If you have financial goals on your mind, you’re likely concerned about the dreaded B-word—budgeting.
Many of us feel like natural-born consumers: we love the best, newest, or biggest products. It’s easy to be tempted away from our desire to save by the right deal, but that only leads to guilt and misery when we consider where we veered off course.
But if you’re going to save money, a few can help you change your mindset for a healthier approach to your finances.
Payactiv helps people like you gain control of their finances and set savings goals. We’ve put together the following tips for setting a realistic budget.
The first benefit of budgeting is getting rid of some of the financial stress that many people live with every day. Stress, we know, is bad for us. If we can de-stress a little bit, maybe we’ll live a little longer and live a happier life. So, benefit one is getting a little weight off your shoulders.
But more practical benefits are you know what is going to come financially. It puts you back in control. As budgeting allows you to put together a plan for how you spend your money, it ensures that you always have enough money to pay for necessities (such as rent, food, clothing, and utilities) and other things that are important to you.
Creating and sticking to a budget is also a means to help you stay out of debt.
Here’s one of the most important money budgeting tips: know what you’re budgeting for! If you haven’t set goals around what you want to achieve, it’s like wandering around aimlessly in the hopes that you’ll reach your destination. You need to know how much money you’ll need, how you’ll get it, and exactly where it’s going.
Do you want to create an emergency fund in case of unemployment? Are you trying to pay off your student loans? Are you budgeting for home renovations or retirement?
Whatever your situation, sit down to decide why you’re starting a budget. Create a goal that you can measure and track, and keep it in mind as you continue to the next steps.
You’ll hear a wide range of personal budgeting tips, and they might leave you wondering what kind of budget is right for you. The truth is, you can save money on any kind of budget or use a combination of styles as long as you stick to it.
One of the most popular types of budget is the zero-based budget. Through this system, you’ll plan to put every dollar you make toward a specific need, leaving no money left over. If you do have extra savings beyond your family’s needs, you’ll put them toward a goal, like savings or debt.
Other popular options include the 50/30/20 budget, where 50% of your money goes to needs, 30% to wants, and 20% to savings. If you prefer an analog system, the envelope budgeting system has you stash cash in dedicated envelopes, which you’ll put toward specific needs and wants throughout the month.
Even with the best budgeting tips, you can anticipate most of your expenses—but rarely all of them. Unexpected medical visits, car issues, or price hikes can make it harder to stay on course.
Decide how you’ll handle these surprises. For some people, setting aside a small “surprise fund” each month can tackle the worst of these issues. Others prefer to establish an emergency savings account for these minor inconveniences.
Everyone has weak points, and there’s no shame in admitting yours. Only once you admit where your financial weaknesses are can you work to overcome them through budgeting and tracking.
If you know you overspend at the grocery store, for example, make plans to visit only on a full stomach. If you’re too tempted by online shopping, remove any saved credit card info from the websites you use and store the physical cards with your partner. Don’t forget that there’s no shame in opting for financial therapy as needed, as an expert can help you establish a better relationship with your money in the long term.
This is one of the most critical budgeting tips for beginners: use your card where you can. It’s hard to keep track of cash purchases, and you may find yourself forgetting or ignoring cash purchases that seem smaller.
However, your monthly bank statement offers an automatic record of your purchases. This makes it easier to understand and itemize each purchase, and it’s much simpler than trying to track chaotic cash spending over the course of a month.
One caveat here: if you’re struggling with credit card debt, you may be better off sticking with the envelope budget mentioned above until you have it under control. You can still track your expenses by hand or log them manually into a money-tracking app.
If your budget concerns the entire household, it helps to have everyone involved in sticking to it.
If you’re married, work to get on the same page with your partner about money. Make sure you’re both committed to the same goals and budget, or the results may not pay off quite as well.
If you have kids, it’s important to foster financial wellness from an early age, and sharing budgeting tips and tricks is an easy way to get started. Sit down at a family meeting to discuss your finances, including why you’re budgeting and your current strategy. From there, you can have your children help with a plan they can be involved in, whether that means creating shopping lists, clipping coupons, or another area of interest.
Another point to consider—and to discuss with your family—is methods of lowering your household expenses.
This will look different for everyone, but the gist of it is that you’ll want to make sacrifices anywhere you can afford to penny-pinch. Consider cutting the cable, opting for public transit over a car commute, or shopping for groceries in bulk.
Note that the point here isn’t to make yourself miserable! If public transport would add an hour more to your commute each way, or if watching your favorite cable shows is how your family spends time together, you may decide to keep paying for these things—and there’s nothing wrong with that.
Where you can, automate your expenses as part of your routine.
Set up automatic transfers to pay bills and utilities without thinking about it or send automatic payments toward a loan or emergency fund each month. Buy your non-perishable groceries on a specific day of the week, and don’t shop for them outside of this date. Knowing when your money will be spent can help you stick to the plan as a point of habit rather than having to worry about purchases all the time.
Putting money into different bank accounts is a great way to organize your spending. For example, you could set up one checking account for your fixed expenses like mortgage and car payments and another for more flexible categories of your budget like groceries and entertainment.
