To keep your spending in check, having a budget is extremely important. I wish they had taught me this in highschool!
Even though it may sound like a dreadful chore to do, a budget can provide you many benefits to managing your money and help you save more, pay off your debt faster, and reach your financial goals.
Despite the bad rep budgeting gets, it’s not that hard to make one – sticking to it is the challenging part.
Many people think budgeting limits their money, when in reality it’s freeing your money.
If you have a nice overview of your money, you’re able to do a lot more with it by getting a better picture of how your money is coming in and going out – giving you more freedom to plan and reach your financial goals.
Once you have a budget set up and you know exactly how much to spend and where, you’re able to spend your money without the guilty feeling that many of us get. Once you have this clear picture of your finances, you may even find extra money in there to save or spend on things you like. It’s all up to you!
Before we get started, one of my favorite personal finance blogs, DollarSprout, has a great guide on creating a budget using the 50/30/20 Rule of Budgeting. It’s designed to be simplistic in nature so you won’t get lost in crazy spreadsheets or complicated finance terms. Check it out!
1. Every month is different
Our lives aren’t exactly the same month to month, or year to year – budgets should reflect that. Some months you’ll need to budget for seasonal expenses, such as back to school shopping, holiday gifts, routine car maintenance.
Other months you’ll need to save for birthdays, vacations, or gifts.
Expenses that aren’t the same each month are one of the things that throw our finances off. Many people are left scrambling for money to cover an upcoming vacation or a birthday gift.
If you account for these in your budget, you’ll not only be prepared for them but also be able to stay on track of your goals. By not planning for these types of expenses, it takes the fun out of enjoying your vacation or celebrating a birthday!
2. Track every dollar
The more you track each dollar, the more control you have over your money – it’s as simple as that.
Record every dollar that comes in through your job income, side hustle, or passive income and every dollar that leaves your accounts – bills, student loans, groceries, etc.
When making a budget, you want to have a crystal clear picture of how your money moves in and out. This gives you the power to take a step back and look at where you can cut down on and where opportunities are to save more.
Getting into the habit of tracking your daily spending will be very helpful for you to reach your financial goals.
3. Use an app to save time and hassle
One of the easiest ways to stay on top of your money is by using an app on your phone.
These days, there are tons of options for you to choose. Budgeting apps can take the stress out of manually entering your expenses and save you time so you can enjoy your day doing things you like!
Best budgeting apps:
Empower – allows you to create spending categories, set spending limits, sends you alerts any time you go over your budget, and sends you a summary report each month that you can use to make better financial decisions in the next month(s).
Mint – by linking your bank account, credit cards, investment accounts, and loans, Mint does the heavy lifting for you. It automatically tracks your income and expenses from all your financial accounts and provides an overview of everything related to your finances. It’s really easy to use and has a great, clean user experience.
PocketGuard – PocketGuard is a great option for people new to budgeting as it keeps things simple. It keeps an eye on your recurring bills and lets you know if you can be saving money on things like subscriptions.
4. Stick to your budget by making it easy
Making a budget isn’t so hard, sticking to it is the real challenge.
Many people create a budget and within a few weeks drop it. Either it gets boring or too much work to keep doing it.
But it’s important that you stick to it so your financial goals are met. If you want to buy a house, get rid of credit card debt that’s restricting your life, or travel, you have to plan for them. Your future self will thank you endlessly!
That’s why it’s best to make it easy to stick to it. Whether that’s using an automatic app like Mint, or creating cash envelopes, or simply sitting down once a week and writing what you earned and spent that week.
By making it easy and simple to follow, you reduce any stress you might have from budgeting. It also saves you time and lets you stick to the budget!
5. Be careful with credit cards
There are different opinions on credit cards – some people like to use credit cards for reward points or travel miles, others such as Dave Ramsey recommend cutting your credit cards altogether.
If you’re trying to get out of debt and gain control of your finances, it might be a good idea to stay away from credit cards. They add to your monthly bills so you have less to save. For some people, these bills are so high that they have nothing left to save at all.
It’s very tempting to use credit cards when you have them. So why not keep them out of sight? If you have credit card debt, a great plan would be to make a budget and have a goal of getting rid of that debt and not add on to it any more.
6. Understand needs vs wants
One of the benefits of having a budget is that you can differentiate your spending between things you want vs what you need. An easy way to do this is to make a list.
- List all the expenses in your life and identify which ones are needed for you to live and which ones you can live without (wants).
- Once they’re identified, see if there’s any room to cut down on the ‘want’ expenses.
Doing this will open up a lot of room for you to cut down on your expenses and do more with your money, such as saving more or paying off that loan faster.
7. Have goals
Staying motivated is a key part of sticking to your budget. Having vague goals like ‘I want to save money’ doesn’t really help because it’s not a specific goal.
Instead, have clear and specific goals that you can put on your time-line.
Goals like ‘save $20,000 by the end of the year’ or ‘Pay off $8,000 in credit card debt in 6 months’. These goals are actionable and measurable, allowing you to track their progress and keep you motivated to completion!
It’s a good idea to have short-term and long-term goals. A short-term goal can be something you can achieve within the year – such as bringing your credit card debt down by $4,000 within 5 months. A long-term goal helps to keep your overall financial life in a healthy state – for example, have $2.5 million saved by retirement.
8. Review spending habits
Once you have your budget set up, it’s helpful to review it regularly.
You may review it at the start of each week because it’s a lot easier to rearrange cash while you have it vs when it’s already spent. Create a habit of setting aside a time each week (or even once a month) and look over the things you’re spending money on.
You’ll be surprised to see the impact it has on your spending habits once you see trends forming.
9. Make adjustments
Your budget isn’t a ‘set it and forget it’ type of thing. Unexpected expenses come in that require planning and attention. That’s why it’s important to make adjustments.
When a new expense comes up, see where you can fit it in your budget. You might have to move some money around to make room for it. For example, reducing the money you spend on entertainment or holding off on a purchase you’ve been planning on.
It all comes down to how much control you have over your money. Being able to adjust your budget and having control of it will let you reach your goals faster!
10. Have different categories
When starting out, an easy step to take is to have many different categories.
This shows you each area of your expenses – how much your spending on groceries, eating out, subscriptions, gas, etc. You can split a category even further.
For example, you reviewed your budget for the previous month and find out you’re spending too much on groceries – it may be a good idea to split the groceries category into essential foods and snacks. This way you can cut down on groceries by not spending too much on snacks.
You can apply this tip to other categories as well so you can see where you can cut down and save more.
11. Expand your safety net
One of the best tips about budgeting is to grow your safety net (emergency fund).
It gives you a huge sense of relief knowing that you have an emergency fund available in case of, well, an emergency. Small or large expenses can pop out of nowhere at any time, so being prepared to cover them will keep you financially safe and your mind at peace.
The whole point of having a budget is so you can live your life without financial stress, so the bigger your emergency fund, savings account, and control you have over your money, the more you can enjoy your life!
What makes a good budget?
A good budget helps you reach your financial goals and allows you to live your life without stressing over money.
Learning how to create an effective budget starts with you understanding your money – in other words, being honest about your money. Here’s a quick checklist to make sure you’re on the right path:
- Accurate spending: write down exactly how much you spend for each category
- Enough Categories: the more categories the better. This will make it easier for you to know where each expense is going.
- Emergency Expenses: life’s always throwing a curveball here and there. Budgeting for them can massively help you.
Next time you update your budget or create a new one, think about these tips! They’re sure to improve it and bring you one step closer to managing your money better and help you crush your money goals.