If you’ve been watching the news for the past several years, you’ve probably noticed Congress has been having some trouble getting a federal budget passed.
Although we might expect our lawmakers to have a better grip on the nation’s finances, consider this: Like Congress, two out of every three American households have no budget.
The good news is, getting your family budget under control should be a lot easier than solving the quagmire of negotiating a passable federal budget. Here are a few tips to help.
1. Figure out what you’re spending
If you have no idea what you’re currently spending, creating a budget that works for your lifestyle is impossible. You need to have an idea of where your money is going so you can make realistic adjustments to direct your dollars in the manner you feel is most appropriate.
Ideally, you should track spending for about 30 days, using either an app or writing down purchases in a notebook and adding them to a spreadsheet. Divide your spending into different categories, which can make up the categories in your budget.
You can also look back at credit card statements to find any occasional or irregular expenses, like holiday shopping or biannual auto insurance payments, to factor these into your budget.
2. Decide what kind of budget you actually can live by
For some people, a detailed budget that spells out exactly how every dollar will be spent works best. For others, this is so constraining that it’s difficult to stick to over time. You’ll need to decide which is the case for your circumstances.
If you have difficulty with a detailed budget, consider a 50-30-20 budget;
- Up to 50% of your money should be allocated toward necessary expenses, like housing, car payments, and credit card bills — things you absolutely must pay.
- About 20% should go toward saving. Ideally this should be automated — money should be taken directly from your paycheck and transferred to a 401(k), IRA, and other savings account.
- The remaining 30% should go toward wants, like cable TV, dining out, and entertainment.
As long as you keep your spending on wants within that 30% and don’t overspend, you may not need to be any more detailed than this.
But if you find yourself regularly overspending or aren’t putting enough into savings, get into the weeds, figure out exactly where your spending is in each category, and look for ways to either cut spending or increase income.
3. Prioritize the things that matter most
When you make your budget, put yourself first. This means making saving the first thing you budget for after necessary expenses. If you try to save what’s left over after all your discretionary spending, you’ll usually end up saving too little.
Once you’ve got savings under control, think about what brings you the most happiness. If you love eating out, you shouldn’t try to give that up when you make your budget.
Instead, see if you can cut back on spending elsewhere — like spending less on clothes by shopping at thrift stores or lowering the cost of transportation by driving a cheaper car. By prioritizing spending on things that make you happiest, you’ll get the most bang for your buck and living on your budget will be a lot easier.
4. Leave room for unexpected expenses
No matter what kind of budget you create, you aren’t going to be able to anticipate every single expense. That’s why it’s so important to leave a little wiggle room.
The amount of extra cash you should allocate as a just-in-case backup will vary depending on how much you earn. This shouldn’t be a substitute for an emergency fund, which you should keep for true emergencies. Instead, it’s a fund in case something you hadn’t budgeting for comes up, like a surprise field trip for your child or forgetting your cousin’s birthday and buying a gift at the last minute.
Make this a line item in your detailed budget or consider it part of your “needs” in your 50-30-20 budget. If you don’t use the money during the month, transfer it to a special savings account in case you have a bigger unexpected expense arise.
While we can’t learn much from Congress about passing a budget, there is one important lesson lawmakers can offer: If everyone’s not on the same page, you’re doomed to failure.
There needs to be buy-in on the budget process from every member of the family who has a say in spending or your carefully crafted budget is unlikely to be followed.
If you and your spouse have different ideas about spending, make room for this in your budget. Decide on a set of shared goals you both agree to accomplish — like saving for a house — and build those into your budget first.
Whatever money’s left over after covering your needs and the cost of your shared wants, divide up among the two of you to each spend or save as you wish.
Budgeting doesn’t have to be hard
Since you hopefully don’t have an opposition party in your house that you need to satisfy to get a budget passed — and you hopefully have less debt than the country does — budgeting shouldn’t be quite as hard for you as it is for our federal lawmakers.
Just take these steps today and your budget can be in a lot better shape than the country’s.
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