During a recent get-together with some friends, the topic of how much we all budget for buying groceries came up in conversation. Since I had started dabbling in extreme couponing, I recently adjusted my grocery budget from $400 a month to $250 a month. My friends were surprised at my lofty goal and felt in a way that it was unreasonable, although not necessarily unattainable.
After having that conversation, I began thinking about my budget caps, not just for groceries, but for all of my expense categories and how I determined the dollar amounts that I was willing to spend for each.
So how does one figure out how to allocate funds in a budget? At what point are you running yourself ragged trying to save more than what is reasonable, and conversely, at what point are you spending more than you should?
Below are 9 ideas to help you set appropriate budget goals in each of your categories.
1. Analyze Your Past Spending
While this may not work for all categories, how much you have spent in the past is a good indication of how much you will spend in the future. This is especially helpful for such categories as “Gas” and “Food.” For other categories, like “Dining Out”, your past spending habits do not indicate if this is an appropriate amount to budget; they simply indicate what you’ve been doing. Online tools and software like Mint and You Need a Budget make it easy for you to see your past spending – with pretty graphs and charts.
2. Talk to Your Friends
While all families are different and should not be on the same budget, you can get some great ideas and tips from friends. This is especially helpful if you talk to friends that live in the same area and have similar expenses. By talking to my friends, I was able to reason that $250 might not be a sensible amount for a family to spend on groceries in a month in my area.
3. Work with Your Constraints
When you sit down to work on your budget, start by listing out your current constraints, such as your mortgage payment, insurance, and income. You can automatically put those into your budget and then fit the rest of the pieces together.
Using the 5S budgeting system or the envelope budgeting system is a good way to get yourself started. If you find that your budgetary limitations are a little too constraining, consider finding ways to make extra income, refinancing your mortgage, or making adjustments to your insurance policies.
Be flexible at first when setting up how much money goes into each of your budget categories, and consider experimenting with various combinations. Commit to a combination for a couple of months, and see if you are able to stay within your budget without feeling too strained in any one category. If what you are doing is too stressful on your finances, switch it up the following month.
5. Be Realistic
If you are unable to reach your goal of being under your budget after a few months, chances are your budget goal is unrealistic. Perhaps you’re trying to spend too little an amount for a certain activity. For example, my husband and I set our monthly budget for eating out at only $25. We found that with the number of times we have to either eat on the run or meet up with friends, it wasn’t very realistic. So we upped our dining out budget a bit.
6. Cut Expenses in Baby Steps
One challenge that I faced going from a food budget of $400 to $250 was that it was a giant step. It was nearly a 40% cut! It’s no wonder that I have been unsuccessful in meeting that budget goal. A better approach for me would have been to lower my budget from $400 a month to $350 a month and then to $300 a month. That would have made the transition easier and would have helped me to not feel so defeated.
7. Evaluate Frequently
You should evaluate your budget frequently, at least once a month. See where you are overspending and where you are underspending. If you are underspending in some areas and overspending in others, you can adjust your budget accordingly. Just don’t forget about your budget for 6 months and then realize that you’ve been over budget and neglecting to fix it. It could be too late by then.
8. Work as a Team
If you are married, work with your spouse to create and manage a unified budget for couples. If you are single, find a trustworthy friend or family member who you can rely on as a support system or to run ideas by. Two heads are better than one.
9. Attainable Does Not Equal Reasonable
Just because you can do something doesn’t mean that you should actually do it. For example, if you were able to live off of $25 worth of groceries a month, it doesn’t mean you should. Is it worth clipping all those grocery coupons or living off of certain foods because you got a deal? How would your health be affected? Remember that quality of life should be a large factor as you put together your budget amounts.
Unfortunately, there is no magical formula that determines how much you should budget for certain items. The best guideline is to put the pieces together and experiment to see what works best for you.
Do you have any personal budgeting tips for allocating money to categories in a budget? How much do you typically spend on standard budget categories like food shopping, utilities and entertainment? Please share in the comments below.