Creating a budget may seem time-consuming, but there are many ways to simplify this process. If you don’t know where to start or have fallen off track, this article is for you. Below, we will discuss what a budget is, embracing the “less is more” mentality, and forming realistic expectations for your household.
What is a Household Budget?
Simply put, it is a spending plan that accounts for the income and expenses of an individual or household. There is no one-size-fits-all budget, so it’s best to create one you will most likely stick with. Adhering to a general guideline will prevent unnecessary spending and, ultimately, allow you to achieve your financial goals.
The “Less Is More” Mentality
For someone who is creating a budget for the first time, a common mistake is to overload it with too many categories. You are more likely to stick with a plan with fewer groups to maintain. In turn, you will increase your chances of accomplishing future financial goals. One popular rule of thumb for budgeting is known as the 50/30/20 approach. Allocate 50% of your take-home pay to needs, 30% to wants, and 20% to savings. If you find it difficult to discern between a “want” or “need,” the 80/20 approach may be a better option. For this, you would allocate 80% of your take-home pay to spending and 20% to savings. While the 80/20 rule of thumb is a great starting point, every household will be different. Take time to find what ratio best fits your needs while ensuring you can accomplish future goals!
Forming Realistic Expectations
After reviewing your budget, you may decide to reduce costs in certain categories. If you plan to cut money from your budget, don’t start by slashing 50 – 60% off. Instead, you should target 5 – 10% less the following month. Small incremental changes over time are more realistic and sustainable.
The Bottom Line:
Take control of your finances and build a budget that will last. Most important of all, keep a positive attitude. Incremental changes can lead to a major shift in your life over time.
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