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Budgets are crucial to staying up to date and organized with your finances.
Starting a budget can be intimidating at first, yet these 20 tips will help you start your budget and stick to it.
Tip 1: Determine Why You Are Budgeting
What inspired you to create a budget? Are you a chronic over-spender who wants to start organizing your finances? Are you trying to save up for a big purchase? Are you trying to pay off some debt?
Write down why you’re budgeting. Writing it down will make it easier for you to follow through. Create a clear “why” so that later on down the road if you are questioning yourself or thinking about quitting your budget, you can look at your “why” statement and remember what you’re working towards.
Here are a few examples of a strong “why”
To ensure my kids have a better life than I did.
To help my elderly parents as they age.
To donate to charities and causes I care deeply about.
Make your “why” very personal. It needs to evoke strong positive emotion because in order to accomplish good things in life we must continue putting one foot in front of the other every day, even when it’s a bad day.
Tip 2: Test Out Some Different Budgeting Styles
Find a budgeting method that lines up with your “why” statement. You can track your expenses by hand, or through an expense tracking app. Do some research on some of the different budgeting methods so you can find the one that works best for you.
Personally, I use a simple spreadsheet to help me stay organized. You can download it and use it for free here.
Tip 3: Prioritize Your Expenses and Budgeting Goals
Once you have separated your needs from your wants, you can focus on the essentials. These include housing, groceries, utilities, and transportation costs.
Make sure to prioritize your financial goals as well, whether that is paying off debt, saving for a vacation, or putting money away for retirement.
The 50/30/20 budget is great if you just want the major spending categories organized broadly. It allocates 50% of income for needs, 30% towards wants, and 20% towards savings and debt.
With this budgeting method, you could set up your direct deposit to split your paycheck into these percentage categories automatically. You want to set up as much automation as possible. The more you automate you money goals the more likely you are to accomplish them.
Tip 4: Leave Room for Emergencies
Life is never perfect. Sometimes unforeseeable events happen that you may not think to plan for financially.
To combat this, set aside a certain amount or percentage of your income every month as an “emergency fund”. Ideally, an emergency fund should have 3-6 months of living expenses in it at all times.
This account may come in handy if you have an unexpected medical bill that you did not plan. Or your car needs some servicing. With an emergency fund you have a buffer to cover those surprise expenses. Remember though, this is an emergency fund. It should only be used for a necessary emergency, not for that new pair of shoes.
Tip 5: Automate As Much As Possible
Technology can be a powerful tool in helping you budget. One of the best innovations in budgeting technology is the ability to automate payments.
You can have your bank automatically transfer a certain amount of money into a savings account every month, or have your bills automated so you don’t need to pay them manually. This alone saves me five hours a month.
Make sure to check in on those automations though, because at some point you may be paying for a subscription that you no longer need, but forget you are paying for. Remember that gym membership you’ve used twice this year?
Tip 6: Work On Your Budget Monthly
Make sure you are working on your budget every month. If you transfer your expense tracker from an online service to a spreadsheet, you may already be working on it every month.
If you have any variable expenses that pop up every few months or once a year such as auto insurance or an annual fee on a credit card, make sure you are preparing for these irregular expenses. In this video, I go over the exact method I use to plan for any expenses that do not happen every month.
If your income is variable every month it may be a good idea to work on your budget so you can be sure that if you end up with a surplus or deficit, you can budget accordingly.
Tip 7: Practice Budgeting to Zero
Budgeting to zero means that every dollar you earn every month has a place in your budget. There should be no extra money left over when the budget is done.
Budgeting to zero is a good rule to follow because you know where all of your money is going, and every dollar you earn has a purpose. If every dollar does not have a purpose you may feel more inclined to spend it on things you don’t really need. Best to give each dollar a home every month.
Tip 8: Utilize Budgeting Tools
There are so many tools that are available to help with budgeting. Mint is a great resource if you use multiple cards because you can input all of them and track all of your expenses in one place. Again, having this automation will save you so much time.
Using a template is great because it helps you to visualize where your money is going as well as reminding you of your bills and financial goals. It can also help by giving you warnings when you overspend in a certain category.
Tip 9: Separate Needs From Wants
Needs are defined as anything crucial for your basic physical, mental, and financial well being. Needs would be housing costs, medical costs, and food costs.
Pretty much everything else falls into the wants category. If you know that you are prone to overspending, make space in your budget for some wants! Treating yourself to lunch with friends or getting your nails done once or twice a month isn’t going to throw your finances off track, as long as you’ve budgeted for it. Again, make sure each dollar has a purpose.
Tip 10: Keep Your Bills and Receipts Organized
If you know that you are prone to losing things, perhaps consider electronic bills and asking for e-receipts whenever possible.
If a situation arises where you need to dispute a bill, it’s important to have it available. It’s also helpful to hang on to bills and receipts to prepare for tax season.
Whether you prefer to keep paper copies filed away in a folder, or archived in your email, keeping your bills and receipts organized may come in handy one day. I have found the easiest way for most is to snap a photo on your phone so you will always have the receipt handy.
Tip 11: Prioritize Debt Repayment
While saving for a vacation or car may be what you set out to do when creating a budget, if you have unpaid debt you should work on getting that out of the way before you start planning other large expenses.
