Budgeting is a powerful financial tool many consumers fail to take advantage of. As a salary earner, the virtuous cycle of spending all there is to be earned before month's end is all too common. With a handy budget and a few disciplinary tactics, this article should help get you on the road to living within your means.
1. Create a Budget
Establishing how much income you earn, then your expenses over a period (preferably over a 30 day period) are what you need to get started. If married, ensure to include your spouse in the budgeting process. Collective thinking is much better as you both are less likely to forget trivial expenses.
After coming up with a list of expenses, allocate a part of your income to go into those expenses. Also, add a little money for impromptu's and other stuff you might have to spend on. Where things don't tally up (as before you'd have used a credit card to patch up) slash out those expenses you can do without especially the DVD's, eating outs, and new clothes.
In creating a budget you might want to consider using an accounting software package such as Microsoft Money or Intuit's Quicken. But ensure to print out a hard-copy for easier future referencing.
2. Say No
Living within a budget can be very difficult except if you learn to say NO. This doesn't mean you should be 'stingy' or refraining yourself from all the good things of life. It simply means sticking to the part of your budget that says I've $XXX available for impromptus. These purchases should actually be brought down to a minimum as if - left unchecked- could gulp down a sizeable portion of your income.
When your kids ask for a favorite gadget you can't already afford. Simply reject all pleas and try to make them understand the reason for your rejection. If the requests are something you can handle, don't forget to include them in your next budget. Now is probably a good time to teach your kids the basic concept of budgeting, debt and financing.
3. Keep Track of your Expenses
This is where a paper copy of your budget comes in handy. To make sure you're not forgetful on how much is available, try sticking a copy of the budget to some place that's visible to you and whoever depends on it (especially the kids). This way you can keep a clear eye on things you've purchases and what's left.
4. Make it a Challenge
You've created a budget, are already in the process of learning how to say a big NO, are keeping track of your expenses, so what next?
To many times, families create a budget and by mid-month, they either have spent past the budget or haven't followed it up (which means they're likely to surpass at a later date). Living within a budget no matter how big can only work when you make it a priority to stick with it. If you're finding this difficult to do, you probably need to stop and refresh your memory on all the right reasons of living within a budget. Here's one, financial freedom; and another, reduced debt.
A budget is a must-have for individuals coming out of defaulting on credit card balances and other facilities.
5. Save for Retirement
This item should probably be bundled into the budgeting process but what happens when a single mom has a $3,500 card balance, school loan for 2 kids, and the mortgage to pay off. All income goes into repayments and saving for retirement becomes very hard if not outright impossible. This is not to say savings are not important, it simply means savings should come only when you won't go to jail for skipping out a large chunk of repayments.
Ideally, 20% of income should be set aside for savings, while 50% goes to the budget and 30% to debt repayment but who knows... exact situations may call for a different sharing policy.
Now you've read it all, you're one step closer to an improved life of spending what you have.
Just like every other thing you're bound to encounter, these tips on living within a budget will only work if and when you try them out.