Building a detailed budget is not for everyone. For some, it’s just time-consuming and unnecessary. Though, if you’re reading an article on budgeting tips, I’m assuming you’ve decided that having a budget is for you…
Which is great!
Budgets have been helping people (and companies, organizations, and governments) take control of their finances and save money for years (probably centuries). There’s no reason a budget can’t help you too.
Whether your a first-time budgeter or a personal finance expert, I’ve highlighted 11 of the best budgeting tips below. They’re a must-read if you want to learn about ways to improve upon budgeting basics.
Image Credit: CarlaNichiata / iStock.
What is a Budget?
Before diving in to the best budgeting tips, I thought I’d quickly highlight what defines a budget.
Wikipedia calls a personal budget, “a finance plan that allocates future personal income towards expenses, savings and debt repayment.“
That’s a solid definition. I actually wouldn’t change much about it, other than most people view a budget as a monthly budget and measure it on that cadence.
I’d just also add to it with my 5 steps to build a budget, which are:
- Determine Your Income
- Calculate Your Expenses
- Set a Savings Goal
- Have Fun With Leftover Money!
- Track and Adjust as You Go
One of the best ways to learn about the concept of budgeting is to build one yourself. If interested, you can learn more about how to build a budget from scratch here.
Here are 11 practical budgeting tips to help you budget better:
Image Credit: Pexels.com.
1. Decide to Budget
First things first, if you’re going to budget, you really have to decide to budget.
That is, you can’t have one foot in and one foot out. Budgeting takes time and dedication, and while you don’t have to budget every expense, you do it need to be committed to the process – meaning you’ll likely need to set aside time to budget every month.
Image Credit: DepositPhotos.com.
2. Calculate Where You Stand
Something you should do early on in the budgeting process is figure out exactly where you stand. That involves calculating three measures:
Net Worth: Your net worth is your financial pulse – it gives a glimpse into how healthy your financial situation is at any given time (and over time). It’s not necessary to calculate your net worth prior to budgeting, but it’s highly recommended.
Income: How much money you make after taxes. It’s useful to have this as a monthly figure.
Expenses: How much money you spend every month. Try to keep “needs” and “wants” separated in this calculation, as “wants” can be more easily cut if necessary.
Once you know these three metrics, you have the foundation to build a strong budget.
Image Credit: Extreme Media / iStock.
3. Choose a Budgeting Strategy
There are more than a few budgeting strategies available for you to use, and hopping between different ones is a great way to not stick to any of them!
It’s best to pick a budgeting strategy (or set of guidelines) up front, and stick to it for a few months. If after 3-6 months you find it’s not working for you and helping you achieve your financial goals, then make the switch and try something new.
Here are some popular budgeting strategies to consider:
80/20 Budget: A high level guideline that consists of spending 80% of your income and saving 20% (this is the easy way to budget).
50/30/20 Budget: A guideline that consists of spending 50% of your income on needs, 30% on wants, and putting 20% towards savings.
FIRE Budget: A budgeting strategy (and lifestyle) that involves prioritizing aggressive saving in order to reach financial independence and early retirement as quickly as possible. Your savings plan is the most important aspect to keep track of with a FIRE budget.
Zero Based Budgeting: A fancy term for tracking every expense down to the last dollar. This is what most people think of when they hear the word “budget.”
Bonus: The best books on budgeting and saving money to read right now.
Image Credit: .
4. Have Attainable Goals
Let’s say that you calculated your income and expenses and find that you are currently spending 90% of what you make. If that’s the case, it probably doesn’t make sense for you to set a goal that involves saving money at a 50% rate.
That would require you to make drastic changes which likely aren’t possible in one month.
Instead, you should set realistic savings goals. Over time, you can adapt your goals as you get better at managing your money (or make more money, hopefully).
Image Credit: DepositPhotos.com.
5. Include Your Spouse (or Significant Other)
If you have joint finances with a spouse or significant other, it’s important to include them in the budgeting process and have that help create budget goals and guardrails.
You know that horrible saying, “teamwork makes the dreamwork.”
Well, turns out it’s true. Nothing kills a budget faster than having a partner who isn’t on the same page and goes rogue with spending – creating budget chaos!
Also, getting someone else on board helps create accountability and makes you more likely to stick to the budget as well. So if you have a spouse or significant other, be sure to make budget decisions together.
Image Credit: PeopleImages.
6. Have Some Wiggle Room
Surprises happen. It’s why many people are setting aside money in emergency funds.
It can also be helpful to build a little wiggle room into your budget.
If something comes up (like an unexpected car repair, medical expense, or insurance cost), you can use this unassigned income to cover the surprise cost. If nothing comes up, you can throw the leftover money into savings, investments, or spend it on something fun!
Just be sure to include a miscellaneous category within your budget categories.
Image Credit: DepositPhotos.com.
7. Track Your Progress
A budget is only as good as the person who tracks it.
Luckily, there are a lot of ways to track your budget automatically that you don’t have to track every expense (see tip 11).
Although, if you’re a “spreadsheet person” and want to dive into the numbers, then you’ll likely need to be tracking your budget at least once a month (if not every day). Someone has to input all those expenses into the budget worksheet…
It’s important to also have time set aside when a new month begins to review your budget. This time can be used to view how your spending differed from your budget and why.
Image Credit: DepositPhotos.com.
8. Adapt Over Time
Going hand in hand with tracking your budget is adapting it over time. This is especially true after the first few months of budgeting when you are still figuring out the right process for you.
Your options to adapt your budget are nearly endless, but here are a few you should be considering when you make adjustments:
- Lowering expenses: could you be spending less? [Use Billshark to lower your monthly expenses and spend less on current bills!]
- Increase savings: should you be putting more money away by saving and investing more?
- Spending more: sounds weird, but maybe you should be spending more on things you enjoy (if you’re outpacing your savings goals).
- Increasing income: can you make more money through a side hustle or different job?
Image Credit: DepositPhotos.com.
9. Use Credit Cards!
Responsibly. Use credit cards responsibly (that means not going into any credit card debt, at all).
Credit cards are an amazing tool for consumers and come with a ton of advantages. Not only do they provide cash back, points, rewards, and sign-up bonuses, but they also give you the ability to easily track your expenses.
If you only want to input your expenses once a month, rather than daily, using a credit card is a great way to aggregate and track all that data. When used the right way, they are the superior alternative to having to pay cash or use a debit card for everything.
You can check out some of the best credit cards on the market here.
Image Credit: Farknot_Architect / iStock.
10. Automate Where You Can
Automation can help you save time in the budgeting process.
From setting bills to auto-pay to having automatic transfers set up from your bank account to brokerage account every month, automation can help ensure your money is going where you need it to.
Image Credit: DepositPhotos.com.
11. Get Some Help from Apps
There are plenty of budgeting apps out there to choose from when looking for the right tools to help you create budgeting routines. Below are two to consider checking out. They’ll help you track, monitor, and adapt your budget over time.
Pocketsmith: Pocketsmith helps track your money, your way, and get new insights on your finances. They have the ability to consolidate your accounts (banks, credit cards, etc.) so that you can get a real-time picture of where you stand. They offer both free and premium services.
Mint: Similar to Pocketsmith, Mint has the ability to consolidate your accounts and help measure your spending and saving progress.
Image Credit: DepositPhotos.com.
Summary: The Best Budgeting Tips
Budgeting is not for everyone. It is for people who are looking to get a stronger grip on their personal finances. If that’s you, implementing these budgeting tips can help you budget better to make a positive impact on your financial life.
This article originally appeared on JustStartInvesting.com and was syndicated by MediaFeed.org.
Image Credit: Depositphotos.
