When people talk about living on a budget, they are often referring to efforts to save some money here and there, as they go about their daily lives. While tightening the "spending belt" is undoubtedly a good thing for any household, the concept of living on a budget extends beyond putting some cash aside for savings.
Rather, sticking to a budget means that you account for every aspect of your income and expenses. This includes establishing strict rules about how you and your family monitor and manage monthly earnings and spending.
Creating Your Family Budget
The first step to making your money go further by living on a budget is to critically examine your financial situation. Then, you are in a position to prepare and live by a realistic budget.
Some people choose to live on a budget out of choice to save for a new car, house or vacation, while others do it through necessity to reduce their debts and pay their bills.
In either case, start your budgeting process by looking at how much money comes in regularly each month from all sources, making sure that any money earned by children is not included in this total.
Once you have tracked your income, then look at where your money goes each month. Exactly what does your family spend each month – and for what.
As you nail down the specifics of your family's spending, it's helpful to ask everyone in the household to save receipts and/or use a small notebook to write down every time money is spent. Track spending for two or three months to get a clear picture of regular bill payments, as well as average costs for food, gas, entertainment and other expenses.
A rough calculation will tell you whether you earn more than you spend – and how much you’ll need to save to turn any deficit into a profit.
Categorizing your Expenses
By grouping your spending into different categories you’ll be able to identify the most opportunistic areas to target for saving. The best way to do this is to put the groups under the headings of "wants" and "needs."
For example, a family needs food for but may want to go out to dinner and a movie once a week. This determination of needs and wants is the hardest part of establishing and living on a budget. It requires frank and honest discussions about what counts as essential spending and what can be cut.
For more information on specific budget categories, click here: How to Budget.
Cutting and Reducing
Analyzing your spending will reveal the areas where you can cut spending all together. Choosing not to spend money on junk food, alcohol, music, and eating out regularly represent meaningful ways save. However, it’s also possible to reduce spending on essential items, and this is truly living on a budget. You could try the following.
Changing brands – Popular brand name foods and clothing always cost more but don’t necessarily ensure better quality. Talk with your family members about trying some less expensive brand names and store-labeled products to help save money without sacrificing.
Reducing your usage – Encourage your family to save electricity by switching lights off, adjusting your thermostat and unplugging electrical chargers when not in use. For more tips, click here: Saving Money on Electricity.
Identifying More Ways to Save– Review your phone, internet and television plans to see if you could switch to less expensive providers and save on your monthly billing. Also examine your other monthly charges to see if there are ways to cut back and save more.
Walking or Biking – With gas and with oil at staggering prices, encourage your family to walk cycle to visit friend or go to the corner store. You can look into car-pooling opportunities for school and work.
For more information on budget creation and money saving tips, please see the article links below.