Learning how to budget efficiently can be a challenging task as an adult. With bills, miscellaneous expenses and leisurely spending, saving can almost seem impossible for some. But we have to remember that budgeting is essential to building a strong sense of personal finance. With the summer months upon us, let us take this summer to stabilize a budget for the second half of the year and beyond.
A monthly budget is a plan for how you will allocate income to meet your expenses for a designated month. Some think of budgets as spending constraints, but budgets are better described as “spending plans”. If you budget correctly you will be able to spend money on things you enjoy without worrying about meeting other financial obligations, overdrawing your accounts, or going into credit card debt (moneyunder30.com). Here are some tips that will help you create a manageable budget that you can stick to.
1. Assess current spending habits
Before you can create a realistic budget, you need to know what your current spending habits are. You won’t know if your budget is realistic until you’ve got an idea of where your money is currently going. Most experts recommend tracking your spending for about 30 days to get a clear picture of spending. There are a few ways to track spending: entering expenses into a spreadsheet or notebook, using an app such as Mint, Dollarbird, and PocketGuard or using your previous bank statements (fool.com).
2. Write down your monthly income
Take a look at your previous month’s income. This will give you a good starting place for beginning your budgeting plan for the next month. Budgeting is a bit trickier if your main source of monthly income varies (if you work variable hours or earn tips), you can average several months of income or estimate based upon experience. But be conservative. In a month’s time, you want to have spent less than you planned for in your budget (moneyunder30.com). You also want to take other possible streams of income into account. For example, an upcoming bonus, child support, working more than one job, investments you’ve made or if you’ve picked up side gigs.
3. Identify your personalized financial goals
There are numerous reasons why someone would want to save. Identify your personalized budgeting goals so you know what you’re working towards. When you set goals, you can align your budget around achieving them by deciding how much you need to set aside to accomplish each goal. Goal setting has been shown repeatedly by studies to increase motivation and achievement (fool.com). Some examples of goals people set could be buying a new car in cash, saving for a vacation, saving for college, saving for retirement or getting out of debt.
4. Decide how much to save
Now that you’ve identified what type of financial goals you’re setting, its time to decide how much to save. Assess what type of changes you want to make in your daily life that will help you reach your goals. This all depends on how big or small these goals are. For instance, for smaller goals, reducing the number of times you eat out per week or go shopping can be a great start. For larger goals, think about getting a roommate to split rent and utility costs or think about getting rid of the car that you have with the expensive car note.
5. Avoid common budgeting mistakes
You want to make sure that you’ve created a budget that you can actually live with and sustain. Success is the name of the game and you are setting out to achieve your financial goals! Stray away from setting unrealistic expectations. This will help to eliminate getting discouraged or frustrated. Don’t incorporate your gross income when calculating your budgeting plan. Look at bank deposits to see how much your actual inflow is and budget based off that amount (fool.com). Lastly, you don’t want to fail at considering big changes. Budgeting is tough but sometimes you have to make those necessary changes. This might include canceling your cable package, downscaling your phone plan or moving into a smaller house (fool.com).