The 10 Budgeting Basics
Learning to budget properly can be one of the most challenging, yet necessary tasks in adulthood. Fortunately, there are ways to break down a budget and create a spending plan that will help you become more financially capable. It’s all about how you look at it… after all, mighty oak trees start as an acorn. You can do this!
It all starts with a dream and a goal. Before you start cutting expenses and allocating funds, think about why you want to tighten your budget. Are you hoping to become debt free? Saving for a dream vacation? Wanting to retire early? Thinking about buying a house? By determining your long-term financial dreams, you can start making goals to help you reach them. First think of how much money you will need, then think of three smaller tasks with deadlines to help you succeed. Once you have reached one of your small goals, reward yourself by buying something small from your Amazon wish list or a guilt-free day of only relaxing and watching movies.
Include the entire household in budgeting decisions.
Budgets are rarely successful when one person makes all the decisions. Even if they are, some family members usually have differing opinions which can lead to arguments and budgeting rebellions. If everyone comes together to discuss step one (goal setting), it becomes a group effort. If the family’s goal is to go to Disney World, the kids may be more understanding about having dinner at home rather than their favorite restaurant. By including the entire family, young members of the household can learn about responsible spending at a young age.
Evaluate your income.
When calculating your income, use the amount you receive after taxes and insurance have been deducted, child support has been paid, etc. The trick is to plan your budget around your STABLE income. If you can’t rely on specific funds (such as seasonal pay, overtime, etc.) don’t include them in your spending plan. Instead think of that money as a surplus, which we will discuss more later.
Instead of planning for a budget that you hope to stick to, plan for what you know about your spending habits. For instance, if you know that you like to go to the movies with your friends once a week, don’t cut it completely out of your spending plan. Instead, try going once a month or every two weeks. By severely depriving yourself of your “wants” and only planning for your needs, you may be setting your budget up for failure.
Have a plan for windfalls and hard times.
Before you get your tax-return or have an unusually high phone bill, have a game plan in mind. When you have a financial surplus, will you save some and spend some? Will you use it all to pay down debt? The same goes for when your income falls short and can’t support your budget. Will you spend less on groceries that month? Take a break from Netflix for the summer? Eat out less? Have an idea of how you will handle these situations and stick to it.
Track your expenses.
This is important. Before you can start your spending plan, figure out which expenses are fixed or variable. Your expenses that always stay the same (fixed) would be your mortgage, rent, subscriptions, etc. A good example of a variable expenses would be your utility bill as it can vary month-to-month. Your grocery bill may be more expensive one week and cheaper the next. Try to figure out the average and use that as your budget amount.
Don’t forget to pay yourself.
Usually it is recommended to save before you start to spend. If you are already living paycheck to paycheck, this could be difficult. Instead, try to plan to save for a specific amount. By starting to save, even if it is a small amount, you are preparing yourself for an unexpected expense. Without some sort of savings, all of your work budgeting could be lost when one emergency arises. Saving also helps with preventing a debt spiral when faced with a car repair or medical bill.
Consider a rapid debt repayment plan.
If one of your financial monsters is too much debt, consider a rapid debt repayment plan. Free websites such as powerpay.org can help you structure a plan to cut YEARS off of your payments and spend less on interest. This is done without making more payments than you are currently handling. Once the first debt is completely paid, the funds used for that loan are then allocated to the next debt on top of your current minimum payment. This is a great method to use that allows you to put surpluses in your savings account rather than applying them all to a debt.
Think about allowances.
Allowances are a great way to teach kids about positive spending habits AND keep your budget balanced! Children can sometimes be a wild card when it comes to planning the family budget, but with an allowance and a clear understanding of the family goals, you can keep your plan on track. Instead of giving your teen money when they are going to hang out with friend, teach them to budget their allowance and balance their wants and needs.
A budget is a living, breathing thing.
If your spending plan doesn’t work, change it! It should also be noted that if you are having to use credit to make your budget successful, it needs to be reworked. If the spending plan still isn’t successful, talk to your local credit union or a reputable financial counselor. The biggest budgeting mistake you can make is to give up. Keep trying!