Budgeting vs. Allocating Funds: There’s A Difference
With the New Year here there’s an inevitable force to make a plan to budget our money with a plan to not run out this year. I must say I couldn’t disagree with this idea more. When we budget our money we are depriving ourselves of utilizing that which we have worked so hard for.
Chart Your Spending
My resolution to this problem is to correctly allocate funds. The correct way to do this is to first chart your spending. Make it a point to keep receipts of EVERYTHING you buy. At the end of the month write down what you bought and how much you spent on each item.
By doing this you will be creating a visual of your spending habits. This way you can see where you are spending money frivolously and make it a point to allocate those funds to a better cause.
Allocating Funds
With a clearer vision of where your money is going you can now create a new path to spending. You can make a valiant effort to use your money wisely to reach your long-term goal rather than using it to gain instant gratification.
When you use the method of funds allocation it is easier to follow because you feel you are working towards your financial goals as opposed to budgeting that makes you feel you are depriving yourself.
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I’m not sure I follow the difference between Budgeting and Allocating; to me they seem like they are very similar (except budgeting is the planning part whilst allocating is the spending part). I do agree you should allocate money for personal fun, but I think that should be budgeted.
Rewarding yourself for your work, makes work worth working for! But rewarding yourself without earning the reward is foolish. And not planning for the unforeseen is short-sighted.
Don’t forget the expenses that do not occur every month. If you don’t plan for things like car insurance, property taxes, and anniversary gifts, these costs are going to throw you off track when they pop up.
Take all these expenses and add them up. Divide by twelve. That’s how much you’ll have to put aside each month to absorb these costs.
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