In theory, we all love the idea of budgeting. In practice, it’s much harder—especially when we’re tempted by extra purchases.
A successful budget takes willpower, and it’s not unlike sticking to a diet. You’ll need to keep your eyes on the prize, making incremental efforts over time. But the results of your determination can be huge and even life-changing, so stick to the plan you’ve outlined.
Set yourself up for budgeting success by exploring online budgeting tools. Many of these may be downloaded free of charge. Payactiv’s free financial toolkit helps you get smart insights into your spending and flags what’s safe to spend and put away. Payactiv also offers free 1:1 financial counseling sessions in the Payactiv app.
If your employer pays you via direct deposit, consider setting it up so that a portion of your income goes straight into your savings account. This way, you don’t even need to worry about including savings in your budget because the process is automated.
While the task of creating a budget might feel daunting, it’s really not that difficult. Once you’ve created your budget, most of the work is done, and you can just make minor tweaks as your personal circumstances, spending, habits, or income change.
Here are the steps to follow to help you create a budget that works for you:
The first step in compiling a workable budget is to understand your net income (also referred to as take-home pay.) This is your total wages or salary minus any deductions such as taxes and employer programs such as retirement plans or health insurance.
Don’t make the mistake of focusing on your total salary instead of your net income! This could lead to you overspending.
Now that you’ve established precisely how much money you take home every month, the next step is to understand where it’s going. Monitoring and categorizing your various expenses gives you visibility of what you’re spending the most on and areas where it might be easiest to save.
First, make a list of all your fixed expenses, such as rent, mortgage, utilities, and car payments. Next, list all your variable expenses, such as gas, groceries, and entertainment – it’s quite likely that you’ll spot areas where you could cut back on your variable expenditure.
The next step is to list your short- and long-term financial goals. Short-term goals might include things like setting up an emergency fund or paying off your credit card debt. Long-term goals might include saving up for your children’s education or retirement.
This is where it all comes together: You need to keep track of what you’re actually spending versus what you want to spend. Review both your variable and fixed expenses to get an idea of what you’ll spend over the next few months and compare that to your net income and priorities. Then set specific, realistic spending limits for each expense category.
Now that you’ve documented your income and spending in detail, you’ll be in a position to make tweaks and adjustments so you don’t overspend. Even small savings can add up to a lot of money, for example, skipping movie night and watching a movie at home or shopping around for a better rate on auto insurance.
Once you’ve set your budget, it’s important to review it regularly to ensure you’re staying on track. For example, if you start a family, your expenses may change, or you may reach a short-term goal and decide to plan for a new one.
To ensure that your budget keeps working for you, it’s important to ensure you don’t make any of these common budget mistakes:
While it’s good to aspire to spend less and save more, following through on your goals every month can be a challenge. It’s important to be realistic. One way to remain realistic is to approach budgeting on a month-to-month basis. For example, if setting up an emergency savings fund is one of your priorities, why not set yourself a goal of putting away an extra 10 dollars more every month than you did the previous month?
Given rising inflation and the increase in the cost of gas, housing, and other expenses, it’s easy to underestimate how much money you need to set aside in a given category.
It’s vital to account for inflation in your financial plan and prepare for unexpected price hikes. You can do this by doing an online search of current prices and using the latest figures when estimating your expenses in the coming months.
You can only burn so many calories, no matter how hard you exercise. The same thing is true with budgeting. No matter how much you tighten your belt, you have to pay for rent or a mortgage. You have to live somewhere. That’s a need. You also need basic medical care. You need to have health insurance. You have to put food on the table. You have to buy groceries. That’s a need.
Then there are the inevitable emergencies. As the saying goes, “life happens,” and your budget needs to accommodate the unexpected. For example, perhaps you start a new job that doesn’t offer the health insurance you enjoyed as part of your former employee benefits package. Or maybe you move to a new area where the cost of living is higher. Whatever the circumstances, build in room to be flexible as costs change. If something doesn’t work in your budget, try it a different way! Just figure out what works for you and try to make it into a lifelong habit.
If you have a spouse and family, it’s important to get them on board on your journey to financial freedom. If they don’t understand why you’re spending less and saving more, they could quickly start undoing all your good work.
How you break up your spending plan really is up to you. There’s no right or wrong way. It’s your money. You work hard for it, so you can decide where it goes. But the total of all of your spending buckets can’t be higher than your planned income.
Spending money more intentionally can actually offer peace of mind in the long run. After all, when every dollar is accounted for, you can spend extra money without feeling guilty. Make the most of your finances by following these budgeting tips for a realistic strategy that works every time, as long as you stay committed.
If you need a little extra help, make sure to check out Payactiv’s integrated budgeting and savings tools, which are available for free to all members. We even give everyone free access to financial counseling. If you don’t have Payactiv at your workplace, tell your HR department that you want the Payactiv benefit. It’s a win-win for employers and employees. Learn more about how it works today.
For more helpful tips and tricks on reducing your expenses and getting out of debt, check out the Payactiv blog!
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