Realistic Budgets

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Creating a budget can seem overwhelming. Creating a  realistic budget  can feel impossible. How do you know what a realistic amount is? The first step is to take a look back at your spending history to create a realistic budget.

Realistic Budgets start with your spending history

Look back at the last 4-6 months of spending. I know it may seem like a tedious task, but it’s important to see where your money is going every month.   Segment it into categories such as groceries, utilities bills, and entertainment. Determine the average monthly amount you spend on the category. In cases of utilities that fluctuate with the seasons also include the highest and lowest bill paid and for what month. And don’t forget those bills that are paid annually or semi-annually; find the monthly average for those too so when payment time comes, the money will be there.

Now you have a better picture of your spending habits. This activity helps in two ways:

1.You have a starting point for a dollar amount to budget to that category based on what you historically spend.
2.You find out places where you spend more than you thought. (Really? I spend $12 a week at Starbucks for coffee?)

Now, take an item such as groceries. If the average seems high, try setting a monthly budget about 10% lower than the average. Split that into weekly amounts and try to stay on or under budget for the next month.

Do this exercise for all your categories and items. Now add up the monthly amounts. Hopefully it comes in under what you bring home. If not, you’re in bigger trouble than you thought. Let’s assume for now that you can cover everything.

See the amount left at the bottom? Don’t make these mistakes in thinking:

  • “There is extra money left over. That is what I will put in savings.”
    - No.   Determine a set amount for monthly savings and keep it as a line item in your budget. Pay yourself just like a bill. That way it becomes a habit and you are less likely to feel deprived.
  • “I can assume this is the amount I have left every month. I don’t have to pay such close attention to my spending after all.
    - No. This is how you get behind; by telling yourself you can cover any overages with next month’s extra. Then you have a flat tire and your next three month’s extra just went out the window and you are on the hook for this month’s expenditures as well.

Budgeting is like dieting. The minute you start to think about it you start feeling deprived. You start thinking of all the things you can’t have. But ask yourself, how important are some of those things? Once you make a purchase, do you actually do something with it? Or are there unfinished projects and activities already in your home that you bought stuff for and never finished or even started? Do you really watch so much TV that you need 500 channels? Do you watch any of the 250 DVDs you own?

In today’s want-it-now world you need to stop and think…imagine what the future of that purchase will be? Does it fulfill a need or is it just “neat for now?” Will you devote time to using it or did it seem like a good idea at the time and now it just sits there?

Once you get comfortable with what you want to do with your time, you will stop pining for every new thing because it won’t feel very important anymore. You won’t feel deprived. And keeping on budget will have become a habit.

 

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