There are a few common reasons many people struggle with creating and sticking to a budget. One is that they set unrealistic goals, allowing no room for unexpected expenses or little treats and luxuries. Another is not having any reason to stick to the budget. Many people create a budget because they've been told it's responsible to do so and that they need to save money. However, a financial plan that is not integrated with your overall goals is useless. Whether you are a family of one or five or more, sitting down to think or talk about what you want your life to look like is the first step in effective financial planning.
Medium- and Long-Term Goals
In addition to thinking about what you want your day to day life to look like, you should also think in the longer term. If you have a family, this is something you can do together. One example might be planning for your children's college education. You may want to put away a little in savings each month with the understanding that your children will also take out student loans. These can be low-interest debts that have favorable repayment conditions. Another medium-term goal might be saving up for a down payment on a house or on a renovation if you are already a homeowner. One of your long-term aims might be saving toward retirement. Medium and long-term goals don't all have to be serious, responsible things. Maybe your family's dream is to purchase a vacation home near your favorite skiing slopes or build a swimming pool. You can work together to decide what your priorities are.
Getting Out of Debt and Emergency Savings
Being in debt or growing weary of living paycheck to paycheck is one of the main reasons many people finally sit down to take a look at their spending and how they can better manage it. This can be a powerful motivator, and it offers a concrete goal for people to work toward. There is a lot of information online and off about creating a plan to deal with debt. Various options may exist including transferring high-interest debts to a zero-interest credit card or focusing on paying off smaller debts first for the psychological boost. You should also have at least three to six months of emergency savings.
Daily Lifestyle, Extras and Vacations
Some people think budgets are only for people who are struggling with debt or have little to no savings, but this is not the case. If you don't know where your money is going, you are controlled by your money and not the other way around. This is the time to think about your values and whether your spending reflects that. The idea is not to stop eating in restaurants, going to movies or taking vacations but to identify what is most important to you so that you can ensure that you are directing your resources toward those things. There is nothing inherently wrong with buying a fancy coffee each day if this is something you can afford and look forward to. This approach allows you to avoid wasting money mindlessly.