A budget is often treated as a financial punishment because many believe it is a list of things you are no longer allowed to spend money on and that is probably why so many budgets last about as long as a New Year’s resolution. A useful budget is not really about cutting everything back ,but rather about making sure the money coming into your household has a job, and that the way you spend it reflects the life you are actually trying to build.
The first thing to think about is what your income really looks like. It sounds obvious, but budgeting around your gross salary rather than the amount that actually arrives in your bank account can leave you with a distorted picture from the start. Look at your take-home income and, if it varies from month to month, work with a conservative figure rather than assuming that a particularly good month will become the norm. Bonuses, commissions and other irregular income should ideally be treated as extras rather than money you need to make the monthly budget work.
Next, get a realistic picture of your fixed commitments. These are the expenses that tend to disappear from consideration because they happen automatically. These are things like your bond or rent, vehicle repayments, insurance, school fees, medical aid, rates and taxes, subscriptions and other debit orders. Add them up, because it can be surprisingly sobering to see how much of a salary has already been committed before you have bought groceries or filled the car with petrol. This is also where you may spot expenses that have simply been allowed to continue because cancelling them feels like too much effort.
The third consideration is the cost of living that changes from month to month. Groceries, electricity, fuel, eating out, clothing and entertainment all fall into this category, but the important point is not to pretend that these expenses can be predicted perfectly. A family does not spend exactly the same amount on groceries every month, and there will always be birthdays, school events, repairs or an unexpectedly expensive week. Look at what you have actually spent over the past few months rather than deciding what you think you should be spending. Your budget needs to describe your real life before it can help you change it.
Then there is saving, which should not be whatever happens to be left over at the end of the month. If saving is important, it needs to be treated as one of the household’s commitments. That does not necessarily mean setting an ambitious target that leaves you struggling to get through the month. A smaller amount that goes into savings consistently is more useful than a large amount that works only in theory. An emergency fund is particularly important because without one, an unexpected medical bill, car repair or period of reduced income can quickly become expensive debt. Once the emergency fund is established, longer-term goals such as retirement, education or a deposit on a property can be given their own place in the budget.
Finally, leave some room for being human. One of the quickest ways to make a budget unsustainable is to remove every bit of discretionary spending. People need to enjoy their money as well as protect their future, whether that means a restaurant meal, a weekend away, a hobby or simply having some money that can be spent without feeling guilty, it is reasonable to allow for it. The amount will differ from household to household, but it should be deliberate rather than accidental.
A responsible budget is therefore not the one with the most impressive savings rate or the fewest luxuries, but rather the one that accounts for the realities of your household, leaves enough room for the unexpected and helps you spend today’s money without constantly borrowing from tomorrow. But remember the real test will be whether you can still follow it six months from now.