One of the single most important skills a family can have in this day and age is a basic knowledge of budgeting. Why?
Budgeting removes doubt.
Back in our grandparent’s day, a budget was important, but physically trading cash for goods created a simple atmosphere of economy. They found the balance between spending and saving to be a natural aspect of their daily lives.
Fast forward to the frenzied, information-soaked culture we are planted in today, with its credit cards, data transactions, lack of cash, and easy credit. You can quickly see how learning budgeting basics are even more important than it was 30 years ago.
How do I create a budget?
At its simplest, budgeting means making sure that the amount of money you earn is more than the amount of money you spend. Easy enough, right? Reversely, a budget ensures that you spend less than you make.
The actual budgeting process involves making a list of expenditures. Keep in mind that the total of those expenditures must be less than your expected income for the month.
Notice that expenditures must be less than your expected income, not equal to. That’s because our brains are immensely prone to overspending. We might say, “I’m going to budget $100 for food, and if I only spend $90 then I’ll have saved $10 for the month”, but in reality, most of us will spend that entire $100 amount. That’s why, when budgeting, it’s imperative that you plan to save.
For excellent budgeting sheets, check out Dave Ramsey’s budget forms. Dave is an expert at helping people budget and avoid debt while keeping in mind human psychology.
As you create your budget, make sure that your expenditures are less than your income (I’d suggest starting with a $20 margin if your budget is tight). Remember, plan to save.
- Don’t be unrealistic when stating your expenses. For example, if it costs $1200 each month to feed your family, don’t write in $900 expecting to magically save 300 bucks with a little will power and a colossal bag of rice. After examining the overview of your actual expenditures you can make a plan and adjust accordingly.
- Don’t adjust all of your spending categories at once. If you’ve written down all of your expenditures and you find that you’re overspending your income, pick one category that you can realistically reduce. The food allocation is typically the first category that families adjust when attempting to balance their budget. Set a realistic goal for that category and then live within it for a month. The following month, choose another category to adjust (“entertainment” and “clothing” are good options).
- Don’t forget to make a plan as to how you’re going to reduce your spending in whichever category you’ve chosen. For example, if you’re aiming to spend less on food, make a meal plan for the month and adjust your shopping list accordingly. If you’re trying to spend less on clothing, consider making a list of clothing needs and then shopping at the local thrift store.
- Don’t expect to succeed if your income is drastically less than your bare minimum expenses. If you’ve already cut your expenses, sold every possession that’s not essential and still can’t make ends meet, you’ll need to create a larger income.
- If you’re married, it is imperative that both spouses create and oversee the budget together, each with an equal say as to the distribution of income.
Although it might sound like a restrictive process, creating a budget is truthfully a very freeing experience. There is joy & peace in knowing exactly where each of your dollars are being spent.
When you know that your finances are under control you’ll find your steps easier and stress drastically reduced. Trust me 🙂
What are your budgeting tips? How has using a budget helped your family?