Despite being superficially simple, managing an effective household budget tends to be problematic. Whether you have tried budgeting before or are a complete novice to this method of managing your finances, the tips below should assist in creating and maintaining a budget that works for you.
#1 – Be Realistic
When people begin budgeting, it’s tempting to be extremely strict with yourself. Most people budget for a reason; they are either seeking to clear debts or to save for a special purpose. With a goal in mind, people tend to cut their expenditure to the bone — and then realise they can’t stick to it. This is the primary reason why so many people tend to fail at keeping a proper household budget.
So while it’s good to have a goal in mind, remember that you have to live with your budget until you have achieved that goal.
#2 – Seek Control Over All Expenditure
One of the most common mistakes that people make when budgeting is not being thorough enough. If you just budget for essential payments — such as utility bills and taxes – then you’re not compiling an effective budget. You don’t want to divide your income into “Necessary Payments” and “Everything Else”. The “Everything Else” needs to be controlled, or your budget will soon spin away from you.
As well as your essential outgoings, you need to include sections for:
- Holidays, both the payment of and the money you intend to spend while away.
- Entertainment, which should encompass everything from the money you spend in the departure lounge playing the best slots sites on your smartphone, through to meals out with friends and family.
- Clothing: even if you’re not intending to buy anything immediately, you will eventually, so saving towards these purchases is just good financial sense.
- Transport, such as bus tickets or fuel for your car.
It might take you a few months to adjust to how much you need to allocate into these areas but eventually, you should have a clear idea of your spending habits.
#3 – You Need A Contingency Section
A contingency section of your budget is an amount you set aside for no particular purpose, but which cannot be freely spent either. This is what you will use if you find yourself faced with an unexpected expense. If you haven’t used your contingency by the end of the month, move it into your savings account or use it to pay off a debt. Most good budgeting apps will have a section for contingency, so make sure you use it.
#4 – Keep Calm And Budget On
There will be times when you will fall off the budget wagon, so to speak. You’ll decide that you’re in desperate need of a little retail therapy, or a planned expense will be far higher than you intended. If this happens, don’t panic and abandon the whole pursuit. This is what your contingency is for, so call that into action, and do what you can to recoup the cost from elsewhere. A budget should be flexible; it’s an ideal, and one you should strive for, but it’s not an absolute rule. Just keep calm, keep budgeting, and get back on track next month.
By keeping these four principles in mind, your future with a well-managed budget should be easy to secure.