Budgeting isn’t everyone’s favorite topic of conversation, but it’s an important one. Following a budget helps you adopt better spending habits, save money, and achieve financial freedom.
Chances are, you already have a budget. But is it working? If you’re reading this article, probably not. That’s because budgeting is more than just not eating out every weekend and making your coffee at home.
Creating a budget takes time and work. Not only must you review your expenses and income, but you’ll need to find the right budgeting method for you. The good news is that once your budget is created, you just have to follow it and reap the benefits. In this article, we highlight six ways to help you build a better budget.
1. Find Your Why
The best way to stick with a budget is to figure out your “why.” Before you even create a budget, determine your reason for doing so. Maybe you want to save money so you can purchase your first home. Or perhaps you’ve accumulated a lot of student loan debt and need to start paying it down.
If you can’t think of a reason, spend some time writing down your financial goals. Where do you want to be in a year financially? Let that answer be your why. Knowing the reason you’re budgeting may help you stay determined when it gets difficult. You can remind yourself why you’re doing this, and hopefully push yourself through.
Determining your why will also help you fine-tune your budget. For instance, if your goal is to save money, you might rework your spending to allocate more to your savings account.
2. Try Different Budgeting Methods
If you struggle to create and stick with a budget, consider using a different budgeting method. The good news is that there are several methods available; you just need to find one that works for you.
A popular method is the 50/30/20 budget. Using this strategy, you’ll allocate 50% of your finances to necessary expenses like rent and insurance. The next 30% goes toward your wants such as dinner with friends. Finally, 20% is devoted to savings and debt repayment. The 50/30/20 budget is ideal for those who want a budget that isn’t too restrictive.
Another popular approach is to use a method often called “pay yourself first.” This tactic is both popular and effective for consumers looking to pay down their existing debt.
Every payday, regardless of other financial considerations, adherents to this strategy designate a specific amount of money over which they have “given up” control. That amount is automatically rerouted to savings or other accounts set up to chip away at debt. It’s a simple device you can use to not allow yourself to spend more than however much remains.
Keep in mind that it can take time to find the right budget. Don’t be afraid to experiment. It’s important to find a method that works for your lifestyle and finances.
3. Use a Budgeting App
One of the most difficult parts of budgeting is figuring out how to allocate your funds. Well, it turns out you don’t have to do that yourself. You can download a budgeting app that will take care of the hard work for you.
While every app comes with unique features, they all work relatively the same. Simply download the budgeting app and link your credit and debit card. The app will then automatically review your expenses and income to advise you on a realistic budget. Some apps use a specific budgeting method, while others give a suggested amount and let you choose how to allocate it.
Most budgeting apps come with other functions that can help you stay on track. For instance, some will let you set up automatic payments or send you bill reminders. Others may alert you when your balance is low or when you’ve exceeded your allocated budget. Technology can be a great resource when you’re budgeting. Take advantage of it!
4. Be Careful With Credit Cards
Credit cards are a great way to build your credit score. Unfortunately, they also lead to debt. According to research, 14 million Americans have over $10,000 in credit card debt. To keep that from happening to you, it’s important to be mindful of your credit card usage. You can do this by setting realistic goals.
For example, set a maximum spending amount for yourself that you’ll be able to pay off each month. This keeps you within your means and below your credit limit. A good rule of thumb: Only use your credit card when you need to, rather than when you want to.
You should also make your payments on time every month to avoid late fees. And if you can, try to pay more than the minimum due. Whatever you don’t pay off will accrue interest, and you’ll end up owing more money in the long run.
5. Revisit Monthly Subscriptions
Budgeting is all about finding ways to cut down on your spending to achieve financial freedom. With that said, it’s not always easy to identify where you can cut back. One thing is for sure though, you should consider revisiting your monthly subscriptions.
In the last few years, we’ve seen a surge in subscription services. There’s a subscription for everything these days, from streaming services to exercise apps. You’ve probably signed up for a few and might not even know how much you’re really spending each month.
Take some time to look at your monthly subscriptions and determine what you really need to keep. If you’re being honest with yourself, you can likely cancel some of those services and save money.
You should also look at your monthly spending on coffee, new clothes, and other things that aren’t necessities. You might not realize it, but there’s likely a lot you can cut back on. You just have to take the time to review those recurring expenses.
6. Review Your Budget
It’s a good idea to review your budget every month to ensure it’s working in your favor. Think about it. If you just create a budget and never review it, how will you know if it’s actually helping? Exactly.
It’s important to make sure you’re making progress toward your financial goals. If you aren’t, or your progress isn’t moving as quickly as you’d like, you can make changes to your budget. The opposite is also true. Let’s say your budget is too strict and, because of that, you can do anything you love. That’s not sustainable long-term, so consider easing up and allocating some funds to what you enjoy.
While you don’t want a budget that’s too relaxed, you still want to be able to live your best life. So make sure you create something that’s realistic.
Budgeting is often difficult and time-consuming. Thankfully, by integrating the tips above, you can streamline the process and create a budget that will work for you.