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Simplify Your Finances by Being Realistic with Your Budget

Simplify Your Finances (Only Buy What You Can/Be Realistic)
source: Dplanet

This week we’re talking about simplifying family life. Tune in all week for strategies and tips for every area of life, and if you’re looking for more in-depth resources, be sure to check out the Huge Simplify Family Life eBook Sale!

Earlier this week, we talked about how paying off debt simplifies your life, but is that enough?

For most of us, it’s not.

Having a budget is an important part of simplifying your finances because it lays out a clear framework for where your money should go. Not only does this ensure that all of the important things are taken care of — bills, savings, retirement — but it actually leaves more money for the fun things as well.

Stay with me for a second, and I’ll show you how with a personal example.

With a fluctuating income, it’s hard for us to budget, and I’ll admit that we don’t always do it well. Then, we get $xxx in income, and we feel like we’re living the good life. Slowly, leaks begin to spring up in our budget. We stop for Starbucks and get the girls cake pops while we’re there. Then, we remember a few things that haven’t made it onto our weekly grocery list, so we buy those. A few dollars here, a few dollars there, and suddenly we’ve spent $150 on…what exactly? Who knows.

If we’d had a stricter budget in place, we could have taken that $150 and split it between us for “fun money”. $75 each can go pretty far if you’re careful, and I can guarantee we would have made different decisions with it if it was coming out of our individual pots.

If you’re living paycheck to paycheck, this principle rings even truer. $150 of leaks over the month may mean that you can’t pay the electric bill, which means you then have to start juggling things to get that paid out of the following month’s income. Stressful, right?

Having a realistic written budget helps you avoid this stress because you can clearly designate where money should go each month. Tsh from Simple Mom recommends a zero-based budget, where even your “extra” money is assigned to a category, and each of these systems works on that same principle:

Envelope Budget

An envelope budget involves literally taking your money and dividing it into envelopes. You’re a lot less likely to spend mindlessly when you see the cash in your hand and know exactly what you’re sacrificing in order to make an impulse purchase. A cash-based system may seem outdated, but the psychological impact of handling cash instead of a plastic card can make a big difference in curbing your spending.

Bulletin Board Budget

If you’re a visual person but envelope budgeting isn’t right for you, try this bulletin board budget that Tacy shared last year. Basically, you create a bulletin board with each of your spending categories on it and then you show what has been spent and what is due during the month. Seeing these numbers right in front of you makes them much more tangible, so that it’s harder to ignore leaks and easier to be realistic about how much money there really is.

Budget Software

Using budget software can also be helpful for creating a budget because you can quickly make changes, adjust numbers and track your spending. We use for our budget, but Pear Budget and You Need a Budget are good options as well. Read more about the pros and cons of each here.

So often we think of budgets as complicated and restricting, but what a budget really does is simplify your finances and give you freedom from the stress and worry of managing your money.

Do you use a written budget? Is it realistic, or do you find yourself trying to do more with your money is realistic?