No one likes to think about budgeting, really.
Well, ok, some people do — the people who know the honest truth about budgeting: with just a few myths dispelled and some solid budgeting tips in your toolbox, you’ll learn to LOVE budgeting, we promise!
You’re probably wondering how anyone could love budgeting; it’s pretty simple.
Once you know where your money is coming in and where it is going out, you will have all the information you need to start spending money stress-free on the things YOU want to spend it on.
Really, that’s it.
Myths About Budgeting
There seems to be a LOT of misinformation when it comes to budgeting, which might be the reason why so many people shy away from it like it’s the plague.
So before we get into some simple budgeting tips for beginners and on up, let’s clear the air a little.
Myth #1: Budgeting takes too much time and it’s constraining.
Truth: This couldn’t be more WRONG.
Most people associate the word “budget” with negativity, sweaty palms, and absolute aversion. But in reality, a budget is simply a written plan for your money. It gives you the opportunity to stop spending your money on things outside of your control and lets you focus on WHERE to spend it and HOW MUCH to spend on any given item.
Myth #2: I don’t make enough money to have a budget.
Truth: You don’t make enough money to NOT have a budget!
The lower your income is, the more important it really is to have a solid, reliable budget. This is what helps families avoid awful financial situations, such as foreclosure, collection calls, and bankruptcy!
Even if every cent of your paycheck goes towards expenses and debts, knowing which pennies go where is still so important in maintaining your overall financial health. The minute even a few dollars gets freed up to be applied elsewhere, you’ll know, and you’ll be ready to jump on it and start making even more progress.
Myth #3: I make too much money to need a budget.
Truth: Did you know that people who win the lottery are actually MORE LIKELY to declare bankruptcy than non-winners?
Yeah, that surprised me, too. But it makes perfect sense.
Even if you live a tremendously comfortable life and have never had a money woe in your entire life, that does not mean that you’re managing your money as effectively as you could be. I mean, have you ever stopped to wonder how much more your net worth might be if you were living a little more frugally and putting even more money into investments?
Do yourself a favor and make fill out some sort of budget template, and see if you aren’t wasting money in some category. You may be totally surprised!
Budgeting Tips And Tricks
Now that we’ve established that yes, budgeting is for everyone, it’s time to get you well on your way to budgeting success with some tips that can not just help you learn how to budget but might just help you improve on an existing budget plan as well.
1) Start with expenses first.
It’s easy to get overwhelmed when learning how to start a budget from scratch.
The very best (and safest) way to start your budget is to get those pesky expenses recorded and out of the way as the very first thing. These may include:
A wise man once said, “show me your budget, and I will show you what you prioritize in life.” It’s important to always start with all of your needs in life, then fill in the rest of your wants.
List your absolute necessities as your expenses (so new clothing probably shouldn’t be included here), and you’ll be off to a good start. If some of your expenses have varying monthly amounts, do yourself a favor and overestimate those values in your average monthly budget.
2) Include your spouse/partner/family, if possible.
A lot of households rely on one person to manage the finances and this is a great way to set everyone up for failure.
If no one else knows how much is ok to spend on clothing or entertainment, for example, then how can you possibly expect to stick to a budget? Pure luck?
We have been together for over 11 years and from experience communication is key. We hear too often of married couples not being on the same page when it comes to finances. Budgeting together gives you a sense of understanding, even if you have different views of money.
If you don’t have a family member to help out, find a friend to be your budgeting check-in buddy and help keep you on track.
Involve your children, too, if they’re old enough. You’ll not only be giving them a valuable family budget example, but you’ll also be getting help in sticking to your own budget. If each child, for example, gets a fixed line item amount for themselves each month (either as a regular allowance or purchases-by-request), then you can hold them accountable to their own money limits.
3) Create your zero budget BEFORE the month begins.
Straight from the man himself, Dave Ramsey, a zero budget is THE best way to make sure that every single penny you bring in is accounted for.
Using even a simple budget worksheet to track your income and expenses can be incredibly valuable for getting you started off on the right foot.
We only started budgeting to zero recently, but let me tell you it’s been AMAZING. We used to have the mindset of budgeting to see how much we had left. The money we had left would either go to our savings account or our “nest egg” account on Betterment.
Now we budget down to every dollar every month. Doing this gives you a much clearer understanding of your monthly finances. Whether you choose to put the “leftover” into an entertainment fund, vacation savings, or retirement savings, you’re still making sure that when the budget is finalized you have nothing left “on the table.”
4) Be flexible.
Your budget does not need to stay exactly the same month to month, so be flexible.
For example, one month we took a ski vacation at Mont Tremblant in Canada. Obviously, when you go on vacation you have extra expenses. Do your best to plan ahead for this upcoming expenses, setting aside money in the months prior, and in shrinking a couple of categories after the trip if possible, such as cutting back on work lunch costs by meal planning, or not letting yourself have an entertainment budget for a month or two.
