Budgeting is not exactly a difficult thing. However, it is dreaded by most. Most people see it as something that limits their lifestyle or something that prevents them from spending on what they want. Actually, it is the exact opposite. A budget tells you where your money should go, instead of making you wonder where all your money went. This is why we have these budgeting tips for you.
Budgeting helps you with your financial freedom and provides you with the roadmap for creating long-term wealth. Most importantly, budgeting can also help you spend your hard-earned money without any guilt.
Related Article: 6 Common Money-Saving Mistakes You Should Avoid
Need for Budgeting Tips
Although everyone knows about the importance of budgeting, they don’t normally have a clue on how to get started or the best practices to be followed. These valuable tips on budgeting can help you achieve your money goals – whatever it may be. You can use these budgeting tips to create wealth, get out of debt, plan your retirement, build a savings fund for your children, and more.
Creating a budget might sound easy but following it religiously every day could be a tricky thing. This basic budgeting guide provides you with a realistic strategy of how to follow a budget and use it to achieve your long-term as well as short-term savings goals.
Without further ado, let’s get started with the best budgeting tips you can apply to your life starting today!
1. Record Your Expenses
Recording your expenses is the first step in any budgeting process. Proper budgeting takes time and a lot of self-discipline. Start each month with the balance and enter every payment in advance, in the form of a calendar. It works well for most people because they always have their actual working balance handy.
Organizing your expenses based on categories is a great way to do it. List out your daily expenses for various expenses like gas, rent, groceries, utilities, loan payments, entertainment, etc. This will help you get a complete overview of where your money is going every month. You can use any type of budgeting template to start this process.
If you are looking for a simple budgeting template to record your weekly or monthly expenses, check out our budgeting templates.
2. Organize Your Budget
Once you have identified your expenses, you can start organizing them to create a proper budget. You need to compare your expenses with your income. This helps you plan your spending within the desired limits. You may also identify expenses that occur once in a while like insurance premiums or car maintenance while creating your budget.
You need to have a savings plan while organizing your budget. It is better to save at least 20% of your monthly income as a rule of thumb.
3. Use Zero-Based Budgeting
This is a popular budgeting strategy that can help you with a solid financial plan. It involves creating a budget and planning everything down to the last dollar. This way, you are giving your money a purpose instead of leaving it without any use. Make sure to have provisions for investments, emergency savings, etc., while planning your zero-based budgeting.
This does not mean your bank account will be zero once you are done with the calculation. It just means you are matching your income with your expenses to the last dollar. Zero-based budgeting helps you avoid splurging money on unwanted things. When all your money right to the last dollar has a purpose, there’s no room for wasteful spending.
4. Use a Budgeting Tool
You might be a fan of pen and paper, but we are living in the 21st century right now. There are many budgeting tools available to guide you with your spending habits. Most of these apps can be downloaded on your smartphone and linked with your accounts. Some of these tools also give you savings suggestions and warnings if you go over your limit.
You can use an app like TrueBill to track your spending, lower your bills, cancel your unwanted subscriptions, and more. You can even get your spending insights and analyze your spending patterns to match your savings goals.
When you use technology to handle this process, you can take advantage of the efficiency it provides you in handling your finances. You can also add your spouse to your account and communicate about your spending whenever required.
5. Open a Household Account
In a second checking account, deposit a sum that covers your monthly expenses. Have all your bills automatically withdrawn. This account acts as a holding cell for household obligations – the primary account is for day-to-day operations. This works for most people since it psychologically conditions to spend money within that account limit.
The money left in your original account can be used for investing, saving, creating an emergency fund, etc. When you start investing, think about your long-term options that can build wealth over time.
6. Do It Together
This works great if you are a couple. You can do family budgeting together and create more accountability on your budgeting plan. This is also a great time to discuss your financial goals and dreams. When you budget with your partner, you can create a plan to be on the same page about your money goals and aspirations.
If you are single, you can do this with your like-minded friends. Getting a budgeting partner can increase your accountability to the budget and help you stick to the process.
7. Remember, Not All Months Are the Same
One of the great budgeting tips you can apply is to create provisions for unconventional months. Not all months are the same. There are months with holiday vacations, family events, birthdays, anniversaries, etc. These events often translate to additional expenses. You need to plan your budget accordingly to account for these additional expenses.
If most of these events are pre-planned, you can stash some additional cash to plan ahead for these events. Also, have some contingency plans to accommodate surprise events that may come occasionally. When you have these budgeting plans in place, you don’t have to stress about spending more on fun, family activities.
8. Save Credit Card Receipts
Keep an envelope in the car for the credit cards you use. When you buy anything using a card, put the receipt in the envelope as soon as you enter the car. Keep changing the envelope every month. This will save you time and hassle when looking for receipts. Most importantly, you can keep your credit card spending in check when hard copies of receipts pile up in the envelope.
9. Eliminate Debt
Consumer debt can seriously affect your wealth creation process. This is why you must prioritize eliminating your debt ahead of other expenses. There are many debt consolidation or elimination tactics you can use. If you are not sure of handling it yourself, you can even use a professional debt negotiation and settlement service to do this for you.
If you are focused on eliminating debt yourself, you can use strategies like the snowball method to get out of debt. But whatever you do, you must act fast to get out of debt as soon as you can.
10. Automate Your Savings/Investments
You can automate your savings and investments every month to get into that savings habit. Many banks offer this facility to transfer funds automatically between checking and savings accounts. You can take advantage of this facility to automate where your money goes every month.
When your money is transferred automatically to a savings account, it prevents the temptation of spending it on unwanted things. With proper investment planning, you can also earn a little passive income without spending too much effort on the process.
11. Build an Emergency Savings Account
Did you know that over 54% of Americans are living paycheck to paycheck? In this scenario, having a little fund for emergencies can bring you much-needed peace of mind. When you have built enough in your emergency fund, you can tackle any adversity like job loss, medical expenses, etc., without falling into financial ruin.
While there is no set limit on how much you should have in your emergency fund, it is ideal to have at least six months’ worth of expenses in your emergency fund. If you are not sure about how much to save or how to start building an emergency fund, you can use our emergency fund calculator to kick start the process.
12. Track Your Progress
Budgeting is not a one-and-done method. It is a continuous process that requires careful tracking of your plans. Once you have set up a budget and started following it every day, you will see noticeable improvement within just the first few months. Make sure you track your monthly progress without fail.
Tracking helps to keep your budgeting process in order. Most importantly, it also gives you the motivation to stay consistent with your budgeting. As you see your wealth increasing every month, you can make additional updates to achieve your goals faster.
It’s All in the Mindset
Budgeting is not something you can follow if you consider it to be a strict exercise. Rather, make it a part of your lifestyle. With the right mindset, you can conquer any heights and achieve your financial goals with ease.
Don’t forget to download our FREE personal finance toolkit that can help you identify the best tools you can use to manage your wealth!