The word budget can strike fear into the hearts of even the savviest investors, but it doesn’t have to be so intimidating. Budgeting is simply the process of managing your money, and while it may seem difficult at first, with these 10 easy tips you’ll soon be budgeting like a pro. Budgeting will help you manage your hard-earned money wisely, which will eventually help you save more and spend less. You won’t believe how much this one tool can do to change your life!
1) Take control by tracking your finances
Before you start tossing your hard-earned money around, it’s a good idea to see where it’s coming from and where it’s going. Luckily, there are tons of mobile applications and websites out there that can help you do just that; if nothing else, they can at least point you in the right direction. They all require some sort of log in or initial set up but after that they all seem pretty easy to use. Set one up today and start making better financial decisions tomorrow!
2) Know your income
Calculate your take-home pay. Set aside 10% of your income for retirement (or a Roth IRA). Take another 10% of your income and put it in a savings account for emergencies or unexpected expenses. If you’re lucky enough to make enough money, consider saving 15%-20% of your income each month for long-term financial goals, such as funding college educations or buying a home.
3) Track your spending
It’s hard to make a budget when you don’t know how much money you actually spend. Determine your spending habits by tracking your purchases for a month, then creating categories for each expense, such as rent and entertainment. You’ll begin to see patterns emerge—and with them, areas where you can cut back or save more.
4) Set up a plan
It’s important to set up a budget that fits your situation. If you have little income, you can’t spend much (or want to spend more). If you have a large income, you may want more wiggle room in how much goes into savings and how much is spent on entertainment. Wherever you fall on that spectrum, make sure your plan will actually work for your financial goals. It’s easy to get frustrated if your budget isn’t working as planned—it happens!
5) Treat yourself with caution
While it’s important not to deprive yourself of fun, impulsive purchases, there are things you should do without in order to truly save your money. It’s easy to think you can give up a latte here and there and make up for it with extra hours at work or by cutting back on something else. However, over time these little luxuries will add up into a major hole in your wallet.
6) Review, revise, repeat
It’s always a good idea to have someone you trust read over your budget and offer their suggestions. This can be a family member, a financial advisor, or even an accountant. It doesn’t matter who—anyone can point out mistakes or missed opportunities that you might have overlooked in your plan. It’s worth getting another set of eyes on it before finalizing it and sticking with it.
7) Protect your hard-earned money
We’ve said it before, and we’ll say it again: budgeting is paramount. The first step in ensuring you don’t overspend on your money is to protect what you have. Before you spend any of your hard-earned cash, make sure that doing so won’t have a negative impact on your finances. If a purchase falls outside of your predetermined budget for food or entertainment, consider saving up for a few weeks before making it.
8) Spend time with family and friends on quality time
Spending time with friends and family is an excellent way to keep track of your spending habits. You’ll find yourself looking for new things and experiences when you have people you love around you. Watch movies together, take a hike or make a night of playing board games! The best part about spending time with loved ones is that it's free! If you want some inspiration, take a look at our awesome guide on how to make a family budget: How To Make A Family Budget.
9) If you can’t pay for it now, then don’t buy it
Expensive items that don’t go on your credit card should be paid for in cash. If you can’t pay cash, then don’t buy it. It may seem obvious, but it is all too easy to throw money at a problem and hope for the best later. If you find yourself constantly running out of cash each month and having to borrow, then it is time to reassess your spending habits.
10) Give back to your community and planet
Since most of us live in cities, it’s easier than ever to feel disconnected from those around us. One small way you can help bridge that gap is by volunteering at a local charity or non-profit organization, like Meals on Wheels. By working with an organization that helps feed or care for people in your community (freeing up time for them and their family), you can provide support and make real connections with those around you, creating a sense of purpose at home.