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While no one particularly likes the idea of budgeting, it is an important skill to develop and utilize within your financial life. Budgeting is not only important for managing your personal income and expenses, but also to redirect income towards saving for your financial future. Some of the strategies that you can utilize when working on a budget are to create an initial budget, to use cash instead of credit and if in a relationship, to use the concept of 3 accounts.

Create an Initial Budget

Before working on anything else financially, the most important step to take is to make a simple budget. To start, outline what your gross and net household incomes are – and you can download a home budget spreadsheet if you think that will make it easier for you. If you are paid in another method other than monthly, translate that amount into a monthly income amount as it will make it easier to create a budget.

Next, create a list of your expenses. Start with your fixed expenses. These are expenses that remain the same each and every month. For example, fixed expenses would include your mortgage or rent, your credit card or loan payments and your utilities. Then, create a list of your discretionary expenses. Your discretionary expenses are those that either change month to month or that you have control over. For example, discretionary expense can include eating out, groceries and travel expenses.

Use Cash Instead of Credit Cards to Keep Control of Your Spending

One of the best strategies for budgeting your discretionary expenses is to use cash instead of credit. When you use credit, it is easier to overspend as you don’t see the bill to pay until the end of the billing cycle. Plastic is much easier to hand a cashier than cash if you are on a tight budget and you will think twice about what you are buying when you have to use cash.

If you spend more than planned over the course of a month using credit cards, once the bill arrives you will be unable to pay the full balance.  You will incur debt, and slowly build your amount owed over time.  With high interest rates, credit card balances quickly spiral out of control.

Instead, try to use cash on a weekly basis. Divide your discretionary spending amount per month into 4 weekly amounts and then withdraw the amount at the beginning of the week. Once your cash has run out, you will have to stop spending. While it may take some time to get used to, over time you will notice that it is a great budgeting strategy. If there are multiple people in your household, use this cash strategy with them every week. It can be an excellent strategy for both children and for spouses.

Use 3 Separate Accounts to Keep Track of Your Money

If there are two individuals within a household working on budgeting skills, it is important to develop strong habits and communication so that the budget is not exceeded on a month to month basis. One strategy that has been proven effective is to use 3 accounts, especially if there are 2 income earners. If you have completed your budget exercise, you have a clear understanding of what your fixed and discretionary expenses are.

So, one account should be dedicated primarily for fixed household expenses. Each income earner should contribute funds to this account.  One person should be assigned to the account so that the fixed expenses are paid on time.  This should be an easy account to manage because fixed expenses are expected and are due at the same time each month.

In addition to this primary account, funds should be placed into the other 2 accounts in a pre-determined amount as discretionary funds. One account can be for household discretionary money and should be used for gas, groceries, and other necessary but varying household expenses.  The third and final account should be used as fun money for entertainment expenses.  Once the fun money runs out, other accounts shouldn’t be tapped into. The most important thing to remember when working with another person on the topic of budgeting is to establish clear communication and to understand that if you both work hard at maintaining a budget, your financial future will be that much more secure.