Tips to achieving a balanced budget

balanced budgetWho wants to live on a budget? I sure didn’t. When I was in my 20s and newly married, I bought what I wanted when I wanted it. Then, I realized that I was spending more money than my husband and I made each month. That approach can quickly become a downward spiral into debt, stress and financial disaster.

We’ve all heard the sayings: Money doesn’t grow on trees. Money can’t buy happiness. Money is the root of all evil. A fool and his money are soon parted.

Yet, money is an integral and necessary part of our lives. The modern world revolves on money. While our ancestors may have been self-sufficient or bartered for goods and services, today’s currency is cash or credit.

Ask yourself: Are you being controlled by the need to have and spend money, or do you control your financial situation to create a more secure future?

After letting money control me when I was younger, I decided that I wanted to live within my means, save more for retirement and emergencies, and create a healthy relationship with money. To do that, I needed to create a budget. I have just recently updated my budget to meet my family’s goals and plans for 2013.

Here are some tips to setting up a monthly budget so that you can achieve financial balance and live a more balanced life overall:

Determine your income
How much is your net or take-home pay each month, including wages and bonuses? This figure also includes any taxable interest or investment income that can be used to pay bills or apply to retirement plans. This total is your monthly income to use as your starting point.

Track your spending
Write down everything you have spent for at least a month. If you can track several months, that is even better. Use your checking account statements, credit card bills, etc. to determine your spending patterns. Your list should include housing, utilities, healthcare, transportation, insurance, groceries, eating out, childcare, clothing, personal care, entertainment and more. This online budget worksheet covers most of the typical expenditures. When I used the worksheet, I wrote in a few categories that were unique to our family.

Define your basic needs
What do you need for basic living expenses? This list would include your house payment and related expenses, utility bills, car payments, fuel, healthcare, insurance (home, auto, life), groceries, etc. This number should be 50% or less of your monthly budget.

Set your wants
This category includes all the things you don’t necessarily need, but do help make life more enjoyable. Your wants might include entertainment (watching a movie, attending a ball game, going to an amusement park), personal care (haircuts, pedicures, massages), pet supplies, travel, and clothing that’s beyond the basics. This number should be 30% or less of your entire monthly spending.

Save automatically
It’s a good rule to put at least 10 to 20% of your earnings toward savings. If you can automatically deposit a certain amount into your savings account each month, that’s even better. You should also contribute longer-term to an IRA or 401(k) account to save for retirement. It’s also a good idea to set aside up to six-months worth of living expenses as an emergency fund. That way you have a cushion if you or your spouse lose your job, or if you have unexpected expenses.

Use cash
Once you have set the amounts for spending, saving and investing, now it’s time to put those goals to the test. Using cash instead of relying on credit cards is a good way to keep your spending in check. It’s too easy to pull out a credit or debit card to pay for the extra things you want. Before you know it, you have racked up a hefty credit card bill. If you get out a set amount of cash to cover extra expenses each month, you can keep a closer eye on your spending and help curtail unnecessary purchases.

Pay down debt
If you have outstanding credit card debt, it’s important to work toward paying it off. When you make only the minimum payments, you are paying high interest rates and it’s difficult to pay down the debt. Make it a point to pay off the credit cards just like you would a home mortgage or car loan. Ideally, you can eliminate that debt completely. Should you use a credit card, treat it like a temporary loan and pay it off in full each month.

Maybe you don’t have any credit card debt. In that case, make extra principal payments on your mortgage or car loan. The sooner you pay down those debts, the less interest you pay and the more money you have available to save or spend on other things.

Give back
Be sure to include gifts to your church or your favorite charities in your budget. By adding it to your budget you are showing that giving back is an important part of your life.

By setting up a budget, you take control of your money instead of letting your money control you. If you slip up from time to time, it’s okay. Your budget gives you a guideline to help you get back on track and continue on the path to meeting your goals. A balanced budget is a key step to achieving a balanced life. For more tips on financial planning and living your life in balance, check out the book A Completely Balanced Life.

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4 thoughts on “Tips to achieving a balanced budget

  1. Pingback: 10 healthy habits for the new year | Live the Balanced Life

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  4. Pingback: 9 Ways to Make Lifestyle Changes That Stick | Live the Balanced Life

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