The spending categories that you place in your budget plan is very important. It does not only show the type of lifestyle that you lead. It will also determine if your monthly budget will fail or not.
In order for a budget plan to be successful, you need to make sure that it is as realistic as it can be. One of the ways that you can assure that it is realistic is when your expenses are well represented. Of course, your income is also very important. But it is usually just one entry. Your expenses are more complicated because there is a lot of them. Not only that, it changes over time.
To create a realistic budget, you have to make sure that your income is the right amount and that your expenses are current. Not only that, it has to reflect your lifestyle correctly and completely. Sometimes, we focus too much on making all the expenses correct that we forget to make sure that it is complete and detailed. According to a survey done in 2013, almost 1 out of 3 Americans said they prepare a detailed budget. This is either a written or computerized. A detailed budget is a good thing because it will help ensure that all your money is accounted for. You know where every cent is going and there is no question about you missing out on funds.
This is the reason why, if your budget plan fails, it is most likely because of your expenses. It is either you are not following the amount indicated for every expense or you have forgotten to include some spending categories.
4 spending categories you should not forget about
If you feel like your budget plan is not working, you may want to check if you have the following categories included in your list of expenses.
When crunch time comes, this is one of the expenses that we usually remove. At least, experts tell us to make sure that we cut back on eating out because it is an unnecessary expense. But it seems we cannot help it. Most people love to eat out. According to reports, the average American household spends $3,008 every year eating out. Apparently, Americans do not like cooking. They want everything done for them – from the cooking to the cleaning up. It is quite convenient. If you have a tiring and stressful job, it does help if you just eat out. But it will cost you more.
While there is nothing wrong with convenience, you need to make sure you can afford it. This can easily be done by including it in your budget plan. Set an amount that you will allocate for eating out. This will help you understand your budget for every meal – so you will not overspend or go beyond your budget. It will keep you from having to use your credit card to pay for it.
Another one of the spending categories that you should make sure is included in your budget plan is for clothing. The thing about this expense is that it is necessary, but it is something that we do not have to spend on regularly. This is probably why this is not included in our budget plan. Some people usually do this a whim and they have no idea how much their budget can afford. Sometimes, they overspend – which can never be a good thing. If you do not buy clothes on a regular basis, you might want to just put aside an amount each month so you have a budget ready in case you need to buy a new pair of jeans or shoes. You should also take note of annual occasions that require new clothing – like your yearly Christmas parties, birthday, holidays, etc.
Gifts are also something that we usually do not include in our budget plan. But we should probably have a fund for this. There are specific times in a year when a gift is necessary – like birthdays, anniversaries, Christmas season, etc. Make sure you are financially prepared for these. Like your clothing allowance, you may want to set aside a regular amount each month to save up for these gifts. That way, you have a fund to dip into when the time comes for you to buy a gift.
According to reports, the average American spends 5% of their income on entertainment. This is equivalent to $2,913 every year or $56 each week. This is not a big amount for you to save up for. While we can live without spending on entertainment expenses, it is nice to splurge every now and then. We need these activities to help us relax and feel like our lives are all within our control. You do not have to restrict yourself too much even if your finances are limited.
When our budget is tight, this is one of the spending categories that we cut off immediately. But the truth is, you need to allocate some amount into this category. It is important for your own sanity – especially when you are living a very stressful life. If you manage your finances well and you control your spending, this will not cause problems in your personal finances. All it takes is a bit of planning and a solid budget plan to help finance your preferred entertainment expenses.
Why you should not restrict your budget too much
As you can see, there are so many spending categories that we usually take for granted because we believe that they are not really necessary. Well, eating out, entertainment, gifts, and clothing may not be as important as food, shelter, and transportation. However, these are still expenses that we should give ourselves every now and then. It is okay to allow some money for it. But you have to be prepared for it. You need to include it in your budget plan so you will not end up overspending.
Some people are so good at saving money that they end up feeling guilty about spending on things that are unnecessary. That is not the right way to manage your finances. You need to revise your budget to give room for expenses that may not be vital for your survival – but will make you feel good nonetheless. Here are a couple of reasons why you should not make your budget too restrictive.
It will make your present life miserable
Sometimes, when people have to tighten their budget, the first thing they remove are the spending categories that make them happy. For instance, they remove eating out and entertainment expenses. These are logically unnecessary but should you really eliminate it from your budget? If you really do not have time to cook because you are too tired after work, forcing it will make you feel miserable. If you cut back on entertainment expenses, that can rob you of a chance to relax. You do not want that. This is one of the financial mistakes that you should not make. You need to make sure that your current life is comfortable – without compromising your financial future. Find the balance between saving for your future and spending enough to make your present a good one as well.
It will make you feel stressed
Imagine having just ended a bad day at work only to come home and still have to prepare your food. Instead of just relaxing, you still have to do your chores. You have to prepare the ingredients, cook the food, and clean up after yourself. It can be too much for some people. This is why some of them opt to eat out. While you will be saving money by cooking your own food, you need to consider if it will cause you too much stress in the process. Will the stress be worth the money you will save? If not, then just include eating out in your budget plan. Try not to add unnecessary financial stress if you can do something about it.
It will discourage you from budgeting
Another danger in making your budget too restrictive is that it might discourage you from doing it in the first place. After all, why would you do something that makes your life miserable and stressful? This is the reason why you need to put spending categories in there that will help you feel good about your budget and your finances in general. Having the money to spend on clothes and gifts will make you feel like you have the extra funds. Retail therapy, when included carefully in your budget can be uplifting. If you know that you have these in your budget plan, it will not feel too restricting. It will not make you feel like budgeting is so bad.