Putting together a successful spending plan is about more than just tracking your spending and then deciding where your money should go. Your success with a budget requires a little more than a list of income and expenses. Without a little something more, your spending plan could very easily fail. Here are 5 characteristics of a successful spending plan:
1. Fits Your Priorities
No spending plan is going to work unless it reflects your priorities. So, before you make any sort of budget or financial plan, think about what’s most important to you. Decide what is likely to make you happiest, and help you feel fulfilled. You also need to figure out what is the most important thing for your money to do right now, whether it’s getting you out of debt, saving up for a new house, or some other goal.
2. Measures Your Progress
We all like to feel as though we’re doing well, and accomplishing worthwhile things. If your spending plan doesn’t measure your progress, it is more likely to fail. As you create your budget, be sure to build in milestones. Whether you are working to increase your net worth, or pay off your mortgage early, use goals that can help you feel as though you are improving your finances overall with the help of your spending plan.
3. Sets Realistic Targets
One of the biggest reasons that budgets end up failing is that the targets aren’t attainable. Sure, it might seem great to say that you will have no credit card debt in six months. But is it realistic? Can you really save up enough for a 20% down payment in the next eight months? While you do want to challenge yourself to do what’s best financially, you also have to be realistic, and know your limits. When setting targets and goals, and making financial plans, be realistic. Honestly, you aren’t likely to end up with 10% returns each year on your retirement portfolio. That’s just reality. Take that into account as you make your budget.
4. Directs Your Resources
Rather than thinking of your budget or spending plan as something that limits your choices, switch your mindset to one of directing your resources. A more active look at your budget — one in which you control where your money is going — can help you find “ownership” in it. A spending plan that directs your resources, putting your money where you want it, is one you are more likely to stick with.
5. Includes Room for Fun
A budget that forces you to scrimp, scrimp, scrimp is one that is unsustainable. Eventually, you burn out on constantly pinching pennies. Soon, you find yourself completely blowing the budget. Instead, make sure to include some room for fun in your spending plan. It doesn’t have to be expensive fun, either. A small treat, if your budget is tight, is just fun. The point is to include some spending meant for your enjoyment. It’s easier to stay on track when it doesn’t feel like you are constantly sacrificing.
Miranda is freelance journalist. She specializes in topics related to money, especially personal finance, small business, and investing. You can read more of my writing at Planting Money Seeds.