One of the hallmarks of being a ‘responsible adult’ is knowing where your money goes. Many people get through their lives without ever writing down a firm budget. They are comfortable knowing that slightly more money comes in than goes out, and they might be able to comfortably manage a holiday once or twice a year. However, many more people spend more than they earn. This causes problems, but this is where budgeting comes in and saves the day.
Why budget when the money is flowing?
Waiting until you are in strife to budget is like planting your crops mid-winter when starvation sets in – starting early on a budget when the weather is nicer ensures a good harvest for the year. By setting a good budget early you may find that you have more or less money than you originally thought. With a budget, you can start saving before you have goals. This will mean less waiting and less strife when you decide to pursue a big ticket item, like a mortgage deposit or a round the world extravaganza.
Budgeting: Tricky and boring?
The first hurdle you may face when budgeting is apprehension. Budgeting has a reputation for being complicated, time-consuming, and downright boring. Budgets are viewed as setting rules to deprive yourself of spending; however, it all depends on your approach. Methods like the zero-sum budget focus on giving all of your dollars a job, including saving. By making this decision to save at the start, you don’t need to hold back money ‘for savings’. Simply divert money into savings on payday and do whatever you like with the rest.
For a more detailed budget, break up what you spend into the biggest and most important categories: housing, transport, food, fun, and ‘other’. Give yourself a rough estimate on your spending and review your efforts at the end of the month. Once you know where your money is going, you can adjust your budget (or your spending) to suit your goals. If you find too much money disappearing into the ‘other’ column, create a new column that suits you. Maybe it’s ‘travel’, maybe it’s ‘pets’, or maybe you need an entire column devoted to ‘wine.’ Your choice!
The Bottom Line
Budgeting isn’t about setting rules and sticking to them. It’s about taking control of your spending so that you can make informed choices. Tools like You Need a Budget or Pocketbook can help do the heavy lifting for you by categorizing your expenses and telling you exactly how much you saved each month; however, you do have to give them access to your bank details. For something a little more hands on, try out the Money Smart budgeting tools, or even the household budget template in Google Sheets.
Once you have a budget in place, you can start planning where to spend next. Budgeting helps you dig your head out of the sand and look to the future. Whether you’re aiming for a round the world trip, a deposit for a new home, or owning the world’s most expensive dog, having a budget puts you in control.