Everybody hates them. Nobody wants to stick to them. But a household budget can help families identify ways to cut costs and save for retirement, college and other needs. Below are experts' tips for getting a family budget up and running:
Don't call it a budget. A "budget" connotes a straitjacket, doing without, while a "savings-and-spending plan" focuses on making informed spending choices.
Budgeting (oops — making spending plans) is for everyone. Planners report putting even affluent clients on spending plans because they, too, frequently struggle to save adequately and control spending.
Spend less than you earn. Building wealth and financial security is based on this simple premise.
Develop a financial plan. Families often are more motivated to stick to a budget after they develop a financial plan based on their life's goals and values.
Pick a method that fits. Some people work best with a detailed spending plan that tracks every penny. Others do better with a "top-down" approach: They set aside funds for their savings goals and major monthly costs such as mortgage payments and groceries, then let the little stuff fall where it may.
Pay priorities first. That's key to budgeting, whichever approach you take, and reduces what you can potentially fritter away.
Track spending. Many households don't have a clue where their money goes. The process of tracking helps identify additional ways to save.
Practice short-term goals. Budgeting for a short-term, modest-expense goal is good "practice" for saving for retirement. It's like losing a pound a week on a diet — signs of progress motivate you to continue.
Spend from sub-accounts. Establish savings sub-accounts for goals such as a vacation, new car or retirement. With a single large account, it's far easier to blow money.
Look for trends. There's a simple way to gauge whether your budget is working — are you increasing savings and decreasing debt at a good pace — or dipping into savings and investment accounts to meet cash-flow needs?
Source: the Financial Planning Association
Copyright © 2006 The Seattle Times Company