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We all know we should have one and we all know it’s a fairly simple thing to follow—at least in theory. Like resolutions, we often map out personal budgets with the best of intentions, only to abandon them a couple of weeks later.
It’s easy to blame our budget failures on the numbers we use, or the categories we create, or even the specific app or budgeting system we choose—but more often than not, the underlying cause of a hard-to-stick-to budget is our relationship with it. Just like resolutions, if we design budgets that are too restrictive or too vague, there’s no motivation to follow them.
Whether you’re planning your first budget or re-evaluating your current budget, the ground rules listed below will set you up for success by changing the way you look at budgeting. It doesn’t matter if you manage your budget on your smartphone or if you prefer good ol’ pen and paper—these budgeting basics can be applied to every budgeting system.
Budgeting is not meant to shame you into being financially responsible. At the end of the day, budgeting is simply about awareness. If you fully understand where your money is going each month, you can design a budget that allows you to truly enjoy your money. How fun is a shopping spree if it’s what’s keeping you in credit card debt for another month? How much can you enjoy your new apartment if the rent payment is stressing you out? Budgets are helpful when it comes to managing your bills and saving up for future expenses, but they’re also the key to spending your money confidently.
A rookie mistake when it comes to budgeting is using your salary (divided by 12 months) or your hourly wage (multiplied by hours worked) as your monthly income. Instead, take a couple of minutes to calculate your monthly take-home pay—this is your income after estimated taxes and other deductions (like health care, social security and retirement savings contributions) have been taken into account. Your deductions should be listed on your paycheck, and there are plenty of income tax estimate services online that you can use for free.
Emergency funds are an important part of any budget and should be a separate category from general savings goals. In order to be effective, your emergency fund can only be accessed for real emergencies—like sudden unemployment, an unexpected medical emergency, or a critical home or vehicle repair. Instead of looking at your emergency fund like yet another savings category, look at it as a way to strengthen your entire budget. Not only will it cover tough situations, but it will also save you stress and give you peace of mind.