How Financially Limber Are You?

"Oh that was a bad month. The car needed repair."
"That was a tough month. We had to fly to my sister's wedding."
"December was rough this year."
"Last month was unusual. I had to pay that big dentist bill.

How many times have you made excuses for going over budget or living close to the edge? Is there really such a thing as a typical spending month where all you have to do is pay your usual bills, buy a typical amount of groceries, spend an average amount on household items and go out only a minimal amount?

There is no "average month." Something always comes up...the car breaks, the house needs something or you need a getaway. It's not bad when these things come up. And you're not a bad person if you spend a little frivolously.

The dangerous thing is setting your budget so tight that these things are then a big set back. If you find yourself having unusual months more than 4 times a year, you are budgeting too tightly.

Can you look at your spending over the last year? If not you need to start using some service that helps you analyze your spending. In my opinion online banking is the greatest banking service ever, but it's not enough. You can download your transactions into an Excel spreadsheet and setup your own analysis, but what a hassle. Services like Quicken, Mint and Microsoft Money (though I'm not a fan of the latter) are available for free or a nominal fee and let you see your spending trends in just moments.

Those months that you do happen to stay in budget are for preparation for the other months when you don't. I know you've heard of emergency savings. This is the money that will help you out with the little emergencies and keep your budget balanced.

So how much flexibility do you need? Again return to your previous spending trends. How much did those unusual months or little emergencies cost you? Average that out over a year in your current budget. Or if you see that you tend to spend more in one part of the year, tighten your budget in the months prior to prepare.

If you have no idea how much the unusual months cost, then you've just got to pick an amount and add that flexibility into your budget. Maybe start with a $200 cushion. It may not be enough but it will make the blow of unexpected expenses softer. Then watch how this works out for you and adjust the amount if needed.

You'll probably need to find areas in your budget that need trimming to come up with this cushion. It's not as hard as you think. Once you dive in and look at the numbers you'll find ways to cut some fat. For our household small cuts in fast food and coffee shops was enough to plump the cushion. This month we've had an unusual amount of gifts to purchase and a sizeable dental bill, but thanks to the cushion our budget didn't crack at all.

Remember a budget is more of a guideline. The more rigid your budget the more likely it is to break.