Budgeting Nightmare ?

Many people are averse to budgeting: “Budgeting makes you look at the ugly truth,” experts agree “It’s kind of like looking at the garden you have neglected for the past 10 years, it’s not going to look great overnight, it’s going to be something that requires some work and change on your part.”

As hard and trying as the work of creating and using a budget may be, it’s essential. Why? Because effective budgeting is the first step to achieving any financial success.

“It’s the backbone of everything else that you do financially,” says David Weliver, founder of financial blog MoneyUnder30. “It all comes down to that golden rule of spending less than you earn.  A budget is how you control that.

Just like with the massive task of fighting through ten years of weeds and neglect, where do you get started with creating a budget?

One simple but effective rule of thumb for creating and managing a budget is the 50/30/20 rule.

In the simplest terms, 50% of your income should go to your needs, 30% for wants and 20% for savings.

What’s a need?

For most people, needs include housing costs, whether that’s mortgage, rent, insurance, utilities. Other essentials also include groceries, car and loan payments, mobile and phone bills, travel, fuel, costs you have every month and ‘must’ be paid.

What do you want?

Wants fit in the flexible spending category. The things you want to do, they might include eating out, going to the movies, buying clothes or other day-to-day expenses that can vary greatly from month to month.

Naturally, your necessity, my necessity and the next person’s necessity aren’t or have to be the same. What’s most important is that you set your priorities and recognize the difference between your needs and your wants.

Finally, but most importantly, the 20% you save. This should go to your financial goals, whether it’s short-term goals, such as saving for a vacation, or long-term goals, such as funding your retirement.

As simple guidelines, the 50/30/20 principle is very effective and can be adapted to your personal situation.

Set your own ratios but the goal is to try to live so that your essentials are 50 percent or less of your income, and then you have money left over.

Help with organizing your money

Once you set your budget, there’s a good chance you’ll need help tracking your progress. You may want to do so using an Excel spreadsheet, a pencil and paper or an online budgeting tool, there are many options available.

For those of us who prefer a simple yet very effective method, try the Envelope method, use cash and you divide this between a number of category-labeled envelopes. 

Once an envelope is empty, you’re done spending for that category for that month. It’s an extreme strategy, especially in today’s world of plastic and online payments, but for those of us who have the most trouble sticking to a budget, it really works.

For a technology twist on the envelope method, try using different bank accounts for different types of spending. One account can be reserved for your fixed and essential living costs, another for dining out, saving and so on.

Many people, having spent just five minutes with a pen and napkin realise that they are making the fundamental mistake of 'spending too much, saving too little and doing nothing for retirement' - if you do nothing, you will have nothing..... so you got to do something !