Budgeting isn’t a cakewalk, but it doesn’t have to be a nightmare, either. Contrary to popular belief, you don’t have to spend hours doing math or pay hundreds to an accountant. You can create a simple budget with relative ease.
In this article, we highlight tips to help you create a realistic budget. From prioritizing your expenses to incorporating technology, here are the budgeting tips you need to know:
1. Figure Out Why You’re Budgeting
To be successful with anything, you need a reason — an overall goal. The same goes for budgeting. It’s important to first determine the reason behind your decision to create a budget.
Are you trying to get out of debt? Do you want to buy a house soon? Are you saving for a family vacation? Having a specific reason for doing something will keep you focused. You’ll be excited to reach your final goal and, in turn, less likely to fall off the financial wagon. So figure out why you’re budgeting before you start the process.
2. Track Your Spending First
One of the reasons budgets fail is because people underestimate how much they spend. Don’t make that mistake. Before you create a budget, make sure you have a good understanding of your spending habits. Take a close look at your debit card statements. Figure out how much, on average, you make each month and how much you spend.
Chances are, by taking a deep dive into your finances, you’ll find ways to spend less. For instance, you probably have a few recurring expenses you could do without, such as a gym membership you haven’t used in years. You might even catch recurring expenses you didn’t know existed, like monthly streaming subscriptions.
According to a 2021 Chase survey, 60% of U.S. adults forgot about at least one recurring payment. Even more shocking, 55% of the 2,000 consumers surveyed had no idea how much they spend on recurring payments. The more you know about your spending habits, the easier it’ll be to create a realistic budget you can actually stick with.
3. Budget Month to Month
Some people make the mistake of over-planning when it comes to budgeting. Instead of creating a short-term budget, they focus on the long term. That can be problematic for several reasons. For one, your finances change month by month. While your income probably remains relatively the same, your expenses don’t.
This month, you may have to pay for your child’s braces. Next month, you have to purchase Christmas presents. That means you’ll need to find areas where you can cut back to enable those out-of-the-ordinary expenditures. Every month is different, which is why you should create a fresh budget at the start of each month based on what’s to come.
4. Spend After You Save
A common mistake people make is spending their money first, then allocating what’s left for savings. That’s a surefire way to keep your savings account low — which isn’t the goal. To grow your savings account, you need to put more money into it than you spend on nonessentials.
An easy way to make sure you’re saving is to have money automatically transferred to savings from your paycheck. Set up your direct deposit so a certain amount is sent directly to your savings account before you even see it. Consider saving money a primary focus and budget accordingly.
5. Keep It Simple
Budgeting doesn’t have to be complex. You don’t need to spend hours creating Excel spreadsheets (unless you want to, that is). Many experts recommend following a simple budget plan like the 50/30/20 budget.
With this budget, you spend 50% of your monthly income on necessities (rent, utilities, groceries, etc.). You spend 30% on wants (new clothes, memberships, going out to dinner, etc.). The remaining 20% is dedicated to your savings or debt repayment.
What’s nice about the 50/30/20 budget is that it’s realistic. So often, people create strict budgets that leave no wiggle room. You shouldn’t have to give up everything you enjoy in order to save money. Make sure you’re still able to have fun!
6. Use a Budgeting App
We live in the 21st century, meaning we have access to more technology than ever before. Don’t be afraid to use it. Instead of trying to create your own budget, consider using a budgeting app to do the work for you.
Using such an app is easy and intuitive; all you have to do is link your accounts to the app. Once done, your chosen app will take a deep dive into your finances to determine your ideal budget. You can even opt to receive updates along the way, so you’ll know how well you’re following your budget. Below are a few well-regarded budgeting apps you might try:
PocketGuard tracks your accounts, income, and bills to create an easy-to-follow budget. The app categorizes your expenses and advises you on how much you can safely spend based on available funds and your upcoming bills.
Similar to PocketGuard, this app categorizes your expenses into what are called “envelopes.” Once these are categorized, you create a budget for each. For example, you might have an envelope called “groceries,” to which you assign $400 a month.
With this app, you simply connect your accounts, and it will categorize your transactions to create a budget. If you go over budget within any category, you’ll get an alert.
7. Give Yourself Grace
Budgeting is an involved process that takes time to perfect. Even if you use a budgeting tool, your work isn’t done. That’s because creating a budget isn’t the hardest part — following it is.
Getting accustomed to following a new budget can take months or even longer, depending on how you’re allocating money. For example, let’s say you’re only budgeting $100 a month for “wants.” That would mean quitting your daily $6 Starbucks.
Your budget probably won’t be perfect the first time around — or even the second. You’ll most likely have to readjust your budget constantly based on your life circumstances. So don’t be too strict or hard on yourself. Go into budgeting knowing that your decisions aren’t permanent and you have room to change your mind.
Do you hate budgeting? Join the club. According to research, only 41% of U.S. households actually follow a budget. The truth is, not many people enjoy monitoring their finances. But it’s necessary to achieve financial freedom. By following these tips, you’ll gain a better understanding of your spending so you can create a budget you’re able to stick with.