keep yourself on track. Studies have shown that setting attainable goals — and then achieving them — can be very motivating.
Take It Slow
Budgets are about as appealing as diets when you first think about them. Both suggest you’ll have to go without the things you like. There’s some truth to that, but it’s not like you have to live like a monk when you’re on a budget. It’s about making incremental adjustments over time rather than an instant halt on buying your favorite things.
Once you get in the habit, you’ll be surprised at how easy the whole process was.