How to Create a Budget – Celebrate Small Victories!

by Khaleef Crumbley on September 24, 2010

in Budgeting,Debt Management,Personal Finance

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Many times when we think about setting up a budget, we only think about the difficult stuff – cutting expenses, trying to keep track of every source of income, setting goals, evaluating our expenses often, etc! However, there usually is one key component that can make the process much easier:

Leave room in your budget to celebrate small victories.

If you use a financial planning spreadsheet, or have financial budgeting software, then this category is a must – if you’re like most people.

What I mean by “celebrating small victories” is that you set up certain milestones in your financial journey, and then commemorate the occasion once you reach them.

Just put a small amount of money aside while you’re working to meet your goals, and use this as motivation!

Some people may refer to this as fun money, or a slush fund, but no matter what you call it, the concept is the same. If you have read my previous articles about creating a budget, you’ll know that one of the more important steps is to set goals.

Why must you build a reward into your budget?

For some people, that goal that they set is the only motivation that they need. However, most people need a little bit more than that. If they didn’t, it wouldn’t be so hard to take control of their finances in the first place! In those cases, celebrating your accomplishments is very important.

Focusing on the end result of all your hard work (accomplishing your goal) may get kind of boring after a while. So, in order to avoid getting burned out, you should set up a fun reward to go alongside your goal!

Keep in mind that the benefit of this is purely psychological, and this is not necessary if you don’t have a problem with disciplining yourself to meet your goals!

Budgeting for an incentive:

Well, since you have already established and prioritized your goals, this will be easy! Decide which goals you want to celebrate (it may be all of them ;-)). Then figure out how you want to celebrate.

Make sure that your celebration is in line with your goal. For instance, don’t plan a $5,000, 4-week cruise to celebrate the fact that you created a $500 cushion in your checking account, or that you put $1,000 aside to establish an emergency fund!

Here’s an idea: If your goal is to get out of debt and you have completely given up dining out, then celebrate paying off each creditor with a nice meal! And once you’re completely out of debt, make it a really nice meal! ๐Ÿ˜†

Make a list of a few things that you would like to buy or do. Then figure out how much each of these things will cost. Now all you have to do is decide which reward you would like to associate with your various goals.

I’ve matched my goals and incentives, now what?

Now when you have trouble with committing to your budget, you can keep these rewards in front of you as extra motivation!

The point behind all of this is, if you find it difficult to stay on track with your financial goals, this may give you the help that you need.

Some of us respond better to rewards and incentives then we do to calls for discipline. As I stated earlier, this is not for everyone, but it has been my experience that most people need this type of motivation.

Keep in mind that every dollar that you use to fund your celebrations and rewards, is another dollar that is not going toward your goals – so choose wisely!

Reader Questions:

Do you have rewards tied to your financial goals?

How do you celebrate hitting a major milestone?

Do you think this is a bad idea, since it diverts money from your goal?

How do you keep track of the money that you save for your reward?

Do you have free incentives on your list as well?

photo credit: lipjin

© 2010 – 2013, Khaleef Crumbley. All rights reserved.

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{ 8 comments… read them below or add one }

1 Money Beagle

Good point. It’s hard to stay on point and stay focused (especially when paying debt or whatever is such a long term goal for most of us), that having some tangible rewards is a good thing now and then. The keys being keep them small and infrequent enough where they remain special!


2 Khaleef Crumbley

Very good point. If they aren’t infrequent, they may just become a part of your normal routine.


3 Jason @ Redeeming Riches

This is so important to motivate you to keep that budget going – otherwise it becomes a drag and you will tend to give up easier on it.


4 Khaleef Crumbley

Yeah, I’ve had that happen to me before. I find it gets easier to accomplish these goals if I think of it as a competition!


5 TexasT

If the budget has an excess, I see nothing wrong with budgeting in a little fun money. Truth be known, I think we all spend that money regardless of whether or not it’s in the budget! If you can budget for it, though, then you can see how close you come to hitting that mark and what else you’re affecting.
I also blogged about this, and wondered if maybe you wouldn’t mind being a “guinea pig” for me. I created a budget plan spreadsheet that works for me. I realize everyone is different, but maybe your readers can also benefit.

Thank you!


6 Khaleef Crumbley

That’s a good point. By budgeting this fun spending into your budget and tying it to a financial goal, you get to set parameters and see what else is affected by this.

You may choose to set huge goals, while someone else chooses to set smaller ones – this will depend on your financial situation.


7 William

I think this is a very good introduction to the topic of budgeting. It’s important to let readers know however that good personal finance doesn’t stop with budgeting! Once your spending is under control, you need to turn your attention to dividing up your savings between

-an emergency fund (3-6 months of living expenses)

-Short term savings (things you want to buy in the next 5-10 years, generally held in a high interest account such as a high-yield checking account)

-Long term savings (non-retirement savings invested in a taxable brokerage account or other investment tool)

-Retirement (401(k), 403(b), IRA, and/or Roth version of any of these)

These things don’t all be done right away, but a household with a solid financial foundation will have strategies in place for each one of these.


8 Khaleef Crumbley

Hello William,

The great thing about setting up these milestones is that they can be whatever you desire. This isn’t just about paying off a debt or getting spending under control. It’s really about meeting your goals. So if your goal is to fully fund a 401k, or build an emergency fund, you can still celebrate!

Thanks for stopping by!


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