If you’re new to the idea of budgeting, there are certain strategies you’ll want to follow to keep your financial progress on the right track. Keeping bills and receipts organized, finding the cheapest car insurance and most budget-friendly streaming service, contributing to retirement, and making a commitment to savings are all ways to structure a budget you can live with now and into the future.
- Build Your Monthly Budget Ahead of Time. A week or so before the new month sit down to plan out the coming month’s activities and associated expenses. From there, you can set a budget that makes sense to accommodate known expenses and those that might come from out of the blue.
- Budget to Zero. While it might seem to make more sense to have money left over at the end of the month, what you are actually trying to do is put every earned dollar into a useful and productive ‘space’ in the budget. Think about savings and investments as well as grocery and fuel costs. Budgeting to zero will help you see that every dollar earned is useful and it will keep you from making impulsive, frivolous spending choices.
- What are Your Needs vs. Wants. Debt repayment, mortgage or rent, food, fuel, insurance – these are all budgetary needs that require payment. Wants are (pretty much) everything else. To get the things you want, have a savings account set up specifically for those items. A good rule of thumb is about 30% of your income may be allocated to non-essentials (as long as all of the needs are getting paid).
- Keep Receipts and Bills Organized. Staying organized means that you can dispute bills in the future, if necessary, and returning items will be easier when you can find the receipt. It will also put you into a habit of organization which is inspiring for a productive attitude toward budgeting. Keep bills and receipts in expandable organizers by week or month and then purge it at the end of the year to make way for the new. Keep receipts for bigger items and ones with warranties.
- Debt Repayment Comes First. Financial goals are enticing. Saving up for them can feel like you’re really making a difference and getting closer to your dream car or vacation. However, in terms of making the most of your money, if you’re not paying off debt first, you’re doing yourself a disservice.
- Factor in Fun. If you have a bare bones budget that pays off your debts and gets your needs acquired, but nothing else, your budget is likely to eventually fail. You can’t forget to factor in your need for social activities, entertainment, and little splurges here and there. Plus, when you allot a given amount to ‘fun’ you’re less likely to feel guilty about spending the money.
- Pay Yourself First. You don’t want to pay everyone else and then have nothing left for savings or investments. Priorities should be debt repayment and paying yourself before any spending. That way, you’ll still have enough for your needs and the leftover will go to splurging.
- Automate Your Savings. If you get your paycheck direct deposited, consider splitting it in two. Put a certain percentage into your regular checking account and then the rest into a dedicated savings account. Don’t let yourself get an ATM for the savings account or debit card so you don’t wind up making little withdrawals (remember, after a while a little adds up to a lot!).
- Plan Ahead for Big Purchases. If you’re thinking of making an expensive purchase in the future – like a TV or a computer, figure out how much you need to save every day or every week and commit to saving that amount. Think about when you want to make the purchase (align it with big sales like Black Friday) and how much you will need to save for it. This trick will stop you from putting the big purchase on your credit card (which will only cost you much more in the long run anyway).
- Build a Contingency Fund. Life throws all sorts of havoc our way and even the best budget won’t be able to handle an unexpected vet emergency or trip to the ER. Keep about $1,000 in your contingency fund (and don’t dip into it) so you will be able to pay for urgent and unexpected life events.
It can feel restrictive to create a budget and follow through on it. But, when you are consistent you will see that the money you thought you didn’t have, is right there – and growing for you.