Budgeting: some love it, some hate it, but regardless, it’s something we can all benefit from.
Budgeting is a necessary financial planning exercise that helps us create a purpose for our spending. A well thought out and detailed budget can help keep spending on track and can even uncover and reallocate previously misplaced cash flow.
Poor budgeting practices, however, can lead to a paycheck-to-paycheck lifestyle. It can also leave many people feeling underwater and financially burdened.
Why is budgeting a difficult task for so many? What are some tips and tools to improve budgeting skills?
Budgeting can seem like a daunting task. Often, the hardest part is working up the motivation to sit down and get started. From there, it isn’t too hard to sift through finances and create a personalized budget. It can be intimidating to dissect personal money spent and then create a plan to improve.
Below are some of the best budgeting methods and tips that will help you not only get started, but find ways to stay motivated and on track. You can also read Savology’s comprehensive guide to budgeting if you’re looking for more details.
Before exploring a few tips to make budgeting better, it may be helpful to understand how to create a budget. There are numerous budgeting methodologies out there, including The Traditional Budget, The 80/20 Budget, and The Sub-Savings Accounts Method. Our favorite, though, is the 50/30/20 Budget because of the way that it combines simplicity and efficacy.
The 50/30/20 Budget is a simple plan that you use to break down your expenses into three main categories, needs, wants, and savings, respectively. In other words, you allocate 50% of your take-home income to necessities such as rent, cars, phone service, insurances, and staple foods. The next 30% goes into your wants, like eating out, clothing, and entertainment. Finally, you can save 20% of your take-home income; this ends up being close to 15% of your gross income, which is a great general rule of thumb for how much money to save.
In order to prepare a 50/30/20 Budget, you need to find out how much take-home pay you have monthly and then calculate out how much should go into each of these three categories. From there, we strongly suggest that you automate the 20% savings part so that you “pay yourself first.”
One overlooked benefit of budgeting is that it gives you a chance to review how you did the prior month. By reviewing each transaction, you also become cognizant of all your spending. So, after documenting out the budget category amounts, take a bit to review the prior month’s spending. You may be surprised by how the budget turned out from the preceding month. It may take a couple of months to develop good habits.
Now you’re ready to apply some of the other best practices. Below is a list of 5 budgeting tips and tricks to help you succeed in your financial journey.
1. Create a budget buffer
You need to understand that unexpected expenses often come up. You will learn when to expect these and how to deal with them as you practice consistent budgeting. In the beginning, you should set aside a small amount of money for unexpected expenses.
If you are using the 50/30/20 budget, you may want to start with applying only 45% and 25% for the first two categories so that the remaining 5% for each can go towards the unexpected expenses. What you do not want to do is have the extra 5% of each end up coming from your savings category!
2. Use online tools to make it easier
Ditch the pen and paper and join the 21st century by using online tools. Many people choose to use excel for their own budgets, but even that may be overcomplicating it nowadays. Two of the budgeting tools that we recommend are Mint and YNAB (You Need a Budget). Mint is free. YNAB has a free trial, but then it is a paid subscription. Alternatively, some banks also include budgeting tools, at very least for transaction monitoring.
Savology is designed to complement other online financial management and budgeting tools. Savology does not provide budgeting software because there are already many great solutions out there. Instead, Savology focuses on the financial planning aspect, which can educate you on how much you need to save, not necessarily how to save it.
3. Adjust your financial habits
Budgeting is an ongoing process, not a singular event. It would help if you continued to reflect and evaluate your budget. Take note of the areas you are doing great in and where you can improve by tracking your spending. Plan to make small adjustments each month where you see the need for improvement. Set specific goals on what you will change or what you will cut out to meet your budget.
4. Be patient
Give yourself a grace period to develop the habit of budgeting. Habits are not developed overnight. Proper financial behaviors may take months to figure out and ingrain in your life. It takes a focused effort. You probably won’t hit your budget perfectly the first time, but you’ll get there if you stick with it!
5. Get buy-in and support
Make sure to get your significant other involved and committed to participating. Communication and accountability are crucial to your success. Budgeting only works if you are both committed to change and focused on results. If you are single and budgeting, find an accountability partner, like a friend, roommate, sibling, or parent that can help you stay on track.
Budgeting may not be for everyone, but it is nonetheless worth a try and these budgeting tips might make it easier. Studies show that consistent and effective budgeting is one of the best ways to ensure financial security. But, if you find that budgeting isn’t working out for you, don’t give up on developing good financial habits. Use the free Savology financial planning tools to receive personalized recommendations and action items on what else you can do to stay on track with your finances.
Your financial future starts today
Savology has helped tens of thousands of households across the United States improve their financial well-being by providing comprehensive digital financial planning. Users can get started with our free financial planning or premium monthly planning memberships, allowing them to build a personalized financial plan, holistic report card, personalized action items, and more. In addition to our consumer-facing platform, we’re helping employers across the country provide their employees with effective financial wellness benefits.