Budgeting money is something of a neglected necessity in the modern world, with so many people lured into spending regardless of their financial situation. It has become almost the norm to spend each month more than is earned, often without even knowing it. This has led to severe debt problems for millions of people in the US and UK in particular, and an encouragement and acceptance of ignorance in personal money management.
Despite all the bad debt write offs, the banks and other lenders are happy with the situation. They build the risk factor of bad debts into their interest rates to ensure overall profitability, so borrowers are paying for the collective lack of ability to budget properly. Yet, budgeting is easy, so it is baffling in some ways that many people are unsure how to budget money.
Being able to budget your own money is a bit more than listing your incomings and outgoings each month, quarter, year, or whatever period you need to budget for. Yes, you must go through the listing process, and then keep an eye on both sides of the equation constantly. But there are other factors in home budgeting, and that is what this article is about.
The Greatest Incentive
To encourage yourself to budget money is important, as without the motivation, you will probably not budget that well. What incentive can there be to having a home budget and sticking to it? The answer is actually quite simple. Nobody becomes rich by spending more, or even the same, each month than they receive. Wealth grows from surplus; that is, the surplus left over at the end of the month after you have completed your spending.
Recognizing this can provide you with a kick start in wanting to learn how to budget money, and then put that learning into practice. Once you start to see those surpluses build, your confidence in wealth building, and incentive in budgeting, will grow.
It is important when budgeting to maintain a detached view of the figures. Think of yourself as a finance professional helping a consumer set and manage a home budget, and set yourself aside from any emotions that may seep out during a review of your budget. Some parts of the budget can arouse emotions, and thus distort sensible decisions. Things like cutting out a family holiday or weekend trips, that new bike for your son or designer outfit for your daughter, can be emotional sparks. It is important not to allow those sparks to set light to your well drafted budget.
If you have a family, the household budget affects those closest to you. The budget is a family affair, and it does help to talk openly about it with your spouse and children who are old enough to understand. Children may not like sacrifices, but they will understand eventually. It can be an important part of their education if you involve them. If you can give them some incentive, too, such as building their own savings scheme into the budget, then they may even start to enjoy it and truly see the benefits.
Ignore Peer Pressures
Your personal budget is simply that, personal. It is therefore something you should see in the context of your own circumstances, not somebody else's.
To budget your money effectively you really need to be able to ignore peer pressures that may force you into unnecessary or unwise spending. Just because your neighbour or best friend is having two foreign holidays this year does not mean you need to also. Just because your brother or other relative has a new home cinema system does not mean it is essential for you too.
If you can let peer pressure run off you, like water off a duck's back, then you have made a big breakthrough in learning how to budget money.
Those are just a few of the other factors that come into play in learning how to budget at home, but they are all worth considering as you focus on your incomings and outgoings while home budgeting.