Your budget is a reflection of your values and goals, and a great way for you to take control of your financial life. When it comes to budgeting, it’s important to consider the wants and needs that come into play. It’s easy to get stuck in the habit of putting all of our available funds towards our wants, but having a balanced budget means understanding how to prioritize needs over wants. If you’re struggling to trim your budget and get a handle on your finances, here are a few tips on how to balance wants and needs when budgeting.
Determine What is Essential
When you’re budgeting, start by separating your needs from your wants. Needs, such as rent or mortgage payments, car payments, insurance, food, and utilities, are your top priority when it comes to spending. These items take up a larger chunk of your budget and should be paid before trying to include any wants. To determine your needs, make a list of the expenses you absolutely must pay each month.
Prioritize Your Needs
Once you have a clear list of needs, prioritize them. It’s important to identify the needs that are most important to you. This will help you start to see where you can trim back on wants or other areas of spending. For example, if you have a mortgage and car payment, they will likely take the precedence over having the latest and greatest phone. Choose what is most important to you and focus on that.
Track Your Spending
Once you’ve outlined your essential needs, track your spending for a few months. This will help you get a better understanding of where your money is going each month. Determine how much you’re spending in each category and compare this to your needs. This will help you determine if you’re allocating too much money to wants, or if there are unnecessary expenses that you can cut.
Create a Reasonable Savings Plan
Creating a budget isn’t all about cutting costs. It’s also about making sure you’re saving enough money for your wants, needs and goals. A great way to save more money is to set up a realistic and reasonable savings plan. Consider taking a fixed amount out of each paycheck and depositing it in an account that will earn interest. This will help you build up a reserve fund to use when life throws a curveball. You may also decide to put money aside on a regular basis to save for a specific goal, such as buying a car or taking a vacation.
Set Up an Emergency Fund
It’s important to have a safety net in case of any unanticipated expenses. Setting up an emergency fund will help you cover the cost of unexpected expenses. Consider setting aside a set amount each month and depositing it into a savings account. This will help you stay on top of your budget and avoid dipping into your primary savings or taking on extra debt to cover a large expense.
Find Ways to Cut Costs
Cutting costs can be one of the hardest aspects of budgeting, but it can be done. To cut costs, find ways to save on the things you buy each month. For example, you can shop in bulk at a warehouse club, look for discounts and coupons, and try to buy items on sale or clearance. If you find yourself struggling to pay your bills on time, you may want to look into consolidating your loans or negotiating payment plans with your creditors.
Find What Works for You
Budgeting is about more than just balancing your wants and needs – it’s also about figuring out what works best for your financial situation. Start by creating a list of your needs and wants, track your spending, create a savings plan, set up an emergency fund, and find ways to save. With a little planning and forethought, you’ll be able to successfully balance your wants and needs in your budget.