Finances can be tricky to put your finger on, but this fail proof way to set up a budget can go a long way towards helping you understand where. If you’ve ever really sat down to try and figure out how much you spend per month on what, or if you’ve ever wondered where all your money goes, you’re in the right place. I’ll break it down for you in one of the easiest ways possible.
Let’s face it: Budgeting sucks. But I’ve got some good news: we can make the process easier and more enjoyable. To accomplish this feat, I’ve designed a fail proof way to set up a budget that works for your personality and income, so you can feel comfortable following it. That’s right, and it will be fun. Don’t believe me?
Use a notebook or an online budgeting tool.
To set yourself up for success, you’ll need a budget. A budget is a roadmap that shows you where your money is going. You can create one in a notebook or use an online budgeting tool like Mint.
Step 1: Track what you’re spending.
For the next month, track every dollar you spend by writing it down in your notebook or adding it to the online budgeting tool.
Step 2: Determine the source of the problem.
At the end of the month, look at what you spent your money on and determine if there are areas where you’re overspending. For example, maybe you’re spending more than you should on eating out, shopping, or entertainment.
Step 3: Establish savings goals and devise a strategy to achieve them.
After identifying problem areas, set goals for how much money you want to save each month, and plan how you’ll get there. For example, if you want to save $200 per month, try cutting back on restaurant meals by $50 per week and movies by $25 per week. The key is to find a balance between being realistic and creating a challenge for yourself.
Step 4: Make your savings automatic!
Automating your savings is one of the most effective ways to reach
List your income and expenses.
When you’re trying to get out of debt, it’s important to know how much money you owe and how much you have available to pay it off. The first step is to list all your bills, their amounts, and when they’re due. Then make a list of your income sources and the amount you receive each month. Subtract your monthly expenses from your income to see how much room you have for debt payments. Some people use budgeting apps or spreadsheets to help them keep track. Start by listing all of your debts in order of balance, with the lowest balance first. Then list all of your income sources in order of size, with the largest first.
List all of your debts, starting with the ones with the smallest balances first. Include credit card debts, student loans, car loans, and other consumer debt (medical bills don’t count). Ensure that you have a current statement for each account showing the balance and the minimum payment amount due.
List all of your income sources, in order from largest to smallest. Include pay checks, alimony or child support payments, interest or dividends from investments, and any other money that comes into your household regularly.
Set up an emergency fund.
Why do you need an emergency fund? Having money set aside for emergencies is crucial for your financial life. It can help you avoid taking on debt to cover unexpected costs, which can have a much more significant impact on your long-term finances than the small amount you need to set aside each month. Setting up an emergency fund can seem overwhelming, especially if you’re already trying to save for other things like retirement or college, but it doesn’t have to be daunting.
Rather than thinking of it as one big goal, break it down into pieces and establish a clear plan for how you’ll get from point A to point B.
Figure out how much you need.
The first step is to figure out how much money you need in your emergency fund. That will depend on factors like your income and lifestyle, but experts generally recommend aiming for around three months’ worth of living expenses. You might find that’s more than you need or less — either way, the important thing is just getting started.
Set a budget and start saving.
An easy way to make saving money feel less overwhelming is to put it on auto-pilot by setting up automatic deposits into a savings account each month. If you don’t have one with your bank already, open one now.
Organize your expenses into categories.
Categorizing your expenses allows you to see how much you are spending in different areas (rent, food, utilities, etc.). This can help you be more aware of your spending and make adjustments if needed. If you aren’t sure where to start, several apps can help. Some of these include:
Mint is a free budgeting app that links to your bank accounts and helps track your spending. It also allows you to create and monitor budgets and set financial goals.
Pocket Guard: Pocket Guard is another free budgeting app that offers similar features to Mint. You can link your bank accounts and set budgets, but it also includes a “safe-to-spend” feature that makes it easier to see how much you have left over after paying for bills and other necessary expenses.
You Need a Budget (YNAB): YNAB stands out from other budgeting apps because it focuses on helping users change their spending habits to live within their means. A free 34-day trial is available, but the fee after the trial ends is $6.99 a month or $84 per year.
Don’t forget to include savings
It can be easy to forget about savings when making a budget. If you’re living pay check to pay check, you might think that you have nothing left after paying the bills.
But saving money is vital for many reasons, even if it’s just for an emergency fund. You should try to include a small amount in your budget for savings every month. Then, as time goes on and you get more comfortable with your budget, consider increasing the amount.
Savings doesn’t have to be a significant amount at first. Once you start saving money, you may be surprised at how quickly it adds up.
* Consider your goals when setting aside money in savings. Do you want to save up for something in particular? Or do you just want to build up an emergency fund?
* Figure out which type of savings account is suitable for your goals. You may want to open a separate high-yield savings account or use a retirement account for your savings goals.
* Make sure that the institution where your savings account is located is FDIC insured or NCUA insured so that you don’t lose any of your money in a bank failure.
Sync up with your partner if you have one.
You’re married or have a partner who’s a big part of your life. Before you can make any other kind of decision, you and your partner need to talk.
“If you have a spouse or someone else who would be part of your decision-making process, it’s important to start with them,” said Matt Cos Griff, founder of the financial planning firm Arx Wealth Management in San Diego. “This is the person who will be on this journey with you.”
Even if you’re not married yet, Cosgriff notes that it’s still important to make sure you’re on the same page as your future spouse about what you want out of life and how you plan to get there.
“This will help give you insight into how they interact with finances,” he said. “Are they a saver or a spender? Are they aggressive or risk-averse? ”
You might find something surprising about your partner—maybe they’d love to quit their job and start an Etsy shop, but they’re too scared to say so. It’s OK if things don’t perfectly line up between the two of you; in fact, that diversity of perspective can often be beneficial for achieving balance in life.
Consider the big picture.
No matter how much you love your job, it’s likely that there are some things about it that you dislike. If you’re lucky, these things are few and far between, but even if they are, they can be enough to bring your mood down and make you dread going to work each day.
If you find yourself in this situation, take a step back and think about whether the things you dislike are worth complaining about or if they’re just part of a bigger picture that overall is positive. In other words, is the grass greener on the other side?
Consider what life might be like if you left your job and had to start again elsewhere. Would the process of job hunting be stressful? Would your new company have similar rules about taking time off for appointments or personal emergencies? Would it have similar requirements regarding overtime or working on weekends?
The grass might seem greener from afar, but it could look a lot less appealing once you get up close. Before you quit your job in search of one with no downsides whatsoever, take a moment to consider whether the reality will live up to your expectations.
Conclusion
Setting up a budget that you can stick to is a goal many strive for, but few can achieve. Whether it’s hard-earned cash or fun money, setting up a budget is often more of a challenge than you might expect. If you’re ready to start saving for that new TV or car in the next few months, this Frugal Living 101 guide is for you.
