Yahoo Finance 4 Ways to Live on a Budget When You Don't Know Where to Start
Most Americans don't live by a budget -- in fact, a 2013 Gallup poll reported only one third of Americans create a household budget. There are a number of reasons for that, from viewing it as restrictive to simply not knowing how to set limits. A true frugal person knows a plan for your spending can be freeing, not restrictive.
One reason many don't create a budget is because we don't promote its importance in our society. Financial literacy, of which limiting spending is a key component, is not a subject we focus on helping people become fluent in, which results in many people underestimating the connection between spending, saving money and positive, long-term financial growth.
That being said, if you don't know how to live on a budget the key is to know yourself and remember to be flexible. Beyond the basics of tracking your spending and what you earn each month, here are the simplest ways to live on a budget when you don't know where to start.
Separate the Needs from the Wants
The first thing you need to do when you establish a financial plan is separate your needs from your wants. Your essential necessities, described by financial expert and author Dave Ramsey as the "four walls" of a budget, include food, shelter, basic clothing and transportation.
Anything beyond those four essentials is really a want when you think about it. Some things outside the four walls might be more pressing, but ultimately they come down to creature comforts or wants. There's nothing wrong with spending money on things you want, but they need to be viewed in light of your overall financial picture.
Compare Prices
Once you begin to identify those wants you will need to begin to look at your fixed versus your variable expenses. In all likelihood there's opportunity to save on both, though in forming your budget you will want to account for each and make sure they're both accounted for.
This will present an opportunity to compare prices. You want to make sure you're getting the best value for the money you spend. That requires comparing prices on like services to make sure you're not overpaying where you don't have to.
As you discover instances where you are paying a higher rate for a product or service, you can make the decision to either move to a cheaper provider or negotiate with your current one for a better rate.
Identify a Goal
This is something many who don't plan their spending overlook. A budget works best when it is focused on a goal. It may be to pay off debt, retire early or buy a house -- the goal really doesn't matter, though having a goal to hang your budget hat on does. This requires questions like:
-- When do I want to achieve X goal?
-- What is my extra money going towards?
-- Why am I really trying to save money?
The answers to these will help streamline your focus and identify your goal. Once you have that objective in mind you can use it to drive your entire budget in the direction of success. If all of this sounds difficult, it really isn't. It requires discipline and time but when you get a taste of the freedom a budget creates, it will make you hungry for more and give you the motivation you need to stay the course in living a financially disciplined life.
Trick Yourself into Spending Less
If living by a formal budget scares you, you can accomplish much of the same through one simple hack -- tricking yourself into spending less money. You can either commit to a certain percentage of your income that you won't spend (like I'll save 40% of my income each month) or make a commitment to finding the lowest cost alternatives when you need to spend money.
This simple hack will trick you into living by the basics of a budget without the work of starting one. Part of this can include paying yourself first or automating your savings but it's all geared towards helping you spend less money, not more. If you're averse to living by a budget it's a great way to help you experience some of the initial benefits that very well may lead you to a budget in the future.
Living on a budget can be a challenge for many. It doesn't have to be though; with a little work you can live on a budget and make your money work for you.
John Schmoll is the founder of Frugal Rules, a finance blog that regularly discusses investing, budgeting and frugal living. He is a father, husband and veteran of the financial services industry who's passionate about helping people find freedom through frugality.
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