Statistics show that Americans are beginning to realize they have to learn how to do a budget as a key step to providing their own financial security. So how do budget amid the challenges of holding down a household, raising kids, and providing for college education.
Statistics show that Americans are beginning to realize they have to learn how to do a budget as a key step to providing their own financial security. A recent study shows that Americans went from years of a 2% savings rate to maintaining more than a 5% savings rate in 2008 on. The failings of many global economies have caused many to get some of their financial affairs in order. Of course a 5% savings rate is certainly a significant improvement but by no means a rate that will allow us to retire with dignity. So how do we do better than that, amid the challenges of holding down a household, raising kids, providing for college education, etc…?
The sad truth is most adults have tried to budget at some point in their life; many, however, without success. Those that do successfully budget will tell you that a productive budget has much more to do with mindset, constancy, and focus than it does with financial knowhow or prowess. Consider the quote “eighty percent of our motivation is derived from our expectations.” That means we have to believe that we will be successful in order to have and maintain the necessary motivation to carry out a task. So what are some practical things we can do to develop and maintain successful budgeting habits?
Create a new budget every month: The simple fact is that every month is different; there is no, one set of numbers that will work perfectly for every month. As an example, you probably spend more on gifts in December than you do in January so the amount you set for gifts changes each month. This is the same for other categories of expense. Second, a lot of people think they can budget in their head. The truth is, you have to write it down and base it on your actual patterns to ensure that what you have in mind actually works.
The cash budget: Wen you’ve completed first budget, highlight as many things as you could practically spend using cash. Examples might be groceries, dining out, clothes, and household items. This helps your budgeting process because cash is finite and easier than debit cards to identify with. Keep track of your cash purchases so you can review and adjust next month’s budget.
Budget for unexpected expenses: This may actually be the single most common cause for people to fail at and give up on budgeting. The deal is that unexpected expenses aren’t really unexpected… you should expect that unexpected things will happen. That’s why they call them unexpected! Be sure to set aside money in your cash envelope for things that you didn't account for. For larger things, you should have an emergency fund.
Get on the same page with your spouse: If your spouse is spending unplanned money when you’re trying to budget it isn’t going to work. You have to sit down, review, adjust and agree the budget together. Give each other allowance that you agree to and that can be spent without checking in with each other.
Know the difference between wants and needs: There are a few fundamental needs in life; they include things like food, shelter, clothing and water. If you can wrap your mind around that, it’s the first step to becoming more realistic about the difference between a want and a need. If you spend your life with the two of those confused there is a significant opportunity cost to you.
If you do these things it will feel as though you have received a raise. You’ll find money that you didn’t realize you had and will have a quality of life in your marriage that is underpinned by solid communication, financial stability, and alignment of goals.
