By ASH IDRISY
I’ve previously written about the importance of a household budget. It is the most effective tool when you are trying to save money, but 60% of households don’t have one. I would guess that’s because: 1) it takes time to sit down and collect all the data necessary to make an effective budget, 2) once you make a budget you are constantly battling with yourself to “stay on budget,” but if you don’t have one you avoid this internal struggle, and 3) it’s almost impossible to make a budget that accurately reflects the future.
The third point is the one that I think gets most people. After all, to make a budget you must look at what you spent in the past and use that to predict what you’ll spend in the future. For this reason, it can feel impossible to stay on budget, because none of us know what’s going to happen tomorrow. So, what’s the solution?
One easy way forward is to add a buffer to your budget. You can do this for the entire year or monthly. Let’s say it’s Dec. 30 and you want to make a budget for next year. Tally up all your spending for this year, assume you’ll spend roughly the same amount next year, and then add a 5% buffer.
To make it concrete, let’s say your income is $50,000. As a rule of thumb, you should aim to save 15–20%, but let’s say you save 10% to keep things simple. That leaves you with $45,000 to spend. Since you can’t predict the future, the 5% buffer means maybe you spend 5% less or 5% more, or between $42,750 and $47,250.
If you like budgeting every month or quarter, you can use the same buffer principle there as well. The point is to give yourself wiggle room to stay close to budget. You can also update the budget every month and adjust the buffer as the year progresses. Of course, some items like rent won’t need a buffer unless you expect to move or sign a new lease.
The buffer helps solve the unknown. But there is another reality that makes budgeting unpleasant: life is getting more expensive. Grocery prices in Pennsylvania are up 25% between 2020 and 2024. A family of four is spending around $1,000 a month on groceries. While it’s impossible to know the exact path of prices, I would budget around $1,050 at the beginning of the year and $1,100 by the end of next year for groceries.
Moving on to utilities, electricity is going up at least 3% for West Penn Power customers due to reduced supply and increased demand from AI data centers. If you own a home, your mortgage will be the same, which helps, but you might see increases in sewage, water, and refuse removal costs. If you are in the State College area, you will most likely see an increase in property taxes as well. The Borough Council is set to vote on a 35% property tax increase on Dec. 15.
If you are a renter, I would suspect that landlords will pass on their increases in utility and maintenance costs. Hopefully our rents aren’t going up 35%, but it’s worth having a conversation with your landlord. Ask whether they are planning to increase rates, and if so, by how much. Can you negotiate? The landlord wants you to stay, so you do have some leverage. Housing is typically the biggest part of anyone’s budget, and the rule of thumb is to not spend more than 30% of your pay on housing. If that becomes impossible, you may need to consider moving.
Finally, look at your other costs, phone, internet, insurance, subscriptions, etc., to see what the new prices will be and build your budget using updated numbers. This way you can avoid that sense of failure if you can’t stay on budget. The point of a budget isn’t to punish yourself for not meeting an arbitrary goal. It’s to give you workable information to meet your financial goals.
