A new year often brings along new budgets as we seek to get a better hold on our personal finances in 2016. A household budget helps finances run smoothly, eliminating surprises and setting a clear path for every dollar that comes into the house. However, some people have a hard time making their budget work for them. If anyone feels trapped by their budget or feels like it just never works, they might actually be cheating on their budget. This can happen consciously or subconsciously. A successful budget requires complete honesty and recognition of the natural desire to enjoy life. So how does one avoid cheating on their budget?
Recognize Personal Spending Trends
A budget is useless if it does not accurately represent spending habits. Some people think of a budget as an ideal to obtain, but if it isn’t realistic they are not going to follow it. Budgets are not perfect scenarios; they are plans for the present. They should always begin with what the household is currently spending, which includes all fixed and variable expenses. If it is normal to spend $300 a month on groceries, then that is what the budget should say. When creating a budget, it works best to categorize all of the expenses for the previous month and use that as the basis for the current month’s budget. If a household wants to cut groceries expenses back to $200 a month, they should do it gradually and budget $290 the first month, $280 the second, and so forth. A drastic change of $100 a month is intimidating and causes people to disregard their budget. Goals are great, but they need to be obtainable.
Take Steps to Curb Bad Spending Habits
This focuses on the bad spending habits that may be discovered while analyzing personal spending habits. Everyone has a weakness, something that they love to spend too much money on. Whatever the weakness is, it is important to recognize it in the budget and then take steps to curb that spending habit so that it doesn’t break the budget. There are many logical precautions to take. Some people may move to a cash-only mentality for these purchases. They place a specific amount of cash in their wallet for these expenses at the beginning of the month and when it is gone, they are done. Those who don’t like to carry cash may use the same technique but purchase a gift card at the beginning of the month instead. If the bad spending surrounds something frivolous, it may help to completely avoid that item and even specific stores for a period of time. The important thing is to recognize the problem, take action to avert it, and be honest about when it works and when it doesn’t.
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Be Honest About Income
Many people do not realize when they have fallen into the trap of overstating their income. This generally happens when someone regularly receives bonuses or overtime pay. The key is to only include guaranteed income on the budget. This means the flat rate pay or salary. If any bonuses, commissions or overtime comes in after, that it is the icing on the cake. It helps to create a destination for the bonus income ahead of time. For example, place all bonuses in an emergency fund or save it for a vacation or large purchase. Doing so will lessen the temptation to let the bonus mess with the budgeted spending. Sometimes people are in a poor situation and need that bonus money to help with groceries and other necessities. If this is the case, it helps to budget in the previous month’s bonus to help with expenses. That money has already been received so it is sure income.
Plan Ahead for Major Expenses
One of the most common mistakes is forgetting to plan ahead for major expenses. These may be large, planned purchases or simply a high outcome month. When a major appliance begins struggling or is simply getting too old, start budgeting for it right away. This may require a few months of saving depending on the budget. One of the biggest outcome months is December. Christmas almost always results in overspending. The best way to avoid this is to start saving early. This may mean setting aside money or starting the Christmas shopping. There are many more things to plan ahead for. If an expense could mess up a budget, it should be factored in months in advance.
Accurately Represent Variable Monthly Expenses
This is similar to recognizing personal spending habits, but refers directly to the essential expenses. This includes electricity, gas and water. These expenses happen every month, but are not set amounts. There are two good ways to handle them. One is to have a spreadsheet of the previous year’s expenses. Some companies include a summary on utility bills. The spreadsheet can be used to predict how much will be spent for a specific month. It is also reasonable to use the previous month’s amounts instead. Every time a bill is received, that amount should replace the previous one in the fixed expenses column of the budget. This works for most people because they usually pay the month’s utilities at the beginning of the following month.
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Budget In Some Fun Money
Budgets are plans, not shackles. Having some money dedicated to enjoyment eliminates the guilt of spending and it makes the budget livable. No one is going to stick with something they hate. By including either personal spending money or money for a preferred vacation or entertainment, the budget more accurately reflects real life. This has the added benefit of reminding people to enjoy life.
Constantly Review the Budget
Spending is always changing and the budget will not update itself. Spending habits may change as goals are met, different expenses appear in different months, the budget may need tweaking to accurately reflect spending, utilities will change and income may go up or down. If the budget does not change with life, it will become a broken tool. It should not take hours to update a budget. Once it begins to accurately represent the financial situation, the regular updates will only take a few minutes.
The key to a successful budget is honesty and livability. An honest budget tells a household where it stands financially and where it needs to go. A livable budget provides guidance and factors in personal desires. If a budget feels out of reach, then it is not honest. If a budget feels completely restrictive, it is not livable. A proper budget is an extremely useful tool that can help anybody gain and retain control of their financial life.
