A realistic budget plan takes some work. Creating a budget plan is challenging on its own. Making sure that it is realistic is another challenge that you have to face. And it is not like you only have to make this effort once. Even if your budget plan is realistic right now, it will not stay that way for long. You need to continuously check if it is still applicable and aligned with your current lifestyle.
A wrong budget plan is nothing. If it does not reflect your real financial situation, it leaves you in the same boat as those who are financially illiterate. If you do not want to jeopardize your financial security, you need to do something about it.
You need to make sure you have the right budget plan guiding you towards the right financial choices. Unfortunately, a lot of Americans do not care to use a budget. At least, this was true less than 2 years ago.
If you have lasted this long without a budget plan, you need to change that immediately. You need to get serious about your budgeting efforts because all it takes is one mistake or emergency to put your finances in the red. Before that happens, you need to get your finances in order. And the first step to do that is to create a realistic budget plan.
Features of a realistic budget plan
But how can you create a budget plan that is realistic? What does that even mean?
A realistic budget plan means it is aligned with your current lifestyle and all your future plans and financial targets. As mentioned earlier, this is something that changes over time. That means what is realistic when you first made the budget plan may not be true in a few months time. It is the reason why you need to always check if your budget plan is still complimenting your current lifestyle and future goals.
To help you create a realistic plan, here are the features that you need to make sure it has.
Accurate list of expenses
Obviously, the detailed list of your expenses can be overwhelming to monitor. This is why you should focus on spending categories instead. Start by listing the expenses that you need in order to satisfy your preferred lifestyle. Spend an entire month observing and listing the actual items you spend on. List even the small expenses. All of these will matter when you are trying to figure out your spending categories.
While accuracy is important, it is also vital for you to make sure that you have all the spending categories that you need. Do not eliminate something that you really need. That will only end up making you miserable. And when you become miserable, you might end up overspending. This is why your budget strategy should really take into consideration your real expenses. Otherwise, you might end up overspending every month.
Another feature that will help you create a realistic budget plan is your income projections. If you have accurate expenses but your income is not, you might end up over calculating the amount that you are allowed to spend each month. If you make your income bigger, you might list more expenses thinking you have more funds to pay them all. When you realize that there isn’t enough, it can be frustrating. To make it worse, you might end up borrowing money to make ends meet. This is why you need to ensure that your budget plan shows the actual income that you are getting. If you have an irregular pay, you might went to base your expenses on the lowest amount that you earn.
Budget for irregular expenses
These irregular expenses are those that do not happen on a monthly basis. These include birthday and anniversary expenses, back-to-school spending, weddings, vacations, holidays, etc. If you have annual payments (e.g. insurance premiums, taxes, homeowners’ association fees), you should not forget to include these in your budget. Make a list of these expenses and get the sum. Divide the answer into 12 and whatever amount you get should be a savings target each month. That way, when the annual payments come around, you have the funds ready.
Yet another feature that you need to include in your realistic budget plan is your savings. According to reports, 46% regret that they are not saving enough money. Admittedly, it is easier to spend than to save. But that is where your budget plan can be of assistance. If you put your saving goals in your budget plan and you treat it like a bill, you will be forced to pay it each month. If you want your budget to help you reach your goals, you need to have this mindset about saving. Among the saving goals that you should have must include your retirement fund, emergency fund, etc. Putting it in your budget plan will increase the chances that you will always have a contribution for it.
You have to remember that a realistic budget plan can be as unique as it can get. After all, it should be according to your lifestyle and preferences. For it to be realistic, you have to make sure that it can satisfy how you want to live your life. Of course, for the sake of financial security, you should always keep one eye out for what you want to happen in the future.
Tips to maintain a realistic budget plan
We have mentioned earlier that a realistic budget plan is only as great as your ability to follow it. Making it realistic does not automatically make it a success. You only create the budget plan that way so it is easier to follow it. If you want it to be successful, you have to make sure that you will follow the budget that you created. Otherwise, your efforts will be for nothing and it will be very easy for you to fall into a financial crisis.
According to statistics, 43% of households cannot afford a basic monthly budget – giving evidence that they are living in poverty. We are not saying that this is caused by their lack of budgeting skills. However, you need to realize that a lot of people in our society is really struggling with their finances. That means our economy is not in a great shape. It is not impossible for one mistake to quickly put you in a dire financial situation.
This is all the more reason for you to ensure that your realistic budget plan will work – and will do so for a very long time.
The thing is, creating the budget plan the first time is not enough. You need to make sure that it can be sustained. There are two things that will help make that possible.
Approach it with the right mindset
Some people do not like budgeting because it makes their life feel restricted. Following all these spending limitations can feel that way – but only if you have the wrong mindset. Do not think that a budget plan is there to make you feel restricted. You have to see it as a tool that will help you reach your goals. That feeling of restriction is actually your way of taking full control of your finances. You are telling your paycheck where you want it to be spent – instead of just winging it. Admittedly, it can be difficult to get used to. However, that is only in the beginning. Soon, you will find yourself looking to your budget for most of your decisions – which is a good habit to have.
Always review it
You should also keep in mind that your realistic budget plan will not always be applicable. Your life constantly changes and along with that are your priorities and finances. This is the reason why you need to ensure that you will always take a look at your budget so you can check if it is still applicable in your life. If not, then you need to make the necessary changes. That way, this budget plan can help with your money management efforts.