Budgeting is an essential part of a healthy financial life. It allows you to create a spending plan for your money to ensure you always have enough for the things that are truly important to you. Rather than being restrictive, these budgeting tips help you form a clear picture of the money you have to spend and can even help you discover extra income that you can allocate more efficiently.
People who budget set themselves up to get out of debt faster, achieve their savings goals over time, and practice smart spending. The best part is that it only takes a few easy tweaks to your money routine to implement good budgeting habits.
Day-To-Day Budgeting Tips
There are some things that are worth doing every day. We stay physically healthy by brushing our teeth, drinking adequate water, and being active. So why is it so hard to exercise this same kind of daily care with our financial health? Read on to learn about quick, simple things you can do every day to stick to your budget.
1. Establish Needs Versus Wants
“Needs” are anything crucial for your basic physical, mental and financial well-being—think food, rent, and debt repayment. These should always be factored into your budget and can be found in Mint’s online budget calculator. Pretty much anything else falls into the “wants” category. Make sure to budget for these things too! Consider the 50/20/30 rule which allocates approximately 30 percent of your income to nonessential things that will enhance your lifestyle.
2. Keep Bills and Receipts Organized
Keep your bills and receipts organized in case you need to refer back to a bill to dispute it. This may also come in handy for tax purposes. You can choose to file physically via hanging files or expandable folders. If you do this, sort your documents by month or by account, whichever makes more sense to you. If you receive your bills and receipts mostly via email, you may want to file everything electronically. Choose whichever way is best for you—just stay on top of it.
3. Use Separate Accounts
Many have had success using multiple checking accounts to keep things organized. For example, having a separate checking account for fixed expenses like rent and car payments makes it easy to see the money you have to spend every month on more flexible categories of your budget like food. If you’re unsure of where to start, consult your financial advisor.
4. Prioritize Debt Repayment
While you may be moved to start a budget to save up for a vacation or car, you may want to put those things on the backburner until you’ve paid down some existing debt. Prioritizing debt may save you money on interest and reduce the stress that’s so often associated with high debt. It’s also important to keep your debt down because it affects credit utilization. Be mindful that your credit score may be damaged if your credit utilization is over 30 percent of your limit.
5. Divide Food into Two Categories
Food takes up a significant percentage of our income, so it’s important to budget properly. Keeping groceries and eating out as separate budget categories makes it more clear to see where your food-related purchases are going. Consider paying at restaurants with a card and taking out cash to pay at the grocery store to further separate the two. Cash helps you see physically what you have to spend and forces you to stay within your budget.
6. Don’t Forget to Factor in Fun
No budget is successful without room for the fun stuff. When you know you have a little wiggle room to see a movie, splurge on a facial, or visit a new bar, you’re much more likely to succeed with sticking to your budget. Think of this like a planned cheat day for your finances!
Smart Saving Hacks
Apart from keeping your spending in check, budgeting is a great way to hit your savings goals. Make saving a category in your budget so that you’ll always be expecting it every month. Follow these budgeting tips and watch your savings grow.
7. Save First, Then Spend
Most people choose to spend first and save what’s leftover. This makes saving optional and doesn’t ensure consistent saving. Think of saving as a fixed expense and factor it in accordingly to your budget. “Do not save what is left after spending; instead spend what is left after saving.” Who can argue with Warren Buffett?
8. Observe a No-Spend Day
Designate one day per week where you don’t spend any money aside from what’s absolutely necessary. This is an easy way to make sure weekly spending stays within your budget range. If you’re in serious need of a spending cleanse, consider a whole no-spend month—yes, you read right—going a whole month spending money only on the bare necessities.
9. Use the Right Tools
Set yourself up with the right tools to ensure success from the beginning. Track your money with a budgeting app like Mint, or use apps to keep track of money spent on shopping or healthcare costs. Powerful budgeting tools can help you visualize exactly where every dollar is going, remind you of bills and goals, and warn you when you’ve overspent in a category.
10. Start Contributing to Retirement Now
You’ve likely heard it before, but we’ll say it again: it’s never too early to start saving for retirement. If possible, max out your employer’s retirement matching program—after all, it’s free money. Starting early will ensure that you don’t put extra strain on your budget further down the line as you attempt to catch up.
11. Split Your Direct Deposit
If you have direct deposit through your employer, consider setting it up so that a certain percentage of your income goes straight into a savings account. This way you don’t even need to include saving in your budget because automation does the work for you. That’s one less thing to keep track of!
12. Plan For Large Purchases
If you’re considering purchasing an expensive item like a new laptop or TV, the key is planning ahead. Decide a date that you want to make the purchase, and divide the price by the amount of days you have. For example, if you want to purchase a $1,500 computer in 300 days, you just need to save $5 per day. This keeps you from charging the item to a credit card, putting you in serious debt and causing you to pay interest charges until you can pay the balance off.
Planning Your Finances For the Long Term
The following budgeting tips can help you outline long-term financial goals. A little careful planning today may add up to big changes over the years.
13. Outline Specific, Realistic Goals
Remember that the most easily achievable goals are SMART—specific, measurable, attainable, relevant, and timely. Instead of saying, “This year, I want to save more,” try, “I want to have $1,000 saved for an emergency fund by December 31st.”
14. Plan Ahead For Expensive Times of the Year
Some seasons such as back-to-school and the holidays require extra spending. Acknowledge this ahead of time and plan to allow more room in your budget for necessary expenses. If you have children, anticipate the need for clothes and school supplies. When the holidays roll around, having a planned holiday gift budget will ensure you’re not going into debt.
15. Account For Every Dollar
Create a spreadsheet to see where your money is going month-over-month. Every bit of your income should be used in some way. This doesn’t necessarily mean every dollar will be spent on material things, but everything should have a purpose, such as savings, retirement, or paying off debt. This ensures you’re efficiently making the most of your income.
16. Expect the Unexpected
Sometimes all the planning in the world can’t prepare us for unexpected expenses. Things like car repairs or trips to the ER are sometimes impossible to predict. That’s why it’s crucial to factor in an emergency fund into your budget. We suggest having at least $1,000, but it’s up to you on how much you want to save.
17. Include a Contingency Category
Sometimes an expense won’t fit perfectly into any of your budget categories. That’s where having a contingency comes in handy. Here’s the catch: make sure that you’re not using it as an excuse to overspend in any of your other categories. If you find you’re consistently going over-budget in food, shopping, or any other area, consider modifying your budget instead of funneling it into your contingency.
18. Adjust Your Budget Monthly
Needs change, and a budget shouldn’t be set in stone. Consider re-assessing your budget monthly to get a pulse on how well you’ve been sticking to it. If you notice you’re consistently over-spending in one category and under-spending in another, even out your budget to make it more achievable.
Even if all you have is one hour, planning a budget is a critical step in maximizing your financial health. Sticking to the plan will help you get the most out of your income and give you peace of mind that every dollar in your checking account is going to a specific purpose.