There is no denying the purchasing temptations we face daily from advertisements and businesses. Everywhere we turn, we’re encouraged to buy more and more. That can lead to saving less and living paycheck to paycheck as opposed to living comfortably.
Enter budgeting: a strategy to help you manage your money and stay abreast of your expenses. Having a budget plan can help alleviate stress and get you back on track with your financial goals.
To start making a budget plan, you must first know your income. From there, you can move in a direction that works with your preferences and lifestyle. The best plans are ones that not only guide you through handling your expenditures, but that will also help you save for the future and emergencies as well. After selecting your ideal strategy, it is crucial to check your financial progress continually and make changes if necessary.
Read on as we outline step by step how to start a budget of your own and offer tips on how to ensure that following your plan goes smoothly.
Figuring out a budget style that works for you
Closely adhering to your plan is the best way for your budget to be effective, but having room to be flexible with your money is also essential because – as you probably already know – expenses can vary from time to time.
Below is a list of the four most common budgeting styles.
The 50/30/20 plan is one of the most popular methods and one of the most straightforward. The instructions are literally in the name. After paying your bills, you should spend approximately 50 percent on your basic needs – housing, groceries, car insurance, etc. – 30 percent on items of pleasure or your “wants,” and 20 percent on savings and any outstanding debts.
If the money you spend on your needs climbs to over 50 percent, you reduce the money spent elsewhere, ideally on your wants.
This plan is all about the details: Every dollar has a purpose. It earned the name “zero-sum” because the amount of money you bring in and the amount you spend should balance each other out and total zero.
This method sees you breaking down your monthly income into several categories like – but not limited to – rent, utilities, groceries, auto payments, personal expenses, and any debts. Any money left over is then assigned a place as well. Again, every dollar must be accounted for and explained.
Don’t let the name fool you: the anti-budget plan is still a plan, just less fussy. Instead of breaking down your financial obligations into every type of expense, this plan focuses on your general priorities. Essentially, you pay your bills as you go, checking off each major priority in your life. But it is important to note that the top spot on this list of priorities should always be your well-being, namely your food and living expenses.
This plan is a more flexible option for those who don’t want to deal with financial trivialities.
This method corresponds to the concept of “money flow.” You set up an auto-payment transfer from your bank account for your unchanging expenses, meaning the money comes in on payday and goes out when you must pay your bills and does recurringly. A quick way to remember this is: “set it and forget it.”
Afterward, you only have to focus on actively managing your wants and fluctuating expenses.
As to which model is the best in the end, this solely depends on you and your preferences.
How to start budgeting in 5 steps
Remember, a solid budget plan is a detailed blueprint to consult for your spending and saving.
Below are the five basic yet essential steps to kickstarting a budget plan.
Step 1: Determine your monthly income. Be aware that your regular paycheck is automatically reduced to account for taxes. Whether electronic or a physical paper copy of your income statements, a record is an excellent resource to look back on for reference.
Step 2: List your expenses. First, write down your expenses that are consistent from month to month. Also called your fixed expenses, these usually include rent or mortgage payments, car payments, and student loans.
Second, write down your variable expenses. These include food, gas, health, and energy bills. Once you know both these figures, calculate the average cost of both expense types.
Step 3: Pick a budget model. Again, the most common is the 50/30/20 plan.
Step 4: Make modifications. Dedicating enough money to your necessities comes first, then your wants, then savings last. Additionally, you may need to cut back or spend more in either of these areas to account for unforeseen situations.
Step 5: Set financial goals. Not only does having goals keep you accountable, but it helps you remain ambitious.
For example, if one of your goals is to take a trip to Hawaii, then you can readjust your “wants” category by skipping out on a haircut or two or forgoing a night at the movies here and there.
Furthermore, while it may not seem like a fun goal to have, striving to reach and maintain good credit is a wise objective to have on the backburner. Being prepared and paying your bills on time can open many doors for you, as your credit history is a defining factor for many major life decisions.
Using your budget
Now that we've covered the fundamentals, let's move on to the how-tos of organizing your money through the budget plan itself.
Step 1: Create spreadsheets. Always write down your numbers. A visual breakdown of your expenses on a worksheet can be a wildly helpful reminder. If you don't know where to start, start with this.
Step 2: Monitor your expenses. Keeping track of your spending is pretty much mandatory. Otherwise, there's no point in budgeting. Here is where financial planner apps come in handy, as they monitor your expenses for you and send you weekly summaries of your progress and obligations.
