As prices of consumables increase, many are feeling a very real budget crunch as far as their discretionary spending categories. I know we are. The immediate answer is not to blindly raise your budget to meet rising costs, but there is a point where a budget adjustment may have to be made. Today I’m looking at how to determine if your budget for an item needs adjusting, and how to figure out what needs to be changed without going overboard and breaking the bank. Tomorrow, I’ll look at the other side of the issue – what if your budget isn’t working, but there’s no way you can increase it?
To illustrate my method, I am using a standard consumable budget item – the grocery budget. For us, this has shown the most increase in spending over the past year. We have had a few factors besides the economy in general contribute to that, including changing our eating habits for the better, and my children getting older and eating significantly more than they did last year. But looking at your spending alone and then just increasing the budget to equal your spending isn’t the most frugal and thoughtful way to go about it. Usually, the budget and the spending can come together and meet somewhere in the middle. Here are the five steps that I went through to figure out if my grocery budget truly needed increasing, what factors I identified that contributed to our overspending our budget, and how I ultimately increased it.
1. Analyze your receipts – and be honest with yourself. Every week, I took each of our grocery receipts and marked every item on them as necessary, frivolous, impulse, or some combination of those. This wasn’t to beat myself up, or completely eliminate anything from our grocery bill that wasn’t absolutely necessary. But knowing is half the battle. Knowing what percentage of our bill I felt was necessary versus extra, it was easier to understand the divide between our budgeted amount and the actual amount we were spending, and how necessary that was (or wasn’t).
2. Look over time and determine the real increase in prices of staple items. This may not be possible if you haven’t been keeping track of your spending or keeping your receipts. But if you have, or save your receipts, look at those staple items you deemed necessary. What was the price one month ago? Three months ago? Calculate the percentage increase over time, which will give you an idea of what percentage spending may be appropriate.
3. Determine if you have other options you haven’t tried. I looked at both coupons and playing the Drugstore Game to try and decrease our costs. Both have had ups and downs. At first I ended up spending more than I was, but as I refined my methods and worked at taking advantage of money-making deals, my costs on staple items did go down. The key is to making a method work for you as opposed to against you.
4. Determine a realistic goal to meet as far as an increase. Once you are sure that you’re not just frittering your money away on unnecessary increases, look at what kind of an increase you need to make. This is the percentage increase of those necessary items, plus a little wiggle room for an appropriate level of impulse buys. only you know what “appropriate level” means. For me the goal for my impulse and frivolous items is under 5% of my total spending per week. If I try to make it zero, I get rebellious. I frequently come in under that 5% mark, but having that small wiggle room makes it more manageable to work to stay within my budget.
5. Look for places in the rest of your budget where you have wiggle room. If you’re increasing your budget in one place, you may have to decrease it in another. For us, we had some wiggle room I could take from as far as my spouse’s salary increase this year and my own increased income through taekwondo.
Ultimately, for us with a number of different factors contributing, I determined that if we were to keep the same food priorities we had already, we’d have to do some budgetary increasing to the tune of about 5% a week. Luckily for us, it was possible to do that, albeit it a little painful for me to authorize increased spending. But sometimes, there has to be another option, for the budget is set by more than desire, it is by necessity. Tomorrow I’ll tackle ways to keep the grocery budget the same even when everything costs more. It is more painful, but it can be done.