With the economy still on very shaky ground, it’s more important than ever for people to learn how to live within a budget. However, there is a big problem with budgets – they’re like diets. And just like when you see that gooey jelly donut in the window of the bakery and your diet goes out the window, your budget will go out the window you see those “adorable” shoes which you simply “must have” or that new tablet computer. So how do you figure out how to actually stick with a budget?
Start By Creating a Budget
The first step in keeping your family within a budget is to simply create a budget to begin with. Now before you rush off and start slashing at everything in sight, remember that a good budget, like a good diet is not a short term solution – it’s a lifestyle change.
That means that if you really are going to live within a budget you need to write one which is realistic and which actually takes into account the facts of your life. So while it sounds great that you’ll never once buy a single meal out at a restaurant and that you’ll buy only second hand clothes from now on, realistically you need to include things on your budget that allow for the occasional splurge (again, much like dieting).
Allow Some Mad Money
This is an old term, but it still works for the modern day. Mad money basically means money that you allow yourself to “go mad” with – it’s a specific amount of money that you allow yourself (and your family) within a budget each month which you can use to buy whatever strikes your fancy. This money should be something realistic (putting $5 of mad money into your budget may be good for a 5 year old, but an adult is not going to be able to stick with that) while at the same not bursting the budget (if you make $2,000 per month and put $1,000 into mad money, it’s equally problematic). A good rule of thumb is that about 5-10% of your monthly income should be truly “disposable” income.
If You Always Eat Out, Budget it
Another important thing to do when you want to have your family live within a budget is that you need to budget for the other “splurges” in life. While your mad money is literally money to do whatever you please with, this is more specific. So for example if you happen to like eating out, then you should include some money within a budget for that. The key is to make it something (again) realistic while at the same time not budget busting.
There is no good rule of thumb for this because different people will have different splurges, but a good way of figuring this out is to start with the basics (i.e. rent, utilities, gas money, etc.) that you have to spend money on and then divide up whatever is left amongst the less important parts of your budget.
Try Simple Substitutions
For some of us, the steps above won’t be enough to allow us to live within a budget because they simply don’t go far enough in addressing the chronic money shortage many of us face each month. If this is the case, then keeping your family living within a budget is going to require a bit more effort. The way to do it is to try simple substitutions. So for example if you like going out to the movies, consider instead doing movies in the house and watching them on DVD. If you have a premium cable package with lots of movie channels, consider instead discovering the vast library of older movies available for streaming on sites like Netflix, Hulu and Amazon (just because it’s not the latest and greatest doesn’t mean it’s not a great film which you and your family will love).
Allow Yourself to Fail
Finally, living within a budget means making a lifetime commitment to a new kind of lifestyle rather than a temporary thing. And much like dieting, you may well fall off the wagon as you do your budgeting. However, the key that every dietician will tell you about dieting is the same key that you need to follow if you want to be successful in budgeting. Basically, you need to allow yourself to fail. If you happen to splurge one time, don’t decide that your budgeting is over (or your diet for that matter). Instead, simply try to cut enough to get back to living within your budget and then stick with it from then on. Following this simple strategy means that you’ll be able to stick with it on a regular basis rather than trying it as a new year’s resolution only to drop it by February.
George Gallagher is active within the personal finance and education communities online. He helps people find private loans for students that fit their budgets too.