How to create a realistic budget and stick to it
Unless you had the good fortune of being born with a silver spoon in your mouth and more money that you could spend in a lifetime, you need a budget.
You need a budget to serve as a guideline of how much you should be spending and send warning bells to your brain when you’re overspending. Without a budget you may find yourself living pay cheque to pay cheque and more often than not, running out of money before the next one is due.
The best thing about a budget: it’s the first tool and step to saving money effectively.
How to create a budget
Be completely honest with yourself about your wants and needs. Exercise some constraint, but no need to be a complete Nazi about your money. If you love music, books or going to the movies, absolutely allow yourself those pleasures in your budget.
When it comes to food — at the grocery store or takeaway — how much should you be spending?
When it comes to rent, how much can you afford?
A great golden rule of thumb I always go by comes from girlosophy author Anthea Paul: When you get paid, spilt your money into three parts. Use one third to pay yourself, one third to pay the earth (bills, debt, charity) and one third to pay your future.
If you earn $3,000 per month, split the money into three parts. Set aside $1,000 to go into a savings account, budget your rent or mortgage, bills, utilities, insurances, charity contributions and other bills to $1,000 — so if those things currently cost you more, you know you’re over your budget and need to find a way to cut down. Finally pay yourself $1,000 and ration your allowance from week to week — don’t blow it all in one go, or on one dress. I usually include groceries in the ‘pay yourself’ budget as well.
$1,000 seems like a lot of money to put away when you have debt, so the next question is should you pay off your debts before you start saving?
The answer is clearly yes, because your debts will accumulate more interest than money sitting in a saving account. So until you’ve cleared your debts, consider ‘paying your future’ as ‘paying your past’ — although, if your debt is student related, then it was a loan to better your future. It’s a drag to pay, but alas, a necessarily evil for most.
However, if your debts are related to car re-payments and plasma tvs, and the repayments are causing you to run out of cash and use your credit card at the supermarket, the only solution is to sell those items. You basically want to strive for a financial state that reflects where you are in life. Put simply, live within your means and you’ll be alright.
Tell us your top 3 tips for budgeting
We would love to hear your top 3 golden rules for creating a realistic budget.
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4 Responses for How to create a realistic budget and stick to it
As my husband & I have to try to live on a pension, we have found a simple, but effective way to budget.
We added up all our bills in one yr for each of our expenses – divided the total by 52, added a little extra to the divided amount to allow for any larger bills that may come in.
The next step was to mark some envelopes – ie. Power, Gas, Phone etc & mark them with the calculated amount. Each pay day the envelopes are credited with the individual calculated amounts – viola!!
When a bill comes in we know we have the money there, and if the bill is less than what we have saved, we give ourselves a treat according to how much money we have left over in that particular envelope.
An extra precaution we do take – keep the envelopes in a locked box in a hidden place. We even put money away for things like birthdays & xmas, so we can always look forward to a good, managable xmas with the family.
We couldn’t do it without our “envelopes”. Give it a go, I think you’ll be pleasantly suprised at how easy it can be.
Hi Lyn,
Fantastic budgeting tip – we love it!
We heard about something similar to this and they call it the ‘Envelope System’, we gave it a try ourselves when trying to budget out our fortnightly pay into daily spending amounts, really really helps – especially for when you are running out the door, you know you can grab 1x enevelope and that is all the money you are allowed for the day.
Look forward to hearing more tips from you!
Great tips Lyn!
The envelope method is realy handy and something I have personally used before! I used to add a tiny bit extra to each envelope to get that added kick of left over money each month =)
Thanks for sharing such great post, according to me budgeting doesn’t mean that you have to compromise your needs but it is important for planning financial life. Household Budgeting means to create a planning for the money spending. Build an emergency fund, minimise the use of credit card, planning, etc. are the tips for making personal household budgeting.
