Many people think that the key to having a healthy household budget is making a lot of money. They are wrong. The key to a creating, managing and improving your personal budget is financial discipline. To have financial discipline, you must be driven, motivated and determined to improve your finances.
We all know someone who makes a ton of money but doesn’t have a retirement account or any notable savings. They spend what they make, and often more. On the contrary, a common trait of millionaires is that they ALWAYS spend less than they make. The majority of millionaires have relatively modest incomes but are very frugal and therefore are able to save a large percentage of their income.
To reach your budget goals, you need to be consistent. You must work endlessly to reduce your spending. Similar to losing weight, where you must change your eating and excercise habits to stay trim, financial budgeting means you must change your spending and living habits. There are hundreds of ways to save money that most people overlook. There are also times when, similar to dieting, people fall off the wagon. I’m sure you know the feeling that because you just had to spend $500 on your car, what’s another $50 to go out for dinner? It’s that mentality that you have to nip in the bud if you want to succeed in your budget and in your personal finances.
Another key is to keep your expenses flat while your income grows. In other words, don’t suffer from the wealth effect. The wealth effect basically means that the more money you make, the wealthier you feel and the more you spend. For example, a friend of ours got a $1000 per year raise (which increases take home pay by about $40 per month). To “celebrate”, she took her whole family out to a nice dinner that cost about 3 months of her raise. The right thing to do would be to live the same and take every increase in pay to the bank.
The final key to budgeting is to enjoy it! If you don’t feel rewarded by saving money then you won’t be good at it. Find some form of measurement that makes you happy that you can focus on. Maybe the value of your savings account, the amount you’re able to save each month, or a sum total of all the money you’ve saved by making smarter decisions. Whatever it is, use it for motivation to keep you driven toward your financial goals.