Is Your Budget Too Tight?

Considering that the news is full of the Budget at the moment, it's easy to imagine that people are worried about their finances and the future. It makes people take a step back, assess and maybe even take steps to pinch the pennies and save the pounds.

But are you being too strict with yourself? It's all well and good saving for the future, but what enjoyment are you getting in the meantime...

Making a budget can be a great way to monitor your spending and get on track towards your savings goals. However, there is a common mistake that many first time budgeters make when they are setting out their financial plans.

This is the mistake of making a budget that is just too tight. Excited by the prospect of cutting back on spending and saving money towards a goal, it’s easy to vastly underestimate how much money you need to live. You can get carried away, cutting out your entertainment expenses, lowering your food spending, and allowing yourself no new clothing, furniture or appliances for the year.

What happens is that you will end up with a budget that looks great on paper and seems like it will save you a lot of money, but fails when it comes up against the real world. Trying to squeeze into a budget that is too restrictive is like trying to wear a pair of trousers which are much too small. You might be able to wiggle your way into them in the beginning, but they will quickly become increasingly uncomfortable. You will struggle for a while and then eventually give up on wearing them, just like you will be tempted to give up on your too-tight budget forever.

To make your budget last and make your financial goals sustainable, you will have to design a spending plan that will save you money but also allow enough wiggle room so that you are comfortable. It can be difficult to find the right balance, but essentially you want to have enough money to comfortably cover all of your expenses, treat yourself every once in a while, and a bit extra for emergencies, which you can store in an instant access account in case you need it quickly, and still have enough left over for savings.

Here are some tips for designing a budget that fits you comfortably:

• Look at your past expenditures to determine what you really spend on monthly expenses such as food shopping and entertainment. You might be estimating a number that is way bigger or smaller than your actual habits.
• Don’t forget to account for yearly expenses one-time expenses in your budget as well as monthly ones, such as Christmas presents, back to school supplies, and birthday presents.
• Round your expected spending up and your incoming funds down. That way, you will have a bit of leeway and it will usually equal out.
• Make room in your budget for the things that you enjoy spending your money on. If you don’t treat yourself every now and then you will feel frustrated and like you are denying yourself and that makes it harder to save.
• Splurge only on what is important. If travel is more enjoyable to you than driving a new car, buy a cheap rust bucket that gets you around and spend the money you saved on a plane ticket instead. You might choose to buy used clothes instead of new and spend the extra money on your photography hobby instead. When you pick and choose which indulgences are important, you will be able to spend more on them.
• Reassess your budget frequently. Look at areas where you are spending more or less than you expected. Keep adjusting your budget to your needs so that it works best for you.