Setting Up a Realistic Budget Money Families.com

Setting Up a Realistic Budget

One reason that budgeting fails for so many people is that they set up unrealistic budgets. Often they may sit down and arbitrarily decide how much they should spend on each category. They may not take into account once a year expenses, and they may not plan for emergencies. Or they may cut the amounts they spend too drastically, and blow the budget in a week or two, and then just give up all together. Here are five tips to set up a realistic budget.

1) Track your spending for a month. If you use mainly debit cards and the checkbook to pay for your expenses this should be fairly easy. It is even easier if you use a program such as Quicken or Microsoft Money. You can simply pull up where you spent the money and the amounts spent.

2) It is best to take the average of two or three months to set up your initial amount per category. You can also average out the cost of your utility bills by looking at the cost over the last year. Once you have these figures sit down and write down how much you would like to spend in each category.

3) You need to find the areas that you can cut back on. You may not want to start with a cut and slash attitude. It may be easier to cut back the amounts you spend each month until you reach the target amount. If you have cut back gradually you are less likely to overspend the amounts.

4) You should keep a few fun categories in your budget. Each person should receive some money that they can spend each month, similar to an allowance. This amount will vary according to what you truly can afford. If you enjoy eating out, you may want to budget one or two nights out a month. This helps prevent the feeling of being deprived, which will help you stick to your budget.

5) Make sure that you plan for occasional expenses and emergencies. You can do this with an emergency fund, and by saving for occasional expenses such as car insurance. Since you have spread the cost out over the year, it will not break your budget.