You have an expensive purchase coming up sometime soon. Maybe you’re looking for a better car, or you want to buy a bigger home because you’re expecting a new arrival in your family. Maybe you’re even thinking about going back to college after years in the same dead-end job. If you can, it’s a good idea to avoid borrowing cash for these big spending sprees, and instead think of a way that you can save money instead, by creating a budget.
If you’ve ever created a budget before, you’ll know that’s all about understanding exactly how much money you have coming into your bank account, and exactly how much you have going out. You can make some plans concerning those big expenses, but if you don’t have a budget plan then you won’t have a good picture of your finances, and you might be tempted to take out loans that could end up getting you into debt.
Building your own budget can feel like a complicated and frustrating experience, and staying with that budget is even harder. However, it’s important to know that sticking to a budget can drastically improve your financial situation. What’s more, we all know that fewer money worries generally equals less stress. Here, we’re going to cover a list of the simple, basic, and easy-to-use budgeting tips that anyone can apply when it comes to taking charge of their money, and understanding their financial needs. Read on to discover how you can start saving cash.
1. Know Why You’re Budgeting
First things first, it’s important to have a reason for your budgeting. If you’re developing a budget just because someone has told you that it’s a good idea, that won’t help to motivate you much when you feel like going on a spending spree. The reason for budgeting in most cases is to help you spend a lot less than you earn, so you can start saving money for the things that matter to you. Budgeting shows you where your strengths and weaknesses are when it comes to money, as you’ll start to notice how certain places have easier guidelines to stick to than others.
When figuring out what you’re budgeting, it’s a good idea to craft a specific goal for yourself, something that you hope to achieve in the long term. For a lot of people, the long-term goal is basically freedom from debt, and the chance to pay off some of the money that they already owe. Other people aim towards the chance to put a deposit on a house or make a change in their career. Whatever it is, having a long-term goal in mind, particularly something that might have a serious impact on your life, is crucial for planning a budget.
An effective budget takes a lot of difficult choices, and you’re going to need to cut down on some of the things that you like. Since you might struggle from time to time, it’s important to know that the choices that you’re making are moving you further along the road to financial freedom, or other benefits that you genuinely want.
2. Understand your Income
Understanding your income, or how much you make each month, isn’t about pinpointing your annual salary, or dividing the amount you get each month into weekly sections. Instead, you should be thinking about the take-home pay that you have each month. After all, you don’t get all of the money that you earn delivered directly into your bank account for you to use however you like.
If you make a certain amount in your wages, then a portion of that will be docked off in the form of income taxes, another portion will be taken up by your weekly expenses, like the food you want to buy for your family and the gas, electricity, and other utility bills. It’s important to figure out exactly how much money you have left over after you’ve spend on all of the essentials if you really want to know what kind of cash you have to spend. If you know what you’re bringing home as a paycheck, and where the essential payments go that divide your money, you’ll be better equipped to begin budgeting.
3. Start from Scratch and Use Cash
A lot of people start searching for budgeting tips after they’ve started using a budget that simply doesn’t work for them. If you have a budget that hasn’t been working for you, then now might be the time to simply wipe the slate clean and start again. If you haven’t created a successful budget before, begin with the basics. Think about how much you spend on bills each month, how much you’re likely to spend on different areas of your life. Once you’ve divided money into basic categories, you’ll know a little more about your habits.
When most of us think of budgeting, we think of basics like food, rent, utilities, then go directly to thinking about how much is left over to spend on the fun things. However, you’re often tricked by your mind to prioritize the wants over the needs. Make sure that you create a hierarchy of what’s important, and if you’re concerned that you’re not going to be able to stick to the budget that you’ve given yourself and avoid buying luxuries, then use cash instead.
Decide how much money you need for a week and take the cash out of your bank. That cash will be all you have to spend for the entire week, no matter what. It’s far easier to turn down paying for something in cash than it is to over-think paying for something by swiping a credit card.
4. Know What You’re Spending and Cut Bad Habits
When you’re planning a budget, you’ll often find that you reach your goals with greater ease if you plan everything out based on real numbers. In other words, this means pulling all of your receipts and bills out for the last month and taking a look at them. You can examine your receipts in depth and make notes to figure out how much you’re actually spending, and how much of that expense is really necessary. This will give you a chance to better understand your spending habits, and pinpoint the areas that you have the most problems in.
