How to Create a Budget that has me in it

People are sometimes put off the concept of budgeting because they believe that it will all be about harsh cost cutting, to the point where there is no room left for our individual indulgences and passions. However, this certainly does not need to be the case and a good way to safeguard the things that are important to us is to ring fence some money within our budget which is to be spent on our “me time”.

Identify current spending patterns:

The first step in any budget is to identify how much you are currently spending and what you are spending it on. This analysis can easily be undertaken by taking your last three months’ worth of bank statements and working through the listed transactions. As well as identifying how much you are spending in total, you will also split the individual costs into “spend categories”, such as “groceries”, “mortgage/rent”, “electricity/gas”, “commuting”, etc. Perhaps one of your spend categories would be headed as “Me time” or as “Hobbies” or something similar to make it clear that is the money that you spend on your desired indulgences.

Target cost reductions:

Having identified how much you are spending and what you are spending it on, the next task is to work of what costs you can cut or eliminate. Clearly, with regards to your “me time” costs, you would have to assess whether you would countenance any reduction in your monthly spending, or whether you would wish to achieve all your cost savings from other categories?

Set spending and savings targets:

A key component of any budget is to set targets in terms of how much you are going to spend and how much you are going to transfer into savings accounts or put towards paying off debt. This action helps to focus attention on achieving goals that will materially improve your financial position.

Consider having some discretionary contingency in your budget:

In general, you may desire to achieve some quite substantial cost savings through your budget but you may also want to build in a degree of flexibility. For example, if being able to go to rock concerts is important to you, then you may have assigned a set monthly amount of money for buying tickets. However, perhaps you might find that there’s an influx of great bands to your city in one month and you want to have the ability to dip into extra money to cope with such one-off or rare occurrences.

Monitor ongoing performance against budget:

Another vital aspect of successful budgeting is the discipline of regularly checking how you are doing against your targets. Part of your review might be to make sure that your “me time” costs are remaining in line with what you had budgeted for and aren’t becoming too extravagant.

Budgeting is a tool that is designed to help you manage your money more successfully. It’s important to note though that there is no one prescribed budget for all people to use. Instead, each budget will be individual to the particular person’s circumstances. So there is no conflict involved in having a budget that helps you both to reduce costs and to enjoy the key things that make your life enjoyable. There just has to be a recognition that you may need to achieve efficiencies in other parts of your monthly spending behavior.