Step 3: Review your budget if needed. Staying informed is another staple of a successful budget; if you don't know what's going on with your money, you cannot make changes.
If you are unsure what to do, how to cut back, or what kind of priorities you should have, seeking an expert's opinion is also a good option.
The best apps to keep track of your budget
There is an array of platforms designed to aid you in budgeting for your bills and savings, so we’ve narrowed it down to four of the best ones currently on the market.
It’s important to note that most digital budgeting platforms require you to connect your bank accounts to the app to analyze money and investment flow.
Developed in 2006, Mint is a straightforward platform to navigate and one of the best free budgeting apps currently available. It is also one of the most well-known financial planning apps. Mint allows users to do everything involved with intelligent budgeting, including bill organization and tracking all expenses. Each week, Mint sends you a summary of your financial activity. The app can also send you reminders regarding upcoming bill due dates.
Another well-known app, Clarity Money provides a list of categories to help pinpoint where you spend the most money. This app makes it easy to identify recurring purchases like magazine and television subscriptions and allows you to check your credit score.
Clarity is a saving-focused model that prompts users to develop goals and make continual deposits into a savings account.
You Need a Budget
This financial assistance platform has garnered a good reputation for helping users make real improvements. You Need a Budget functions using the zero-sum model. Maintaining privacy is also a staple of this platform.
When it comes to money management, users answer a series of questions concerning each of their expenses and whatever amount of budget remains afterward. You are encouraged to think hard about the flow of your money since, to reiterate, every dollar must have a purpose.
But reliability does come with a cost: $84 per year.
Using a mathematical formula, Digit analyzes your personal information such as current bank balances, savings, and how much your bills are to determine how much you can save when all is said and done. Digit will send you daily text messages keeping you up to date on how much you have in your account week by week, too.
Digit is another “saving-centric” platform. All Digit users receive a small, automatic money transfer into a Digit account that you receive upon signing up for the app. Users also receive a 1 percent bonus every four months. So, it helps you keep track of your money and also helps you accumulate extra funds little by little as well.
Tips to budget like a pro
Budgeting can seem like a complicated process, but in the end, it's just a personal how-to guide to making the most of your financial situation. Here are some simple tips on how to be the best budgeter you can be.
Tip 1: Slash expenses. It may be time to cut back on eating out at restaurants or going to the mall until you get your finances in a comfortable place. Though this isn't the most fun thing, reigning in your spending on wants is arguably the easiest, quickest way to save.
Tip 2: Develop seasonal budgets. This strategy can be beneficial and even eye-opening. Take December, for example; people spend a lot more during the holidays than they do in January or May. Separating your budget by month will increase accountability and allow you to be proactive.
Tip 3: Use cash or debit cards more often. The problem with credit cards is that the action of "swiping" is way too convenient and leaves little room for us to think about what happens to our money. Using cash or a debit card instead of credit cards is yet another way of solidifying that the money truly is gone the moment we hand it over.
Using a debit card is a good option here; the money is taken directly from your bank account instead of your purchases being "pushed off" until the end of the month, like with a credit card.
Point Card is an excellent debit card to help you look after your finances. Easy to sign up for and use, Point offers cardholders exclusive perks like unlimited cash-back on all purchases, including bonus subscriptions, food delivery, rideshare services, and coffee shops. And it even has rental car and phone insurance and travel benefits. As a Point member, you feel empowered to take control of your finances.
Tip 4: Divide payments by weeks. Having a more comprehensive plan is never a bad thing; in fact, knowing where you stand week by week helps you stay on top of things, and by extension, you'll be ready for any surprises. Should you overspend or should an unexpected accident occur, you'll be able to catch mistakes sooner rather than later.
Tip 5: Keep receipts and bills. As trivial as it may sound, having a file of everything you've bought can only keep you more organized. If a retailer overcharges you, you have another piece of evidence to use as a reference.
Tip 6: Lastly, expect the unexpected. Life is dynamic, and things will happen that you simply didn't see coming. Being prepared for complications like appliance repairs, hospital visits, or even a surprise wedding will lessen the blow, and you'll be able to handle the situation.
Budgeting is a skill that will allow you to help yourself, but it's also a skill you can pass on to others as well. Taking care of your finances is a chance to learn, grow, and ensure a good quality of life.
Made to spend.