If you want to get your finances in order, one of the easiest ways to achieve that goal is to create a personal budget. Having a budget gives you better control over your finances, allowing you to see how much money you’re bringing in and how much you’re spending.
Changing your spending habits seems like a difficult process that’s hard to maintain, but there are ways to develop a budget that you can easily manage and stick with. Now is just as good a time as any to begin budgeting your money, and these tips make it much easier for you to get started.
1. Find the Right Budgeting Method
There are an assortment of available budgeting methods. There isn’t a right or a wrong one; it’s a question of which one works best for you. In the zero-based budget model, every dollar you spend is allocated toward a different expense and savings until you’re at zero dollars each month.
With the 50/30/20 method, 50% of your money pays essential expenses, 30% covers optional costs, and 20% pays debts and goes towards savings. The pay-yourself-first approach involves putting money into savings first, paying for necessities second, and using what’s left over at your discretion.
2. Be Realistic
No matter how much money you’re bringing in, it’s important to be honest about where your money is going and how much you spend each week and month. When looking for places in your budget to cut expenses or save money, be realistic about that, too.
The last thing you want to do is to set yourself up for failure with improbable budget goals. If you set a budget goal of saving $1,000 a month, that may not be attainable no matter how much you set aside. A monthly savings goal of $100 is easier to achieve.
3. Add Up Your Income
When creating your budget, you need to know just how much money you have coming in from all sources, including your regular job, side hustles, gig work, etc. Even if it’s only a one-time infusion of cash, you should still include it in your budget.
Accurately adding up your income is one of the foundational steps of any budget, no matter which method you use. You can’t determine how much of your money you’re spending or saving without first knowing how much is incoming.
4. Identify All of Your Expenses
Another foundation for creating an accurate budget is to have a complete understanding of all the expenses that you’re responsible for each month. These include basics such as housing, transportation, food, insurance, utilities, childcare, pet care, and savings.
Next, include nonessential and extra expenses like entertainment, dining out, barbershop and salon visits, and other miscellaneous costs. Knowing how much money is being spent each month gives you an idea of where you can cut expenses.
5. Prioritize Savings
In the 50/30/20 budgeting plan, 20% of your income is set aside for savings. This particular goal may be more aspirational than realistic, so instead of targeting 20% as your goal, set aside a lower amount that you can comfortably afford.
Treat your savings as an essential expense to make it easier to set aside money each month. Even if it’s only a few dollars, they add up in a savings account that you’ll have access to in case of an unexpected or emergency expense.
6. Use Budgeting Tools
Various tools can be used to develop your budget. It’s a question of choosing the one that’s best for you, the one that you can easily maintain. You may prefer to create a paper budget manually using a ledger, notebook, or planner.
You can also use digital budgeting methods like Microsoft Excel or Google Sheets spreadsheet software. Numerous apps can be used on a smartphone or tablet to quickly update and monitor your budget while you’re on the go and in real time..
7. Only Pay With Cash
Debit and credit cards are much more convenient to carry and to pay for purchases than cash. That convenience comes at a cost in that it makes it more difficult to keep track of your spending habits when using them.
Paying for everything with cash is inconvenient because you either have to go to a bank or ATM to withdraw and hold on to it. Plus there aren’t any protections if the money gets lost or stolen. But the upside is you’ll likely hesitate to spend more if it’s in cash.
8. Review Your Spending Habits
Before you can change your spending habits, you first have to know how you’re spending your money in the first place. It’s a great way to identify if you tend to be an impulse buyer, or if you have unnecessary expenses that can be cut.
If you identify costs that you’re able to reduce, come up with a savings plan that will allow you to comfortably do so. If impulse spending is your particular weakness, carrying cash instead of using a debit or credit card may help curtail that habit.
9. Set Up Autopay
Sticking with a budget is made simpler by setting up autopay for your recurring bills. Not only is this an excellent way to manage your budget, but it’s also a great way to ensure your regular bills are paid early or on time.
Autopay isn’t just ideal for paying bills. It’s also suitable for saving money. If you have your paycheck directly deposited, you can set up a split deposit so that a certain percentage or flat dollar amount is allocated to a savings account, allowing you to set aside money effortlessly.
10. Budget for Special Events
Your budget should have room to account for occasional expenses, like vacations, birthdays, and holidays. Having money set aside for these costs helps to keep you from unnecessarily busting your budget.
If you know in advance of something that's outside of your normal budgeted expenses, don’t use money that’s allocated for other bills to pay for it. Either set money aside to cover the costs, or use some of your existing savings to pay for them.
11. Adjust Your Budget When Needed
Even the most meticulous monthly budgeting doesn’t always account for every unexpected expense or fluctuation. For example, your transportation expenses or grocery bills might increase due to higher prices. Adjust your budget to account for these changes.
There may be times when it’s required to rework your budget due to a major life change, like a job loss, an income increase, or the birth of a child. Adjusting your budget accordingly to reflect these changes will help you stay on track.
12. Set Goals For Yourself
Having one or more established goals you want to reach gives you more incentive to stick with your budget. The goals you choose can be as modest or bold as you want them to be. Maybe you want to save for a new outfit, a vacation, or a new vehicle.
Setting goals for yourself as part of your budget keeps you more invested in your success and makes budgeting seem like less of a chore and more of a personal challenge. Once you’ve met one or more of the goals, don't hesitate to start another.
13. Resist the Urge to Splurge
It’s ever so tempting to splurge on something you’ve always wanted, especially when you have money left over in your budget or if you have extra money coming in. Instead of splurging or buying something on impulse, do something more productive with the money.
Place the money in a savings account, or invest it in a certificate of deposit or retirement account. If you have school-aged children, place that money in a 529 account for their future educational expenses. You can also pay down or pay off debts.
14. Be Accountable
If you find that you need extra incentive to stick with your budget, hold yourself accountable by budgeting with someone else. Join an online personal finance community, hire a financial coach or partner with a friend.
Knowing that you have a support system to rely on can make all of the difference in the world. Instead of feeling as if you have to struggle on your own if you hit a wall, it’s good to know there are others to assist you through difficult moments.
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