The setting of a budget is really about choosing what jobs you want your money to do for you. Whether it is paying your monthly obligations or saving for a vacation, each thing that you assign your money to do is a job for it. As the boss, you have to decide which priority is most important for your money to do. Assuming that you are in a situation where you have enough to meet your monthly basic needs; then you have to choose what job or jobs the rest of the money has to do.

Firstly, of course, there are basic needs: food, clothing and shelter. While there are ways to lower these expenses and limit the jobs that your money has to do there, that is talked about elsewhere. Once these basic needs are met, then the remaining money needs something to do. For if you don’t assign a job to your money, you will spend it on frivolous things, sometimes that you will regret, when you could benefit better by having a pre-set assignment for your hard-earned cash. So where should the remaining amounts be assigned?

Debt Reduction

This is usually the first priority that people choose for their cash. The reasons are varied, but usually boil down to having more money in the long term. This is because of lowered interest rates when credit ratings are really good, not paying interest on debts, and feeling more in control of their money. This is one of the two items that I would recommend as number one.

Entertainment Spending

While this is usually way down the list of priorities for most people, I am going to say that it should be number two, if not number one. But there’s a caveat on this! You have to have all of your minimum payments on your debts covered first. And there’s another caveat: that the amount be limited to no more than a set percentage or a particular small amount of your free cash. Using 10% as an example is pretty good. So is using $20 per month (which is quite small, I know). This gives you something that you will always have and always look forward to. And if you end up with more free cash, you can always increase it. I spirits truly need care. We need to feel that there is something more in life than work and staying at home. Having a little bit of money for entertainment isn’t just nice – it’s necessary! Always budget something for this! I recommend this to be the number one on the assignment list for the free cash, after necessary expenses. But be clever about it, too!

You can be clever with your entertainment expense in the following way, as long as you have god self control. Take your entertainment money and put it onto paying down a credit card. You now have that $20 or $30 to use from the credit card for entertainment, if you so choose. It will save you some interest for the days that it has lowered the outstanding credit amount. And if you don’t spend it all, then the remaining amount is doing additional duty in debt reduction, getting you more quickly towards being debt free. Never overspend on this! I cannot emphasize how important that is.

Assign Your Money a Savings Pool

This means that you take the free cash after budgeting for other items and put it into an account that is a savings pool for emergencies, at least to start with. Once the emergency cash pool has reached at least three month’s (better if it were six month’s) basic expenses, then you can start a new pool for saving towards things that you really want to get, such as a vacation or new car or a fancy shirt… Whatever it is you want!

Assigning Your Money to Gifts

This means that you can assign the free money to buy gifts for birthdays, holidays, and just for fun! While it’s good to have a minimum amount budgeted for gifts year round, especially during the holiday season, having an extra budget or savings pool for gifts allows you to buy something a little more expensive for that one time you really want to get just a little more for that someone special.

Assigning Money to Other Jobs

There are many other things that money can be assigned to, once the basic expenses are met. While I strongly advocate for entertainment and debt reduction, as mentioned earlier, to be the number one and number two priorities, and an emergency fund for number three, anything after that is fun to think about. Here are a few ideas:

• Charity – pick your favourite cause and allocate a little to it once or twice a year. Or start a monthly or weekly donation pot. For example, it is common in Jewish households to have a charity box over the mantle that everybody in the household contributes a little to each week. And at the end of the month, or when the box becomes full, the money in the box is donated to the family’s chosen charity.
• Allowances – if you have children, then you may wish to allocate some of the extra to allowances for the kids. Make sure to use that opportunity to teach them about budgeting and how to handle their money responsibly.
• Clubs or courses – It’s always good to have fun and learn something, too! Take the extra money and use it to take a class in something you’ve always thought might be fun, but never really made the time to do. Take up painting, pottery, dancing, join a sports team, check out the local animè club, join a choir… The choices are endless.
• Take up a new hobby – Always wanted to do some woodworking? This is your chance! With the little bit of money that you have left over you can start to afford to take up whatever hobby it is that you wanted, whether it’s growing exotic plants, macramé, carving, or stamp collecting. Again, it always depends on you.
• Invest – for some people this is the simplest and best solution. Investing gives your money the important job of providing for you later in life, when you no longer are able to work, or simply have the desire to retire.

Whatever you do, always make sure that your “extra” money is assigned ahead of time. This helps ensure that you maintain control over it, and that you will receive maximum pleasure from it!

It’s really tough if you don’t make allowance for unexpected expenses. Part of your monthly budget should include putting a little aside each month, not just for retirement savings, but also for emergencies. This is one of the most often neglected categories of budgeting. The woman I was speaking with today did have a good idea, though. What she does for her fun money budget is take what’s left after the rest of her budget and divide it by the number of days in the month. Then she knows how much she is allowed for each day. This is actually a very good way to manage this category of money. This woman also knows, as she plainly stated, if she goes over in any one day she has to take it out of the next day or out of another category. And she knows that can hurt, so she tries very hard not to do it.

There are many strategies that we can use to keep within a specific category. The worst one that people tend to go over on a regular basis is the entertainment budget. Whether you manage it on a weekly basis or a daily or monthly basis, you must constantly be aware of where you stand and how much money you have in your budget. It’s even better if you can manage it well enough to stay below your budget and then have a little extra to add to savings or even just to put into a special “fund” to use for a big entertainment expense. Assuming, of course, that you are not stressed into paying off credit cards or other debt.

One strategy I used to try (before debt) was to set a specific entertainment budget at all times. I would then strive to save 50% of my monthly entertainment budget and put it into a fund for bigger toys (so to speak). This is how I managed to afford a few things that I otherwise wouldn’t have at that time. It really motivated me to know that there was a special reward at the end of the line, as long as I was able to restrain myself. It really meant NO buying lunch at work, no quick snacks from the corner store, and I basically cut my alcohol budget to zero. But it was always worth it in the end!

What strategies do you do to keep within your budget? And what motivates you?