Spend less than you earn. Makes sense, right? And the best way to ensure that's what you're doing is to make and stick to a budget. There are many different approaches to managing a budget, but whatever method you use, be sure to watch out for budget black holes.
Photo by thebadastronomer
Financial blog Budgets are Sexy explains that a black hole in your budget is simply an area of spending you may not be tracking well enough, or at all. Your budgeting black holes may be small or they may be big enough to cause budget failure. The trick is being able to spot and put limits on them.
While the example of my family member is a bit on the nutty side, I believe it points out a solid point when it comes to budgeting — that you need to order your budget such that it allows you freedom to live. There are certainly times when you do need to watch your budget more stringently (like when you're paying off debt) but even then you need to allow yourself to live a little.
The problem comes in when you allow this area to go unchecked wasting hundreds, if not thousands of dollars over the span of your life.
One way to give yourself some freedom while still maintaining a budget is to pay yourself an allowance — money that is yours to do with as you want each month. You can track spending or not, as long as the allowance itself is tracked in your main budget. You can save it or spend it on hobbies. It's entirely up to you. And that goes for other members of the family, as well. Everyone ought to have some amount of money that is theirs to spend and manage privately.
Is There a Black Hole in YOUR Budget? [Budgets are Sexy]