Is keeping to a budget a psychological thing? Yes, keeping to a budget has much to do with you as a person rather than the budgeting methodology you are using. The psychological side of budgeting is touched upon in the conclusion because the bulk of this article is all about how to manage a budget. Most people make the act of keeping to a budget a lot harder than it has to be, which then affects their frame of mind and pushes them to fail. Here is how you win and make your budget great again.
1. The Optimist Always Loses
Whenever you create an income prediction, you must underestimate what you’re going to bring in. you have to assume that you are going to spend a lot of time off work for illness, or you’re going to be paid a little less for breakages you make at work. Do not be shy with your prediction.
For example, you could take your yearly wage and lower it by 20%, and then put that number into your budget. This extreme budgeting may seem overly cautious, but you’ve no idea how good or bad your year will be and your budget needs to be prepared for the worst.
2. Expect The Worst and Then Account for Extra
If you want to manage your budget like a professional, then you need to overestimate how much you are going to pay out. Unlike tip number one, you can’t generalize when it comes to estimating how much extra to add onto your expense budget. In addition to overestimating for your regular expenses, you should probably have a misc-bills fund for unexpected bills.
For example, if you are currently paying between $40 and $70 per month on your phone bill, then your budget needs to suggest costs of around $95 per month. Yet, if you have a Norton Internet Security subscription for $45 per year, then you simply put it as $55, (since it will probably go up to that amount next year anyway).
Always overestimate how much you are going to have to pay out because bad luck may mean you pay out far more than you expect.
3. A Contingency Fund Should be More Like Self-Insuring
A contingency fund is money you skim from your wages every month. It is your rainy day savings, but it is a little more sophisticated. The idea is that you save the money in an account until it reaches a tidy sum, and then you invest it in something like CDs, or maybe stocks or bonds.
The money is never to be spent. For example, it is not your wedding fund. It is only used in the worst scenarios, a bit like how you pay into an insurance policy every month and then they pay out when something bad happens.
4. Stop Making Unnecessary Losses
There is a difference between unnecessary losses and wasting money. For example, spending money on a new console game is a waste of money, but it is an entertainment item and represents some form of value. However, if you are paying extra for your electricity because you are not washing and drying your clothes correctly, such as washing and drying thick cottons mixed with light synthetics, then that is an unnecessary loss.
Analyze your home and your lifestyle to determine what are unnecessary losses (and fix them) and learn what are wastes of money (and try to reduce them).
5. Track and Monitor Your Spending
As touched upon in the introduction, some of the reasons you break your budget are psychological reasons. One of them is a feeling of no control over your money, which allows you to self-deceive yourself that overspending today is okay because you will make up for it tomorrow.
For this reason, and probably many more, when creating a budget it is better to track and write down what you spend. Let yourself see how much you’re spending and earning compared to what your budget demands. It is oddly satisfying when you see how you have stuck to your budget for a good few weeks.
6. How to Manage a Budget Over the Long Term
It sounds silly, but many people fail to maintain their budget because they do not change it over the months and years. Even obvious things like changing phone bill amounts as the rates go up, or changing fuel costs as prices go up, some people do not update their budgets.
If you are good at keeping to your budget, then you will start feeling the satisfaction of adjusting your budgets downwards because you have started saving money in areas where you used to lose a lot of money.
7. Find Your Problem
Again, to touch upon the psychological reasons for breaking budgets, there are actually quite a few, and maybe you should find the root of yours. For example, some people overspend when they are around their family because they want to appear successful. Others have a son/daughter who they cannot say no to, and others leave the money issues to their partner even knowing that their partner cannot handle the responsibility.
You may simply need to learn how to budget money on low income. If you are struggling to stick to your budget, then there is probably only a single problem, so seek it out.
The Associations You Make in Your Mind
Maybe some of these tips how to manage a budget will work for you, and maybe all of them will work for you. Yet, it is important that you do not associate the idea of budgeting and saving with any form of pain or suffering. People quit their diets because they associate dieting with painful exercise and unexciting meals.
If keeping to a budget means you have to suffer, if it means you never treat yourself, if it means your quality of life is lowered too much, then you may be subconsciously using aversion therapy that causes you to associate pain with budgeting. This will make keeping to your budget a lot harder. If keeping to a budget means you are suffering in some way, then you are doing it wrong.
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