Household Budgeting For Economical Living
We are in recession
So, here we are in recession. It is so bad that entire countries are at risk of going bust. Jobs are as common as hens' teeth, each week heralds more businesses closing down and jobs lost, and you have to tighten your belt even more.
Many people could reduce their expenditure dramatically without really lowering their standard of living. If your income does not really cover your spending, or perhaps you just want to put more into a bank savings account, then it is important to know that It can be done, and likely much of it will not be too painful.
First of all you have to face up to what you can afford and what you cannot - and what is important to you, and what is not. Much of our spending is to maintain the image of ourselves that we present to the world, or who we want to be.
You could begin with cutting out casual spending – the break for coffee at a café, or a beer. Perhaps you meet for a drink in hopes of developing business prospects. If that really works for you, then well done. Otherwise, perhaps it is time to draw a line under that. Once you take all this on board, the spending cuts up to this point might go almost unnoticed.
It is vital to ensure that you do not overspend and end up getting into debt. It is a good habit not to accept offers of store credit cards, as these can end up being 'hidden' debts. All debts eventually have to be paid. Be wary of thinking that debt reduction schemes are an easy way out. They are strictly a last resort and not something you should consider an acceptable solution for too much lavish spending. After all, if it were that easy to reduce your debt then companies would not offer loans as it would be too easy for borrowers to write off the debt.
If your weekly shopping includes small luxuries try reverting to old-fashioned equivalents. In the food department, consider the budget or no-frills alternatives, You might find that they compare well against their heavily advertised alternatives, specially when you see the savings mount up.
You might find a street market, whilst perhaps unfashionable, provides decent quality without the fashionable prices.
When shopping for clothes, consider first of all just what you need for the lifestyle that you have now faced up to. Similarly, abandon the fashion labels that might have seemed so vital to you. Ask yourself whether you really need new clothes – is your old suit really so worn and beyond repair.
On the topic of home entertainment, an interesting fact is that the old-fashioned board games - often with dice, place-markers and so forth - cost nothing in electricity to use. Also, as I seem to recollect, they can be fun. Depending on your choice these can range from Monopoly to Ludo, or chess. Charades, quizzes and spelling games offer creative or intellectual possibilities.
Your new lifestyle
Applying these same principles to household appliances and furnishings, you could find the shabby or rough-cut chic adds another dimension, independent of current vogues. Taking the DIY repairs approach could open up a whole new philosophy for you. A DIY maintenance course at the local college, avoiding the beers afterwards, will give you new skills and perhaps new prospects.
How does your lifestyle compare against your consumer lifestyle before your spending revolution? You no longer follow fashions slavishly, and you question spending in detail. You have plans to save sums that before you might have spent without even thinking twice about it.
Your household might in some ways look like a throwback to twenty or more years ago. On the other hand it reflects achievement and commitment that cannot be had by merely showing a credit card.
Monitor and control your finances
Financial or money management in order to achieve this plan is important. This means a) monitoring your money matters to ensure that they proceed properly and smoothly, and b) taking measures when necessary to eliminate any problems in the smooth running of your finances.
In order to make this plan work, a little discipline might be useful. As with any plan, you need to state your objectives and targets. Your plan also needs a budget that shows when it is on-track and when your finances are out of control.
The ideal format for a household budget is a cash-flow plan.
A household budget can show income sources, various types of expenditure, and calculates the running balance.
To highlight how well the plan is going you could maintain two cashflows – your actual results and the planned version. Each version should show the same detail. Your target will be to make your actual running balance as good as your planned equivalent. Where it is not, the reasons will be found in the detail of spending and income.
As this analysis can become a job in itself it is important to identify what detail is needed to enable the financial controls you need.
Setting up the plan
Making the budget work calls for personal commitment from every individual in the household. If someone causes overspending perhaps they should have to spend less to compensate. Thus, motivation to keep within the budget will be built into this system. If this arrangement is agreed before the plan starts there can be no complaints.
When the budget does not go to plan
If matters are not going to plan – if, in other words, someone in the household is overspending - then it must be put right. It might a good idea for everyone to have their own personal budget. This will help ensure at the outset that everyone will know what to expect, and their spending discipline will be perhaps a little tighter.
Format of the cashflow plan
With a sheet of paper and pen or pencil, or using spreadsheet software if you have it:
If you using pen and paper, then:
a) write the weekly or monthly dates across the top of the sheet, allowing enough space in the columns below to enter details as in (a) to (d) below, and at the edge of the paper write on the first line 'Balance at start', on the second line 'Income', on the third line 'Expenditure', and on the fourth line 'Balance remaining'.
For each period, in the appropriate line and column:
a) enter the money in hand at the period start. This will be the amount of money left at the previous period end.
b) the income that you confident of receiving.
c) the expenditure you expect to make.
d) calculate the money left. (Balance at start plus income and minus expenditure in the period).
Also, for each period record your actual spending and calculate the difference.
This plan could be adapted, calculating average spending or noting major spending items or shopping lists.
Where you find you have overspent, determine what it was that you overspent on and remember to avoid that overspending in future. If you have overspent you might have to reduce your normal spending to compensate for that.
If you are using spreadsheet software, you can simply reproduce the paper-based system, using columns and rows. You can, of course, automate all the calculations of totals, running balances and any averages by using the spreadsheet functions provided.
Illustration of a cashflow plan, either with paper and pen or a spreadsheet
Balance at start of period
Income for period
Expenditure for period
Balance at end of period
The results and benefits
What your new, alternative lifestyle will not show is how much you are wiping off your debts or stashing money away for your future. When you decide you can live a little lavishly you will have opportunity to again follow fashions and keep up with the Joneses. You might also find that you value your ability to live without so much careless, lavish spending.
© 2012 Peter Ray