In response to a recent Living on a Dime story about budgeting, Yvonne writes: My problem is not setting up a budget but sticking to a budget. Gas costs what it costs. Groceries - It is expensive to eat healthy. Do you have suggestions for how to live on a budget? We don't do a lot of things but we seem to overspend our budget each month. And I know there is no way my husband is going to keep track of every penny he spends. Please help!

Tawra: This is a question that I receive frequently. Many people feel that the thought of budgeting is too daunting. My first thought is that if you set up a budget and can't stick to it, either your budget, your spending or both are not realistic.

One thing I should mention up front is that there are several reasons why you might make a budget and how you handle your budget depends largely on why you have one. Here are the main two groups:

1. If you spend more money than you make, you may be making a budget to get your spending under control. If that is the case, your realistic options are to cut spending to fit within your income or to increase your income to cover your spending.
   
   
2. Some people create a budget just to create a plan for how they spend their money, even though they don't have a problem with over-spending their income. If this is you, you have some leeway in your budget. Say your income is $5000 a month and your budget is for $4,000, allowing for $1000 savings each month. If this is the case, you can also choose to cut spending or increase your income, but you also have a third option. You might decide that $1000 savings is more than you can handle and cut your plan so that you expect to save only $500 and add the other $500 to your spending budget.
   
   

The reason why you are creating a budget determines the urgency of sticking to your budget. If you're in the first group, you don't have a lot of wiggle room. There is no good way to regularly spend more than you earn. If you do, everything will eventually, break down and it will impact all parts of your life. There is simply no choice but to live within your income or increase your income. If you're in the second group, you have more freedom to choose to keep more "optional" budget items since you have not committed all of your available income.

Budgeting is not a precise thing, especially at first. In order for a budget to be effective, it has to accurately project your spending. The first time you make a budget, you will probably have to use your best guess for some things. Many people have no idea what they actually spend on food, entertainment and other more flexible budget areas. If you keep copies of utility bills and other expenses, your guess may be more accurate than another person's guess. Even so, you will probably find out after the first month that some of your predictions in various areas are not accurate.

The solution to this problem is, after the first month, to re-evaluate your budget based on your spending. Ask yourself if the problem is that you disregarded the budget in certain categories and spent more than necessary or if the budget projection is not realistic. If you spend a certain amount of gas going to work each day, that is an expense that you can't necessarily cut easily because your income comes from your job. If you feel that you must use the amount of gas you are using, you will need to adjust your budget to allow you to spend more on gas.

Even though I said you can't necessarily cut the gas cost easily, most people usually do have options to reduce that cost. The question is, how important is it that you stay within this budget projection on gas? If you'd rather buy the gas than go to a movie, reduce your entertainment budget and increase your gas budget. If your budget is very tight and it accounts for every cent you earn, you may have to consider ways to reduce your gas cost. Even though "gas costs what it costs", there are ways to reduce your consumption so you don't use as much.

In our own situation, we used to think about something we wanted to buy at the store and then go get it right away. Now, we wait until we have many places to go that are near each other and make one trip out of it, unless it is a matter of life and death that we go now. It has been a challenge to our patience when we get excited about doing it "right now", but we have saved a lot of money consolidating trips. Most people would be surprised to see how the mileage for "little trips" running errands adds up. If you drive to work by yourself each day, consider carpooling with someone else. We Americans don't like the thought of that because it limits our feeling of independence, but if you work far from home, it can really save you a lot of money. If you live close to work, can you walk or ride a bicycle? Then you would get some of your exercise at the same time.

If your gas cost is high because you are involved in a lot of activities that require you to be in different places at different times of the day, consider whether you need to do all of those activities. If each of your kids are involved in a sport that costs $100 for three months, you also pay the cost to get them there and, if you're busy enough not to be able to cook dinner, the cost of fast food is a direct result of that activity. If you do one such activity once a week and spend only $10 for fast food and $2.00 for gas each time, the entire three month activity cost is not $100, but $244. It is OK if that activity is important to you as long as you can afford to keep it in your budget.

There's nothing wrong with increasing the amount you plan to spend in your budget as long as you can afford it. If you have only a set amount of income and are having trouble keeping your spending within that income, an increase in one budget area will mean that you will have to cut somewhere else. We know a family here in Kansas that thought that air conditioning was not essential when the temperatures were in the mid-90s and the humidity was high. They decided not to use the air conditioner, but they did not think buying delivered pizza and other convenience food was unreasonable. There is nothing wrong with that. We wouldn't do it ourselves. It is just the choice they made. Regardless of how you make it work, income must outweigh spending.

We don't recommend trying to keep track of every penny you spend. (Good news for your husband ;-) Some financial systems require you to keep every receipt for a pack of gum, but that is just not practical. It is too tedious and people just get frustrated doing it. If you are having trouble keeping track of spending in a given budget area, it might be useful to use an envelope system.

One of the biggest drains on a budget is "nickel and dime" spending -- a quick stop for a pop at a convenience store or an impulsive magazine purchase. If you don't know how much you spend in this area, put a set amount of money in an envelope for miscellaneous spending. Only make these purchases out of this envelope until the money is gone. This will help you get an accurate idea of how much you spend in that area.

Say you put $300 in the envelope and it is gone is ten days. That means you spend $30 per day on "miscellaneous" spending. (And you didn't have to write down every purchase.) At this rate, you can plan to spend $900 a month on these things (I'm gasping at the thought ;-).

If you want to limit spending in this area, put the money in an envelope and when it is gone, don't allow yourself to spend any more on those things until the next month. If you're accustomed to spending a lot more than your budgeted amount, this can be difficult. If your budget is not too tight, you might want to reduce the spending in that area over a few months so you don't get discouraged.

If you feel your only option is to cut your spending but you are having trouble doing it, you will want to make sure you're clear about "needs" and "wants". The only real "needs" we have at a most basic level are food and shelter. Everything else is a "want". All "wants" are negotiable at some level. We want to have a house with air conditioning. We don't want to eat only beans. We believe it is important to have a car. If your "wants" are too important to give up, you must increase your income to make everything balance.

The problem we see the most is that most people who are having trouble with spending and debt want too many things they can't afford considering their income. (Mike: I understand that. I've been there!) If you find yourself in this situation, it is easy to get irritated with having to make a choice to give up something you feel strongly about keeping.

We hope this helps! Good luck with your budget!

Michael and Tawra