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 18 budgeting tips help you form a clear picture of the money you have to spend and can help you discover extra income that you can use 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.
Beginner Budgeting Tips
There are some things that are worth doing every day. We stay physically healthy by brushing our teeth, drinking plenty of 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 and simple things you can do every day to stick to your budget.
1. Create Your Budget Before the Month Begins
To stay on top of your budget, plan ahead. A week before a new month starts, sit down and plan your next month’s activities and expenses. For instance, you may have a road trip or vet appointment one month, but not the next. Once you’ve planned your month, set a realistic budget. Use our app to break down your income, necessary expenses, extra expenses, and your savings contributions.
2. Practice Budgeting to Zero
Budgeting to zero means tracking every dollar you earn and giving it a place in your budget until you don’t have a single dollar to spare. Let’s say, for example, you earn $4,000 a month. After budgeting your fixed expenses, saving contributions, investments, and any other extras, you shouldn’t have any money to spare. Budgeting to zero can show you where your money is going and give every dollar you earn a purpose.
3. 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.
4. 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 non-essential things that will enhance your lifestyle.
5. 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.
6. 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.
7. Prioritize Debt Repayment
While you may be moved to start a budget and save up for a vacation or car, putting those ideas on the back burner and focusing on paying off existing debt may be better. Prioritizing debt may save you money on interest and reduce financial stress. It’s 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.
8. Don’t Forget to Factor in Fun
Most budgets are successful when you make room for 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!
9. 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 contributions. Think of saving as a fixed expense and factor it into your budget accordingly. “Do not save what is left after spending; instead spend what is left after saving.” Who can argue with Warren Buffett?
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 your 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. 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 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.
13. 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, potentially putting you in serious debt and causing you to pay interest charges until you can pay the balance off.
14. Include a Contingency Category
Sometimes an expense won’t fit perfectly into 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.
15. 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 overspending in one category and under-spending in another, even out your budget to make it more achievable.
16. 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.”
17. 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 that right — go a whole month spending money only on the bare necessities.
18. Don’t Be Too Hard on Yourself
Getting used to a new budgeting routine may take a few months to make perfect. Your budget may not be perfect the first or the second time around. Be kind to yourself and your budgeting lifestyle as you settle into your new routine. Focus on making daily decisions with your budgeting goals in mind to help establish new habits.
Planning a budget is a critical step in maximizing your financial health, and it can be done in less than one hour. 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.