FAMILY FINANCE: 7 Ways To Create A Budget That Really Works

Paula Pant

Budgets have a tendency to be great in action but difficult in theory.

That’s because many of us treat budgets more as wish lists (the way we’d like to spend our money, in a perfect world) rather than reality-based guidelines (the way we need to spend our money to meet our financial goals).

To create a budget that actually works, and allows you live a comfortable and happy life, you need to get a firm handle on what you’re currently spending, what you can really afford to spend, and what your priorities are.

Whether you’re having trouble sticking to your budget or haven’t managed to get around to creating one, here’s an easy, step-by-step guide to help you create a budget you’ll actually be able to follow.

1. Find a System You’ll Be Comfortable Using

If you like to track everything yourself to see exactly where your money’s going, set up a spreadsheet in Excel and use formulas so that you don’t have to keep adding things up by hand. If you prefer the regular pen and paper, have a dedicated book where you can keep updating your expenses.

Whatever system you choose, make sure it’s one that feels user-friendly to you. The easier it is for you to maintain and monitor, the more likely you’ll be able to stick to it.

2. Calculate Your Total Income

How much money is currently coming in? This is your net take-home pay, after things like taxes and other deductions are subtracted.

Include regular paychecks, side jobs, supplementary income, etc.

3. Calculate Your Total (Necessary) Expenses

How much money is going towards necessities? This includes utilities, rent or mortgage, car payments, medical costs and groceries.

Some expenses, like your mortgage or car payment, will be fixed, meaning you pay the same amount month after month. Others, like groceries, are variable and will be a little harder to calculate. Give your best estimate of how much you spend on a monthly basis, bearing in mind that you can always adjust this later on. (See step #7.)

4. Estimate Out Your Discretionary Spending

In order to create a budget that won’t make you miserable—and one you’re most likely to actually follow—you need to allow yourself some “fun” money. How much depends on what your current financial situation looks like, as well as which things bring you the most joy.

Decide which discretionary purchases are the most important to you and figure out how you can make room for them. You may not care at all about TV or clothing, for instance, but decide you do want to make room for going to the cinemas.

5. Don’t Forget Occasional Expenses

Not all regular expenses are monthly expenses. Things like annual car registrations may not be on your monthly radar, but they are still predictable, so you should make room for them in your budget.

To make sure you’re not socked with unexpected costs, create a slot in your monthly budget for these occasional expenses and set aside a little each month so that when your quarterly or annual bill arrives, you’ll have the money available to pay for it.

6. Make a Spot for Savings

Every month, you should be putting aside money towards three major savings goals:

• Emergency fund (3-6 months’ income for unexpected expenses like illness or accidents)
• Retirement fund
• Personal goals (saving for a family vacation, a deposit on a house, your children’s college fund, etc.)

Decide how much you can reasonably afford to contribute to each goal, and if need be, tweak some of your variable and discretionary expenses in order to allow you to save even more. Savings is something too many people put on the back burner and then regret down the road. Be proactive and make a plan to save as part of your regular budget.

7. Review and Tweak

Circumstances change. Our priorities shift, we change jobs, we move, we have more children. Discuss with your spouse regularly to make sure your family budget is working for your current goals and realities.

Remember, your budget needs to work for you, not the other way around.

Source: aboutmoney