Don’t forget to include the irregular bills that you encounter too. For instance, it’s worth paying attention to car licenses, homeowners insurance, property taxes, auto insurance and so on. If you plan on those expenses and split them up throughout the year, then you can reduce the impact of big costs on your bank account by saving up gradually.
Once you know what you’re spending, you’ll probably find that there are a few bad habits around that are draining your bank resources. Whether it’s tobacco or alcohol, you’ll know how dangerous and expensive these bad habits can be if you use too much of either. Stop drinking and smoking, and put the cigarette and beer money you had before towards other expenses that you need to deal with each month. You’ll find that your bills start to fall rapidly, and your health will improve rapidly if you cut down some of those dangerous habits. You may also save on various healthcare expenses at a later date, and may be eligible for lower insurance premiums.
5. Learn How to Track your Budget
There are countless budgeting tools out there that range all the way from simple spreadsheets to apps that help you to identify every aspect of your spending. The strategy that works best for you will likely be different to what works for others, but it’s a good idea to have some kind of tool that can help you understand and manage your budget over time.
If you don’t like using technology, then you can simply use a pencil and a piece of paper to outline all the details of your budget and depth and make it easier for you to follow what you need to do to stay ahead of the curve. If you find that something you’re currently doing, like creating a spreadsheet, isn’t working for you, then try something else, but make sure you’re not just making changes based on a lack of motivation.
6. Share the Burden
If possible, try to make sure that you’re not the only member of your current household that’s worrying about budgeting. If you’re working hard to save money wherever possible, but your spouse is out and spending so that your debt increases, then you’re going to end up fighting a losing battle. Try to sit down together and make a plan to determine how much money you should be spending each week. Then, ensure that you check in with each other to find out how well you’re doing.
Remember, whenever you’re attempting to make a change in your life that’s significant, and a budget is a harbinger of such change, things will always go better if there are more people on your side. If you’re surrounded by a group that seems to be obsessed with overspending, then you’re going to be plagued by negative support that forces you to abandon your plans. Take steps to make sure that you have the right support and you can share the burden of financial worry with the people around you.
7. Use Different Accounts
If one of your biggest financial problems is the fact that you struggle to keep track of your money when it’s all lumped into a single space, then you should consider moving that money around and placing it in separate accounts. For instance, you could have a savings account for your savings, a checking account for your average monthly expenses, and another checking account for spending money on everything from fun to groceries.
Using different accounts can help you to separate and organize your money so that you can figure out exactly what you’re spending each month without getting lost along the way.
8. Be Flexible
Though your budget is something that you should try to stick to at all costs, it’s also crucial to give yourself a little wiggle room sometimes. Life can be very unpredictable, and things happen that are beyond our control. When you’re crafting your budget, make sure that you leave some extra money aside for variable expenses, and be gentle with yourself if you make mistakes from time to time. Sometimes, it’s much harder to get back on track if you let yourself become overly frustrated by your mistakes.
Giving yourself some wiggle room doesn’t necessarily mean that you should laugh every extravagant purchase off, or allow yourself to overspend every time you’re tempted. However, when things happen that you simply can’t control, you’re going to need to be able to stand back and understand that your cash plans aren’t always going to go smoothly.
9. Adjust as Time Goes On
Part of being flexible also relates to the idea that you might need to adjust your budget as time progresses. Chances are that your budget won’t be perfect first time around, and after a few months you might need to make some tweaks. Remember, life changes often mean changes in your budget, regardless of what they entail.
Adjust your budget actively as you progress through life, and try to allow yourself some time to work things out when you experience significant changes in your finances.
10. Stick with It
Finally, this is the hardest part for most of us, but when the circumstances allow, make sure that you stick to your budget as often as possible. If you put hours of work into developing a budget that you don’t keep up with, then you’re working your butt off for nothing. Keep track of your budget every month, make sure that you wait for 48 hours before making any big purchases, and accept that you’re going to make mistakes sometimes. A budget doesn’t have to be a self-made jail cell, it can be the keys to financial freedom.