What are common traits a successful budget? What characteristics cause some budgets to succeed and others to fail?
#1: Your Budget Must Reflect Your Priorities
Step one is NOT make a budget. That’s step two.
Step one is to sit back with a blank sheet of paper and reflect on the highest priorities in your life. What’s most important to you? What kind of life do you imagine for yourself?
This step is crucial, so don’t skip it.
You might spend several days thinking deeply about this question. You may want to discuss it with your family, friends or religious leader.
Serious reflection about your priorities might cause you to draw conclusions such as:
- My top priority is to have enough money for my retirement, so I won’t be a financial burden to my children in my golden years. That is more important than buying a 2-year-old car, when a 5-year-old car would do the job.
- second highest priority is to have enough money to send my children to college. That is more important than spending a week on the beach this summer.
- My third highest priority is to feel the relief of having my mortgage fully paid. Contributing an extra $100 per month towards the mortgage is more important than getting new furniture.
Let me be clear – I’m not implying that the priorities listed above should be yours. Your priorities are personal – you must choose your own priorities.
The point is that the most successful budget is a reflection of your deepest-held priorities.
#2: Make Small, Infrequent Lifestyle Changes
It’s easy to give up on goals that are too ambitious, too fast. “Go to the gym seven days a week!” might be too ambitious for someone who doesn’t exercise at all, but “go to the gym twice a week” is a reasonable goal.
Similarly, drastically chopping your spending – or dramatically re-directing your money – might be too large of a lifestyle change. It’s tough to go from spending $100 on entertainment every weekend to spending $0.
Design a budget that lets you make small tweaks to your lifestyle. Bring a brown-bag lunch to work. Shop at the outlet version of your favorite retail stores (like Nordstrom Rack instead of Nordstrom). If you’re going to make a major change, do it in a “big-ticket” area – like buying a 6-year-old Honda Accord instead of a 1-year-old Acura. That’s a purchase you’ll only have to make once – after you buy that car, there’s no temptation to buy a different car next week.
#3: Track Your Results
Nothing compares to feeling a sense of accomplishment. Build milestones into your budget so that you can have the satisfaction of hitting your goals.
These milestones can be symbolic – say, when you have paid an additional $10,000 towards re-paying your mortgage (in addition to your regular mortgage payments). Sure, you don’t have your entire mortgage paid off yet – but you’re $10,000 closer, and that’s a reason to celebrate.
Here’s an important tip: Don’t necessarily celebrate by splurging. That’s like celebrating losing 5 pounds by eating an entire cheesecake.
We are taught to believe that “celebrating” must involve spending a lot of money. It doesn’t.
Real celebration – at its core – usually involves spending quality time with the people you love. You can celebrate by turning up the music and dancing in your living room. You can celebrate by renting your favorite movie or spending a day at your favorite park. Or you can celebrate in the way you did when you were a kid: by giving someone an enthusiastic high-five.