To be in control of our budget we need “the big picture”: an outlook over time to see what comes in, what goes out, and where it’s going ; this is the only way. Here the four things we have to do to maintain the right direction.
Family budget the 4 actions to get on track
Collect data: to manage whatever situation we need to know what happens, the only way to do it is get information. I don’t mean you have to keep each and every bill forever (…but surely I will not blame if you do), I mean you have to preserve the information in the bill: how much you spent, when, and for what. This can be done in the way you prefer: keep an accounting book, write on a notebook, use software, write it on you smartphone or whatever feels good for you; the point is: keep track of each expense.
Group and categorize: every family is different, every situation is different, and any budget is different; anyway there are some categories of expenses we all have in common, and everybody have expenses that can be grouped in categories (car, home, kids, etc.). Categorize expenses is an aid to visualize the big picture, so we don’t forget the small expenses that often are an hidden budget drain: just two cups of coffee a day in my favorite bar means 60 Euros gone at the end of the month. Here we start to see the advantage of computers over paper based bookkeeping: quick grouping and sorting, and of course quick and easy capability to change groupings.
Plan: information make us understand the situation, but if we don’t use it proactively it’s like we don’t have any information at all. So let’s use the history of our spending to help planning the future, in other words: the knowledge of how we spent in the past is the starting point to understand how and where to save in the future. Here’s how we make it:
- Set goals: some will be short term and other long term objectives, anyway they will be “something” that requires some money in the future. To be sure the money needed will be available we have to know what those goals are, give each of them the right priority and make decisions accordingly. If you know your goal and when you want to achieve it, then it will be easier to resist the temptation to use your money for something else;
- Link earnings to budget categories and to objectives. Well actually you are not required to give “name and surname” to every incoming euro, but being able to plan how much to set apart for each budget point, goals included, is the only way to get there. A good system for keeping things in place is to actually put in different “wallets” the funds that we assign to every mid-term or long term goal. This days you can find many low cost ways (online or traditional) to put your money in different accounts, each of those will become the “piggy bank” for a specific objective. Here is not the place to go in detail on how one can invest savings, but there is a lot of information out there. The point here is to try having a different “closet” for each main saving objective.
Check: good budget planning will give you the map to follow, but in every moment you will need a compass to tell you in which direction you are headed: if you keep records regularly for incoming and outgoing money you can check where you are on respect of your plan and understand if you are going in the right direction towards your goal.