Paying off your debt will alleviate financial stress and save you from paying tons of interest. You should especially work on paying off debt if you’re planning to make a credit based purchase such as a house or car. Having a lot of unpaid debt negatively affects your credit and can make you look like a risky borrower to lenders. The freedom you will feel from having zero consumer debt is a great feeling.
Tip 12: Don’t Forget the Fun Stuff
Your budget will likely not be very successful if you don’t make room for “fun stuff”.
Make room in your budget for things like going out with friends or a special pair of shoes. It’s okay to have some wiggle room and like a cheat day for your finances.
Tip 13: Pay Yourself First, Then Spend
A lot of people spend their money first and then save what’s left over. This creates the mindset that saving is optional, and you won’t factor it into your budget.
As I discussed earlier, you should always have an emergency fund containing 3-6 months worth of living expenses in case something bad happens.
Think of saving as a fixed expense and make sure that either a fixed dollar amount or a fixed percentage of your income is going towards savings every month. A good rule of thumb is to save 10% of your gross income.
So if you are making $3000 per month you will set your bank up to automatically withdraw $300 each and every month to put toward savings. If you cannot do the 10% figure, start with 5% and grow it by 1% each month until you have 10% savings. It is much better to be proactive about finances than being reactive and stressed out.
Tip 14: Start Contributing to Retirement
It’s never too late to start saving for retirement. If your employer offers a retirement matching option, such as a 401k, do your best to max it out.
Starting early will save you a lot of stress in the long run and you will be setting yourself up to be comfortable in your later years. At some point you will not be able to work a traditional job anymore. You want to make sure you are preparing for that yourself and you will not be dependent on the government or anyone else.
Tip 15: Consider Splitting Your Direct Deposit
I touched on this earlier in the article. Think about setting up your direct deposit so that certain percentages of your paycheck go into different accounts.
Doing this saves you the time of writing your savings into your budget, since the automation does it for you. You can also do this with other expenses so that you already know that they are taken care of. Again, automation is life.
Tip 16: Plan For Large Purchases
If you’re thinking of making a large purchase such as a new phone, laptop, or TV, make sure you start planning for it financially a few months before the purchase. Then you won’t be draining a whole section of your budget to pay for that one thing. Or better yet, keep your old TV and don’t buy the new one. Remember to differentiate a want versus a need.
If you do decide to buy it choose a date that you want to make the purchase and then divide the price by the amount of days until then. Then save in small increments every day. This way, you also avoid charging the large purchase to a credit card and risking putting yourself into credit card debt.
Tip 17: Set Specific Financial Goals
If you want your budget to be successful, you need to be striving towards something tangible.
Don’t set vague goals like “I want to save money”“. Be precise. How much money? How long are you giving yourself to save that specific amount?
Setting specific goals helps you to stay inspired while you’re working towards the goal. You should ideally have one short term goal, and one long term goal.
Tip 18: Budget For Taxes
Make sure you are factoring taxes into your budget, because if you don’t and you fail to pay them, you’ll get into some legal hot water.
For this, it may be beneficial to meet with an accountant who will go over your taxes with you and help you figure out what percentage of your income should be allocated to them.
Tip 19: Buy Used Items As Often As Possible
As fun as it is to go to the mall and spend money on new clothes and accessories, if you’re pinching pennies on a budget, clothes are one of the first places you can cut costs.
Secondhand stores such as Goodwill and Plato’s Closet have lot’s of great finds for great prices. Also, shopping on second hand sites like Depop, Etsy, and Poshmark gives you the opportunity to find great clothes and accessories while also supporting either a small business or just a normal person trying to make a few bucks.
If you’re a bookworm and don’t want to buy books for $25 each at Barnes and Noble, Amazon almost always has second hand versions of your favorite books. Books that would normally be $25 are used on Amazon for as low as $3. They are usually in fine condition. I have bought dozens of used books over the years.
Shopping secondhand may not give you the glamor that you’re looking for, but your bank account will surely thank you for it later. Remember, once you wear something once it becomes “used.”
Tip 20: Meal Prep As Much As Possible and Eat Out As Little As Possible
Going out with friends every weekend for happy hour may sound fun, but your bank account may be suffering because of it. Eating out often is a savings killer.
Meal prepping can be fun and oftentimes more tasty than the food you are eating out. Invite some friends over for dinner and impress them with your cooking and bartending skills. It’s cheaper and is also a more private setting to spend time with your favorite people.
Meal prepping your work lunch is also a great idea. It’s easy to walk down to the local restaurant and grab lunch with a coworker every day, but it’s costing you. Make your lunch the night before so that you just need to grab it before you leave.
Invest in that coffeemaker. I guarantee you can make a caramel macchiato better than Starbucks can, and it’s much cheaper. Love chai tea? Let me tell you a secret: Starbucks uses pre-made chai mix, and so can you. Every major grocery store has some version of chai tea mix. You can make it at home.
In the final analysis, it comes down to needs vs. wants. You need to be willing to make time to prep meals and make your morning coffee at home.
Eating out once a week won’t kill you, but if you’re pinching pennies, you may not be able to afford sushi every Friday night with the girls. You’ll see a huge shift in your budget once you start cutting costs in expensive areas like that. And cooking at home is almost always a healthier option so your body, as well as your bank account, will be thanking you.