Some financial advisors recommend doing a personal financial evaluation at least once a year.  In addition to assessing your progress meeting financial goals, an annual check-up might also include a look at household spending and other pressing money matters.  There is no denying the benefits of periodic financial evaluation for keeping you tuned-in to household cash concerns, but does an annual review go far enough, ensuring a secure financial future?  Many would argue day to day budget discipline is equally as important as occasional check-ups.

Personal budgeting compliments other financial strategies, such as annual review.  And while each important measure reinforces your financial health, a well-conceived spending budget is what keeps bills paid and cash flowing.  If you are serious about taking control of your personal finances, consider the benefits of budgeting and take these steps toward financial security.

1. Commit to a balanced budget

The most effective budgeting strategies require time to develop.  So while it’s true, cost-cutting can make a difference today, the true benefits of budgeting show themselves months, even years, down the line.  In the meantime, your ongoing discipline and commitment to sensible spending are the driving forces needed to establish and maintain a sustainable household budget.  Until you make a commitment to cash flow balance and recruit other family members to join your quest for affordable living, your finances remain vulnerable to spending shortfalls.

2. Track monetary obligations

Without a sound sample of your spending habits, it is hard to identify the strengths and weaknesses within your budget.  For meaningful results crafting a spending plan, you must first create a log, reflecting your outgoing monetary obligations during a particular time frame.  As you wade-in to the process, start small, tracing your personal spending for a period of one month.

A well-articulate household budget accounts for core responsibilities first, before moving-on to other spending areas.  Your housing payment, for instance, whether toward a lease or mortgage, is a relatively static figure, coming around month after month.  Use these and other “anchor” payments to frame the basis for your spending budget.  Your car payment, student loan obligations and other regular installments comprise what would be considered “fixed” spending – or that which changes little from month to month.  Once accounted for, fixed costs represent the share of personal income devoted to “musts”, before considering discretionary purchases.

Beyond monthly core spending, your judgement influences discretionary purchases.  More often than not, discretionary cuts yield the greatest savings, so certain categories deserve extra attention.  Your discretionary budget includes spending related to:

  • Entertainment
  • Travel
  • Gifts
  • Dining out
  • Luxury items
  • Designer clothes
  • Makeup
  • Other consumer goods…

By designating narrow budget categories, such as communications or entertainment, you can easily track spending in each area, isolating pinpoint savings opportunities.

3. Establish spending limits 

While compiling spending records is an administrative chore, the hard work doesn’t begin until it is time to make tough spending cuts.

Does your ledger reflect excessive restaurant spending?  Prudent solutions include better meal planning and cost-conscious grocery habits.

Are your energy bills taking big bites out of your monthly resources?  Paying attention to energy efficiency and altering a few costly habits might be all that’s needed to reduce your utility bills, freeing funds for other spending priorities.

Is your entertainment budget out of control, leading to credit card charges and impulse spending you can’t afford?  Leaving your credit cards at home can slow the growth of burgeoning debt, but changing your social habits is the only way to ensure excessive spending doesn’t interfere with newly imposed budget limits.

With realistic, affordable limits in place, your household cash flow should balance – under normal circumstances.  Of course unexpected events and demands can undermine even the best budgets, but with established limits guiding you, you’re less likely to lose your way.

4. Commit to a balanced budget 

It is worth repeating:  Without spending discipline your budget isn’t backed by the commitment necessary to sustain it.  Once you’ve taken measures to track spending and set limits in each budget category, redouble your commitment to affordable living.  Your annual review provides an opportunity to adjust figures, but in the meantime, your personal resolve will carry you toward financial security.