How to Set a Realistic Budget

Budgeting can be really hard. It can be hard enough to stick to a budget but if you do not set a realistic one to start with then you will struggle to stick to it. It can be tricky to know exactly what to set and how to set it up.

Look back at finances

To start with you will need to look back at your finances to see what your status normally is. You need to note down to start with the money that you have coming in. This is money from salaries or wages, benefits, interest, pensions and any other source of income. This should only be regular amounts that you expect to keep getting rather than ad hoc amounts you might get from bonuses, birthday presents, selling items or things like that. Then you need to note what you spend on necessary items. These are things you have commitments to or you cannot go without such as food, travel to work, basic clothing, utility bills, loan repayments, rent or mortgage, taxes, contracts and things like that. Then you will be in a position to work out whether you can afford everything that you have to buy. If you cannot then you will need to start working out how you can reduce the costs of those necessities (by comparing prices and switching or downsizing) as well as how you can earn more. The budgeting exercise will actually have to change to just be a way to cover basic needs.

Most people will be able to cover the necessary items though and it will be luxuries that they will then need to examine. Make a note of the things you like to spend money on such as entertainment and going out, new technology, hobbies, holidays, charity donations, gifts and things like this.

Predict future spending and earnings

It is good to then think about the future and what might change with regards to spending. In the short term not much may change perhaps but maybe in the future interest rates may rise so the cost of borrowing may go up, you may have children so that will cost more, you might feel there is a chance you will lose your job or you might be expecting a promotion. It is good to think about the different possibilities as you may need to make allowances for that. It is not always that easy to make predictions like this but it is worth having a think about it so that you are well prepared.

Allow some extra

It is always good to allow a bit of extra money just in case. You never know when you might get an unexpected bill, a white good will break down or you need your car repaired. It is wise to put a bit of money in a savings account each month so that you have some spare to help you out when you need it. So, it could be wise, as part of your budget to have a direct debit each month to transfer money into your savings account just after you get paid. Add this into your budget and it should be easy to get it done.

Budget sorted

Once you have all this you can properly budget. You will know what you need to spend on necessary items and what you save. You will then know what you have left to treat yourself. However, you will need to be flexible. Things will change from time to time. Prices may go up but salaries may not and this could mean that you will need to change how much you allow for buying things and you may have to reduce what you are spending on treats. Try hard not to reduce the amount you are saving and try to only spend that money you are saving for emergencies. It can be there to help you out so that you do not have to borrow money when you suddenly need some.

It can sound tricky, especially if you enjoy treating yourself to things. However, if you make sure that you always have enough money to cover the essentials then you can feel more confident that you will be able to cope. It can make you feel more relaxed about managing the money that you have. If you buy less treats for yourself then it can feel like you are spoiling yourself more. This may sound odd, but knowing that you have been careful with your spending and you are only buying a few treats can make you look forward more to that treat. You may then feel that it is more of a treat and you may pick more carefully what it is you are treating yourself to. As you may have to wait longer for things it might feel more special as well. Sometimes just being able to buy whatever we like does not feel so much like we are spoiling ourselves as it is just something we always do. Thinking harder about what we want and perhaps saving up for things can feel more satisfactory.

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