Budgeting might not be the most exciting concept in personal finance. But it is a concept that can completely transform your life for the better. If you can learn how to budget and save money, then your financial future will suddenly appear so much brighter. The good news is that learning how to budget is not hard! Today we will share our top tips on how to budget. You might be surprised how easily these tips can fit into your financial picture.
How to budget your money
Before you can start to budget effectively, it is important to take a close look at your wants and your needs. Take some time to decide what is absolutely essential to your happiness in life and make that a priority in your budget. However, try to set realistic expectations for your wants and needs.
How should a beginner budget?
As a beginner, the best place to start budgeting is with the 50/30/20 budget rule. Here’s how that spending pattern would break down:
- You would spend 50% of your income on your needs. That would include all of your basics such as housing, food, transportation, and healthcare expenses.
- You can spend up to 30% of your income on your wants. That includes things like vacations, dinners out, fun hobbies, and more.
- The final 20% of your income would be budgeted towards savings and debt repayment.
As a beginner, this is a great framework to learn how to budget within. It will require you to think carefully about your wants and needs. The more intentional you can be about your spending, the better able you will be able to stick to your budget.
Once you are comfortable with this 50/30/20 strategy, you can start to transition to a more advanced spending pattern. Instead of spending 50% on essentials and saving only 20%, you would try to flip the two. With that, your goal would be to save 50% of your income and spend 20% on essentials.
It may take some time to progress towards a 50% savings rate. However, it is completely possible if you focus on shaving down your big 5 expenses. The five big expenses that take up the majority of your budget include housing, food, transportation, healthcare, and taxes. Luckily, there are strategies that can help you to dramatically reduce these expenses. We share strategies on reducing your spending on those expenses in a series of posts.
How can I improve my budget?
In order to fine-tune your budget, it is important to take a closer look at your financial goals. If you are able to pin down what you want out of life, you can create a spending plan that will take you there. With a solid grasp on why you are sticking to a budget, you are more likely to actually stick to it. After all, who doesn’t feel motivated by their goal of reaching financial independence?
As you nail down your goals, make sure to include these savings goals in your budget.
How to stick to a budget
Creating a budget might not be difficult, but sticking to a budget can be. If you are wondering how anyone sticks to a budget, then you aren’t alone. Almost everyone that starts on their path to financial independence is met with resistance by their budgeting habits. It also helps to understand the difference between wants vs needs. It will take time and practice to truly nail the art of sticking to a budget without feeling any type of deprivation.
There is not a single solution that will help you stick to a budget. However, a combination of tips could help you stay on track. Start by tackling this first tip.
Find your why
Why are you trying to stick to a budget? Everyone has a different reason for exploring their personal finances. After all, personal finances are a reflection of your individual spending choices.
With that, it is important to understand why you want to stick to a budget. Maybe you are saving up to purchase a property to house hack? Maybe you have decided to stay at home to raise your family but sticking to one income is a challenge? Maybe you want to reach financial independence before you are too old to hit your bucket list items?
It doesn’t matter what your why is, as long as it matters to you. If your goal is compelling enough to you, then you won’t find it so difficult to stick to a budget.
Simple budgeting tips
Once you have a handle on your why, you will be better prepared to incorporate other budgeting tips.
Use a budgeting software
Budgeting software can save you time and help you stay on top of your budget. Instead of tediously tracking your purchases, download an app to do it for you.
Mint is one of the best apps for this job. You can set up your budgeting categories within Mint and it will alert you throughout the month. Plus, you can check-in before you make a purchase to decide if you really need the latest thing that caught your eye.
Align your spending with your goals
Consider your savings goals as you build a budget. You should factor in your long term plans into your budgeting decisions. If you are happy with the way that your budget reflects your goals, then you are more likely to stay on track.
Try to think of this in terms of long-term rewards instead of short-term gratification.
What is the 30 day rule?
If you find yourself making unplanned purchases, then try putting any impulse buys on hold for 30 days. Instead of clicking the “buy now” button on Amazon, add the item that caught your eye to your wishlist. In 30 days, you can come back to buy the item. But it is likely that at the end of 30 days, you’ll have decided that you don’t need the item or forgotten about it altogether.
Of course, it is something that you actually need, then you can still purchase it. But after thinking about your decision, you’ll know that you are making an intentional choice.
Cut out anything that doesn’t matter to you
As you look to trim your budget, try to remove things that don’t bring you any happiness. The most obvious example is cutting cable, most of us can find plenty of TV options on more affordable platforms.
Making the decision to cut cable might not affect your life too much. However, if your goal in life is to explore the world, cutting your travel budget might not go over well. Try to find a balance between your short-term enjoyment and your long-term goals.
Don’t overtighten your belt
As you start budgeting, expect to make mistakes along the way. Just like a diet, you shouldn’t go from one extreme to another too quickly. Otherwise, you run the risk of burning out and blowing your budget completely.
You will run into months with unexpected expenses or an impulse purchase that overstretched your plans, that’s okay. Seek out ways to make yourself comfortable with your budgeting plans. If you feel overly pinched, the entire budget might backfire.
Be realistic about your spending goals. You shouldn’t expect to cut too much from your budget at once. Try to remove big things one at a time. As you progress towards a smaller budget, you might not notice the changes.
Don’t beat yourself up
As you start to budget, I can promise you that mistakes will happen along the way. That’s okay! Don’t beat yourself up about bumps in the road. A misstep here or there will not dramatically delay your long-term goals. Instead of beating yourself up about the mistake, just try to get back on track.
Try meal planning
Since food is one of the top five expenses, meal planning can have a significant impact on your budget. With meal planning, you have the opportunity to dramatically cut your food costs.
Shop around for large purchases
It is possible to save thousands of dollars by shopping around for major purchases such as car insurance. This annual expense can put a big dent in your budget, but you can soften the blow by taking a look at your options. You might find that you are able to save hundreds and reallocate the savings to something that matters to you more!
The bottom line
If you take action and learn how to budget and save money, your financial future could be dramatically improved. Budgeting can help anyone improve their finances. But it will require determination and a willingness to learn along the way.