Friends often suggest that I should write a book on budgeting.
I laugh at the suggestion.
I laugh because I am far from an expert on budgeting. And there are plenty of experts.
But the fact is that I have learned a lot as the financial manager for a single-income family of six. Some lessons are specific to our household alone, but there are plenty of general thoughts I can share with anyone hoping to get their finances and debts under control.
There are a million ways to budget and think about money. Here are just some five basic budgeting tips to get you started.
Basic Budgeting Tips: Don’t spend what you don’t have.
This one seems like common sense. But credit cards have destroyed this basic principle for many people.
As you look at your spending, it is time to acknowledge that unless you have a Grammy award on your fireplace mantel, you CAN NOT afford it all. Ever.
In practical terms, if you have to replace your water heater this month, then that great deal on shoes will have to wait. A relaxing sit-down dinner with the whole family might mean canceling your weekly Chick-fil-a lunch trips for that month.
This principle means adjusting your spending. It requires that you have a basic knowledge of your finances, which leads me to my next rule…
Basic Budgeting Tips: Track your money flow.
If you want to have an effective budget, then you have to know where the money is going each month.
Where does it come from and where does it go?
There are a ton of programs to help you keep track of your money. My current favorite is, “You Need a Budget“.
The best way to start is to pick a program and use it to keep track of what you spend for a month or two. It is impossible to create and follow a budget without any idea of what the basics, such as groceries, cost you and your family each month. Once you have a baseline, you can begin to plan. YNAB (You Need A Budget) has a series of helpful videos to get you started!
Basic Budgeting Tips: Define your discretionary spending.
Mandatory spending includes things like your mortgage/rent, electric, car payments, and water. Discretionary spending is what you do with the leftover money once your mandatory spending is covered.
I know it is hard for people to accept sometimes, but smartphones, tablets (especially with data plans), and even cable TV are luxuries you could live without in many circumstances.
People tell me that cute new shoes are luxuries too. Bummer.
Most people aren’t willing to give up ALL of their luxuries, and that is understandable. The goal of a budget isn’t to ruin your life, but to make it better by eliminating financial stress while controlling spending.
Depending on your personal debt circumstances and savings goals, it is always important to continually re-evaluate your discretionary spending. You might consider eliminating or cutting back on things such as new clothing, cable TV, video games, any salon services (mani/pedi/wax/haircut), dining out, movie theaters (develop patience for Redbox), and other recreation activities.
I am NOT suggesting that you have to stop spending any money on extras, though you might need to for a set time period. I AM suggesting that you consider them “optional” and go from there with your budget.
Basic Budgeting Tips: Be aware of your multiplier.
How much will the activity cost and how many folks are you paying for?
One might think, “I am tired. We’ll just grab Chickfila. It’s cheap.” Sure. It is about $7-8 for a meal. Maybe that isn’t too bad when you are on your own. But as soon as you multiply that times a family of 6, you are looking at almost $50 for Chickfila.
Bowling is a fun Saturday afternoon activity. It’s a lot of fun and not too expensive. But, when it is time to settle up, the tab for 2 games and shoes times SIX bowlers can really throw you off.
If you live on your own, then it is pretty simple. Once kids begin to arrive on the scene, especially when they outgrow kids meals, then the multiplier becomes a huge issue.
Keeping your personal “multiplier” in mind when you budget and planning accordingly is KEY so that you don’t blow the budget in one outing.
NOTE: I have no idea if the “multiplier” is an official budgeting term in the context that I am using it. It is just the term in this house, which is why I explained my meaning.
Basic Budgeting Tips: Don’t compare.
This happens to be a good rule in general for all aspects of your life. It is absolutely necessary when it comes to successful budgeting. It is easy to wonder how a friend affords to have lunch out every day when you have to pack one. While scrolling through Facebook, it is tempting to assume EVERYONE should be able to afford the week long trip to Disney.
Stop. Just Stop.
Every person has their own financial situation. Even if their life circumstances seem similar. Family money over generations can impact circumstances. There are couples who have actually paid off their home. Credit card debt is common (and unseen) for many folks who are spending more than they make. Charitable giving varies from household to household. Someone’s family Disney trip might possibly be paid for by grandparents. You get the point here?
The key idea for you to remember is that your money choices should be based on your circumstances. Don’t compare.
In the end, remember what my Dad always says, “Don’t let your outflow exceed your income or your upkeep will become your downfall.“