Some other expenses to keep in mind that may change from month to month:
Be sure to adjust your budget at the beginning of each month to account for any of these variable items. Being prepared, early, is an excellent idea for the larger budget items, for example, by working on setting aside or earning extra money for Christmas in advance.
You might also consider including a “miscellaneous” category for those one-off, odd expenses that crop up here and there. Keep this to about $50 or less if you’re on a tight budget!
5) Pay off debts as your absolute priority.
Whether you choose to use the snowball or the avalanche method to pay off your debts, only one thing matters — get rid of them as fast as possible!
There are two reasons you want debts off your shoulders ASAP: first, to relieve the stress that being in debt causes, and second, because it’s just good money management to give yourself as much extra cash to invest as possible.
If you’re at all interested in being smart with your money as you get older, you’re going to have to come to terms with giving up some fun budget items in favor of getting rid of your debt payoff budget items.
If you’re in need of some inspiration, try reading about this incredibly motivated couple!
6) Make budget cuts if you’re tight on money.
This is the part of budgeting that can get people down and make them think budgeting is no fun – and can even cause them to give up the whole effort entirely.
Unfortunately, whether you’re either paying down debts or simply short on income, sometimes it’s a necessary evil to start making some smart decisions to reduce expenses.
A few places where you could probably scrape out a few extra dollars are:
7) Keep your goals and values in mind.
Just because your well-off friend tells you that it’s absurd that you don’t have a manicure or new clothing category in your budget, doesn’t mean that you actually need one.
If you’re prioritizing achieving financial freedom as the driving factor behind your budget setup, don’t let anyone else but you and your spouse tell you what should or shouldn’t be in your budget each month.
So long as you are planning for slightly larger expenses and prepared in case of unexpectedly lower income each month, then you’ll be absolutely right to include whatever you see fit in your budget.
If your goal is simply to get some of your spending in check, then try starting out with just 2-3 categories that you’d like to shrink, and work from there.
While many people may think that “leftover” money should be applied to a “fun” or “entertainment” category for their happy spending, you may find that you prefer to use every bit of that leftover money towards fully funding your retirement accounts, or maybe you’re saving a down payment to buy your first home.
Whatever your personal finance goals are, write them down and stick to them. If you get some naysayers, simply agree to disagree and move on.
8) Keep things simple.
Create a simple system for everything relating to your budget and stick to it.
Make sure all of your bills and receipts are organized and easily accessible. Including a “drop zone” for these things in your kitchen or home office can help prevent anything from getting lost in the daily bustle.
Establish a regular “budget planning” session on at least a monthly basis, but ideally more like bi-weekly or even weekly, if you can fit it in. Are you the type that gets a paycheck and finds that it’s all gone in just a few days? You’ll want to make a point to check in with your budget much more often than those who are lucky enough to find themselves with “too much money at the end of the month.”
Use this time to review how your budget is going vs. the plan, and recalculate/adjust categories if absolutely needed. This is also a good time to jot any notes that may affect the following month’s budget, such as expected income or expense changes.
You can make your budgeting simple enough using good old-fashioned pen and paper, but in today’s world using a digital budget tracker is MUCH easier and faster (not to mention more accurate)!
We have really enjoyed using Mint and Personal Capital for our digital budgeting software, but this is just one of many options. Adding in other digital financial apps will make a big difference in your overall grasp on your financial picture!
9) Don’t get upset if it does not work out how you’d hoped, at first.
Budgeting takes time to learn! Even if you grew up in a home that taught budgeting well, grabbing the reins for yourself can still feel foreign at first.
Have patience, especially if you have a spouse or loved one that you are planning on budgeting with. It’s best to just START. The sooner you start to budget the sooner you start controlling your financial freedom.
Remember: your main, underlying goal in budgeting is to spend less money, so anything you can do to either cut spending or total debt, or increase what gets put into savings is a step in the right direction!
Make a pact to learn from any mistakes you might make, and just keep on going — your financial future is far too bright to quit!
Bonus: Budgeting Tips for Different Life Situations
Budgeting Tips For College Students
Whether you’re just thinking about college or already enrolled, give some of these tips a try:
Budgeting Tips For Low-Income Families (Or One-Income Families)
Being in a low-income scenario is even trickier than many people realize, because of the often additional stress of worrying about what might happen if you were to lose your income.
Budgeting Tips For The Holidays
The same holidays happen every year like clockwork, but it’s amazing how many people completely neglect to plan ahead for them in terms of their finances.
Why These Budgeting Tips Are So Important
When you start to budget your life will change. It will be difficult for the first few months. Just like any habit it takes time and gets easier over time.
We believe that if you give budgeting a try for a few months you will feel so much better about your finances, and life in general.
As humans we are naturally drawn to being in control of things, start being in control of your finances. Imagine not having to worry about money, living paycheck to paycheck, car repairs, having to say no to everyone, and feeling stuck in life.
Budgeting is the key to having financial freedom.