A New Approach to BudgetingSpending | January 21, 2010 at 1:04 am
By now you must have come across countless number of budgeting tips which are good to read but are found to be ineffective when you apply them in practical life. Do you know why? Most of them ask you to list down your expenditures and suggest unrealistic spending targets. You try to follow them, but obviously can’t. Most of them ask you to cut down on your expenditure on entertainment etc. but is it possible for one to survive without any entertainment? The new approach to budgeting does not actually ask you to cut out on any of your expenditures but to adjust them in such a way that you don’t overspend.
According to the new approach, making monetary predictions is one of the most foolish things that one can do. How can you say for sure, how much you are going to spend on what at the beginning of a month when you don’t know the exact expenditure you’ll have to bear tomorrow? This is the reason many of us fail in our budgeting and that is not due to any fault of ours. Every time I’d plan my expenditure for about a month in advance, I’d have to encounter sudden extra expenditure. My spending would always be more than the planned amount. There was no point in making a rigid list of expenditures. Life is practical and you simply don’t know what lies in store for you the very next moment. Here are a couple of effective strategies that are easy to implement:
When you make a budget, don’t allot separate amounts of money for small and optional expenditures because they are so very negotiable. Put your expenditures on cosmetics, dining out, movies, all in one category and allot a chunk of money for the entire category. If you allot independently, you might actually cross the boundaries set. In a month if you are buying an extra cosmetic you can always compensate for the extra expenditure by eating out less number of times.
Big expenditures, unlike the small ones are compulsory. You probably can’t do without paying your house rent or your telephone bills. These expenses are almost the same every month and non-negotiable. So, just go ahead and strictly allot money for each and every big expenditure because you really can’t compromise on any of them. You simply can’t stop using your telephone because your house owner increased the house rent, can you?
Another tip that really works is based on when you pay yourself. Most of us are used to being paid on a monthly basis. But then, most of us are also in the habit of spending most of our allowances in the first week or ten days of the month. Naturally when you have a lot of cash in your hands, controlling yourself is quite difficult. But when you have 15-20 days to go in the month, you’ll be compelled to fill up your cash tanks once more because that is a pretty long time to manage with scarce resources. This is how you overspend. So how are you going to check your expenditure? The trick lies in reducing the time period of financial deficit. If you pay yourself weekly instead of monthly, even if you spend all your money by the first three days, you’ll not want to visit the ATM counter because you’ll psychologically feel that there are only four days to go and you can manage anyway. However, big monthly expenditures like your house rent and child’s tuition fee need to be paid on a monthly or term-wise basis only.