Home budget: Why do you need one?
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When we go to the coffee shop in the morning and buy a cup of coffee or tea and a pastry we think to ourselves: “It is only 1,50€”.
But what we never think is: Does 1,50€ each day fit into our home budget? Right?
We forget that 1,50€/daily multiplied by 22 days of work are 33€ every month and at the end of the year we have spent 396€.
Imagine what you could have done with 396€. Maybe go out on a weekend with the family? Buy something you really want or need? Save for an emergency?
So, why do we need a home budget?
This is one of the reasons why we need a home budget. The budget allows us to define where we will spend our hard earned money and adjust it depending on our needs, as well as do away with unnecessary expenses.
Which is not to say that we can’t continue to eat breakfast out just because it gives us joy, but at least we know that’s where the money went, instead of thinking:
But, where did the money go?
So, in my opinion we all need to have a home budget and recently I found out an application called You Need a Budget (YNAB) which I highly recommend.
The application has 4 principles:
1 – Give every dollar a job
Which means to assign every cent a category, don’t put money on a very broad category, you should be specific.
2 – Embrace your true expenses
This means know how to handle all your expenses.
Let me give you an example:
Imagine that in April you have to pay a real estate tax in the amount of 200€. Establish a goal to save money starting from January. So, if you’re putting away 50€ from January you will know that in April you have the 200€ you need to pay the real estate tax.
3 – Roll with the punches
In other words, be flexible. If you predicted that you would spend 75€ on fuel and end up spending 100€, simply move the money around and everything will be fine. Imagine you had placed 100€ to spend on lunches and money is still there, move some of that money to the category where you spent more and then plan to eat out fewer days or to bring food from home to work 🙂
4 – Age your money
This is definitely my biggest motivator not to spend money. The goal is to spend money that was received 30 days before being spent or in other words money you received last month.
Imagine what you could do if your money wasn’t all spent the minute you got it. I think you know what I mean. We are always waiting for the next pay-day and usually by the middle of the month the money is gone, right?
But it doesn’t have to be that way.
Establish goals for your home budget!
Aren’t you tired of living of each month’s salary?
When you create a budget and spend money that you received more than 30 days ago you have a safety net and money available for emergencies.
You can always go further and start saving for:
- A pension plan;
- Travels you dream of doing;
- College for the kids;
- Any other goal you can think of.
Just create a category for this purpose and put the money there.
Establish rules for your home budget!
When starting to build a home budget stop looking at your bank account all the time because if you see the money siting there you will spend it. Forget about your bank account, use it only to record your spending in YNAB, on paper or on a database, otherwise you will spend it all.
Get used to looking at your budget before you buy anything to see if you have money available on that category or if you can move it around to buy what you want.
Think twice if you really need to buy this or that, I wonder if you don’t have something at home that you can reuse or recycle?
Don’t waste another day without building your own Home Budget!
Do you record your expenses? Even the smallest?
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