Budgeting is hard enough to do on a personal level, even more so when you’re budgeting for an entire household. You have more income to manage and at the same time, more bills to pay and more people to take care of. You have the responsibility to ensure that the needs of each family member are met and, if budget allows, set aside some money for some of their wants.
But how can you manage to balance between needs and wants when you’re on a tight budget?
Setting Your Priorities
Distinguishing between wants and needs is most essential when budgeting. There are times when we mistake wants for a need. To budget your income more effectively, you need to know what to prioritise first. Sort your expenses in three categories: needs, wants, and luxury items. You can structure your budget according to these categories.
Of course, you would need to determine your actual spendable income, and then you can focus on how to allocate some of your “extra” money.
Needs – The basic necessities are the non-negotiable needs. Food is a basic necessity, however, dining out is a luxury. Don’t lose sight of the basic necessities such as rent/ mortgage, utilities, education, and savings. For instance, eating out in fancy restaurants is not considered a need.
Wants – This category classifies the things you want, but can actually live without. Not everything you feel you need actually is a need. But if for instance, you want a new laptop because your old one is broken and you can’t do your work without it; in which case, it’s a want that you need.
Luxury items – Luxuries are wants that don’t especially require urgency. For example, your child wants a new iPhone 5 because her iPhone 4s is outdated. She already has a phone but wants to upgrade to the new model, then a new phone can be classified as a luxury.
The Importance of Budgeting
Creating a budget can definitely help you better manage your income. It’s also a good way to set aside funds to build an emergency fund, which every household needs. Budgeting lets you keep track of where your money is going day-to-day, weekly, monthly, or even annually.
Making a budget plan doesn’t have to be a complicated task, if you know how to begin. To better keep track of money going in and out, you need a clear overall picture of all purchases and payments made. One way to monitor your expenses is by downloading budgeting apps. There are plenty available, at minimal costs, and some, even for free.
Credit cards can also help you effectively keep track of your expenses. These help you track your spending electronically. Your credit card can also be useful for paying your bills. All you need to do is to set up automation through your bank’s online facility. If you think a credit card can be a useful tool for you, compare credit cards online and apply for one that best suits your needs.
In any case, having a simple spreadsheet to track your budget and spending can also prove effective when budgeting for your family. Just remember that balancing between your family’s needs and wants is the only way for you to save and cover all your family’s wants and needs.
Ryan Del Villar is a Content Strategist for MoneyHero, an online comparison portal that also caters financial awareness. You can check out an article about different ways to teach your kids how to save money on that website. During his spare time, Ryan is a freelance online reputation management writer.