It may seem like a logical thing to do, but you will be surprised at how few families actually make a budget and stick to it. Bad budgeting can mean that all the savings you work so hard to achieve can be blown out of the water with a couple of impulsive purchases. So, how can you make a realistic budget that you are able to stick to?
First, determine your budgeting goals. Are you saving up for a family vacation, putting money aside for retirement, or just trying to balance the books? Living frugally is much easier to accept when you have an aim in mind. Give yourself both long-term and short-term targets for the amount of money you want to save. For extra motivation, write down your weekly and monthly targets and display them around the house, along with an indication of how close you are to reaching them.
Next, you need to analyze your current spending. You can’t create a realistic budget until you understand where your money goes. For a month or two, record all your spending using a spreadsheet. Include big and small expenses – everything from housing costs to your morning coffee.
At the end of your period of recording, identify your fixed expenses – those that you pay out at fixed intervals. Can you eliminate any of them, for example by cancelling a cable subscription you don’t much use? Also ask yourself whether any of your utility bills can be reduced by switching to a cheaper supplier.
Now look at your variable expenses, which are one-off purchases such as new clothes, trips to the cinema, gifts, and vacations. Are you shocked by how much money you spend on these purchases? Take this opportunity to make big savings by adapting your lifestyle in small ways. For example, giving handmade gifts and taking your own snacks to the cinema are both ways to save money that don’t cause you to miss out on the things you enjoy.
One of the tricks to making a budget that works is not to be too strict. Don’t completely eliminate your entertainment budget. Just as a dieter who tries to cut out everything that tastes good eventually ends up bingeing, a budget that allocates no money for pleasurable treats is destined to fail.
Budget a limited amount of money for small impulsive purchases – and stick to that amount! Having this unallocated amount in your budget prevents minor unexpected expenses from throwing off your budget, and allows you to spontaneously treat yourself.
To stop yourself from spending money that you have worked hard to save in previous weeks, move saved money into a savings account at the end of each week. You could even set up a recurring payment with your bank to make the transaction automatic.
By paying attention to your spending habits and being realistic about the savings you can make, you can create a budget that is easy to stick to. Follow these simple tips and soon you will be steadily building up a reserve of savings to provide your family with security in the future.
Guest post contributed by Alison Green, for CamoTrading.com. Alison is an interior designer with a passion for frugal living, re-cycling and eco-friendly furniture and decorations.