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Where Are Your Financial Boundaries for Personal Budget Planning?

By Kim Petch

Boundaries are so important in every area of our lives. Without them, anarchy and chaos would have free reign. Managing our personal finances requires boundaries perhaps more than any other aspect of our lives.

For most of us, a creating an effective budget is the perfect way to set these financial boundaries. But a lot of us have trouble deciding how much to budget for each category. While some expenses are fairly regular, others can vary by quite a bit from month to month. How can we predict exactly how much we will spend on groceries or other variable expenses in a given month or year?

With this in mind, it’s easy to become frustrated trying to design a budget you can maintain month after month. Uncertainty over where to draw the line on some items can lead to giving up on budgeting altogether. So how can you build a budget you can live with? Don’t draw a line. Think of your budget amounts as bands instead. Confused? Let me explain.

Firm but Flexible Budgets Keep You in the Game

What do I mean by “firm but flexible”? If you think of your budget amounts as rubber bands rather than lines, you have some flexibility built in. But in the end, you still need the upper and lower limits of your budget bands to be very firm. If your bands are too wide, you risk over-spending and running up debt. If your bands are too narrow, you may become frustrated with budgeting and give up on it.

This type of self-discipline works well in just about any area of your life. For example, when I decided to get more fit a few years ago, I tried to get on the exercise bike every day. I couldn’t do it, and eventually stopped exercising. I had made no progress. For the next attempt at getting fit, I tried to exercise just three days a week. I was able to stick to it, and have been pretty consistent over the past 5 years.

The lesson here? While it would of course be ideal if I could get a little more exercise, three days a week is way better than zero. By giving myself a flexible, realistic goal, I am now able to achieve it rather than avoiding exercise altogether. You can use the same techniques to help you stick to your personal finance goals.

Where Do You Draw the Line?

So you’ve decided to use bands instead of lines to give you a little more flexibility in your budget. However, you still have to assign some firm boundaries to the upper and lower limits of the bands. How do you decide where those limits will be?

In the end, the goal of a budget is to make sure that we’re spending less money than we’re taking in in order to create positive cash flow. Spending more than we earn only leads to debt, and that’s never a good thing, so we need to use our income level as the hard line for setting our boundaries.

Suppose you’ve tracked your grocery spending over a couple of months and you find that you spend $800 a month on average and it fits within your income and also allows you to save some money. That works out to $9600 a year. You should use this $9600 number as your budget, not the $800 number. By doing so, you have created bands. For example, you could spend $900 one month (perhaps you’re hosting a lot of family dinners) and $700 the next month, and still stay on track. You’re not overly-restricted by the $800 number every month.

With that said, it’s very important to keep your eye on the annual budget of $9600. If you find you’re spending closer to the $900 boundary most months, you will obviously exceed your annual budget eventually. In this case, you have a few options:

  • Increase Your Budget: If you can afford to do so without incurring debt, you may need to increase your budget. Our grocery budget has increased by about 50% over the past 5 years due to the rising cost of food as well as the fact that our three boys moved into their teen years. They eat a lot more than they used to! Luckily, our income allowed for this increase.
  • Cut Spending in Another Category: If your income can’t support a budget increase, but your kids aren’t going to be eating less anytime soon, you may have to consider cutting expenses in discretionary areas like dining out or entertainment – not fun, but in the end, food is more essential than a night at the movies. You can also save a ton in entertainment categories using coupons through the Entertainment Book or daily discount service like Groupon.
  • Earn More: Find a way to develop some passive income opportunities. If you can earn a little more, you may be able to raise your budget without sacrificing the fun stuff.

Final Word

Using bands instead of strict boundaries will allow you to stick with your budget and live a financially responsible lifestyle. Sometimes the decisions will be tough, but you will be happy in the end when you are able to comfortably live on your income.

Do you find it difficult to set firm but flexible budget targets? What kind of budgeting techniques have worked for you?

Kim Petch
Kim is the writer behind Balance Junkie, a blog about personal finance, economics, investing, and life balance. You can also find her articles featured on Seeking Alpha. She's a big fan of her three sons, paying down the mortgage and baseball - in that order.

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