Money can't buy happiness, but it can certainly buy things that make you happy. And when you don't need to stress about your finances, you can spend more energy on things that matter most.
Budgeting your money is something that many people avoid because they think it will require too much work, but the reality is that taking some time to manage your cash flow doesn't take a lot of time or effort.
Here are some easy ways to start budgeting your money today for better money gains tomorrow.
1. Open a Savings Account
Opening a savings account is one of the most important aspects of saving money. A savings account is an interest-bearing deposit held by a bank or credit union. In other words, it's a place to keep your money safe while accruing interest.
While interest rates are modest and might not amount to more than a couple of extra bucks a year, a savings account's safety and reliability make them great for budgeting.
Your money can grow in a savings account over time, especially when you put more money into it. And since many savings accounts only let you withdraw cash up to three times in a given month, you're usually less inclined to spend the money in a savings account.
Savings accounts differ from checking accounts, where you can access your cash anytime. You can still accrue interest in a checking account, but it is minuscule. However, checking accounts allow you to use a debit card, which is their main appeal.
While it's true that interest is usually a small amount of what you have saved, all banks work differently. You might get more interest from one bank than another, so research before applying.
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2. Track Your Spending
Tracking your spending might sound worse than pulling teeth, but it is an important step in being able to thoughtfully budget your funds. Once you know how much money you're spending, you can get a better financial picture when comparing it to your monthly net income.
Be sure to track every single purchase you make, including gym memberships, health insurance, car payments, and monthly subscriptions. Then, add one-off payments like groceries, drinks with friends, or trips to the movies.
You can make a budget spreadsheet on your computer to easily log your spending and see how much you're putting out monthly. This can also let you see where unnecessary expenses might be coming from so you can learn when and how to cut back in the future.
Additionally, you could use a budgeting app to track your monthly income and monthly expenses, making sure you don't overspend.
Many bank account apps offer budget plan tools that track your spending habits, take-home pay, variable expenses, bank statements, and other variables to gauge your financial situation and help you design a personal budget that fits your savings goals.
3. Set Realistic Goals
To budget, you need to know what kind of end goal you want to achieve.
Are you trying to put more money into your savings account? Are you trying to pay off credit card debt or student loans? Or are you trying to put away some money for a vacation at the end of the year? Regardless, make sure they are achievable.
Short-term goals should take anywhere from one to three years to achieve. A realistic short-term goal at that time is to set up an emergency fund or open a savings account. An unrealistic short-term goal is to save enough money for retirement, which can take years.
But saving for retirement is a great long-term goal that you can achieve by supplemental saving for years.
You don't need goals set in stone; you can have flexible ones that change with your values and progress. But if you have a goal in mind, it can help motivate you to succeed.
4. Use the 50/30/20 Rule
If you need help figuring out how much money to spend on specific things, the 50/30/20 rule is a great technique to help you figure out where your income stream should be going. It categorizes your income into three percentages.
- 50% of your spending should go towards needs. This includes your rent or mortgage payments, car payments, utilities, and groceries.
- 30% of your income should go towards your wants, which include gym memberships, streaming services, personal shopping, and vacations.
- 20% should go to savings and debt, like emergency funds and credit card payments, and into your savings account.
You can use this to grasp your income stream better and make sure that you have enough money to pay for the necessities in your life while still having a good time.
If you're spending too much money on your needs, this gives you a good idea of where you might be able to cut back, so you're better able to put your resources elsewhere.
Some people have more needs than others. For instance, if you drive to work every day, gas is considered necessary, whereas it might not be for people working from home. Some people might think a morning cup of coffee is a want, but it's definitely a need if you're anything like us.
Regardless, categorizing your expenses can help you prioritize where your money needs to go in a given month and where to redirect money to reach your financial goals.
5. Adjust Your Spending Based on Wants and Needs
Your needs come before your wants, so it's crucial to adjust your spending to have the money available for your needs. This might mean you sometimes need cuts to achieve total financial freedom.
You may realize that you don't need the upgraded card at your gym, so you can downgrade and save $10 a month. And you realize you're not using one of your streaming services much, so you cancel it and get a few bucks extra in your pocket.
These small changes can have significant effects. Think about it: $10 of savings a month is $120 for the entire year that you can use towards paying off debt or saving up.
6. Keep Track of Automatic Payments
In a world full of online subscriptions and recurring payments, it can take a lot of work to keep track of all of the automatic payments coming your way.
Additionally, you might be paying for services you don't use anymore simply because you didn't even realize that you're getting charged for them.
Look at your credit and debit card bills to see where recurring payments come through each month. If you're seeing charges for services you didn't even realize you were still paying for, that's a good sign to go ahead and cancel them so you can put those funds to better use.
Set calendar reminders for automatic payments every time you set one up to notify you when a payment is about to take place. This way, you can always cancel the payment before it hits so that you're not wasting money on subscriptions you don't even use.
7. Give Yourself a Buffer in Your Budget
You might want to put a small amount of money off to the side for unexpected expenses each month. You can use this money if you need an emergency health procedure or dip into it if a friend asks you to come out to dinner and you need a few extra bucks.
Having this extra cushion can help prevent you from dipping into your savings or emergency funds. And if you don't end up spending it each month, you can just put it away into your account.
Life changes and emergencies happen to everybody, and whether it's unexpected medical bills you have to pay yourself or rate hikes in your car insurance, you want to have the correct budgeting method to ensure you can meet these obstacles confidently.
8. Be Careful With Credit Cards
Credit cards are great because it feels like you're getting free money. But the reality is that you need to pay back your credit card bills so you avoid super high-interest fees that can start to feel insurmountable.
If you feel like you can't make timely payments, it's best to eliminate your cards entirely to avoid getting blindsided by high interest.
With that said, using credit cards responsibly can help you maximize your budget. Many credit cards have cash-back options that reward you for spending with your card.
So at the end of the month, you might get back money that you can use towards your necessary payments.
9. Try the 30-Day Savings Rule
If you seem to struggle with impulse buying large purchases that fall into your "wants" category, you might want to try the 30-day rule.
If you want something new categorized as a large purchase, take 30 days to think about it. At the end of the 30 days, if you still want to make the purchase, then go for it.
But chances are high that you'll realize that you don't actually want that thing to begin with within that time period. You might see that your life is fine without it and you don't need to spend the money. Again, though, if it's still on your mind then it might be a sign to treat yourself.
10. Reassess Your Budget Each Month
Your monthly budget is a fluid entity that can be changed and melded based on your preferences and goals. Not to mention, every single month will come with its own set of expenditures you might need to account for.
Frequently reassessing your budget is an essential budgeting tip, just as crucial as spending less or setting spending limits.
For example, you might need to put extra money aside for December to account for the holiday season, and if your loved one has a birthday in March, you'll need to account for some extra money, too.
Your budget is an ongoing process, so embrace the fact that you can have the freedom to meld it however you need on any given month, week, or day.
11. Leave Room for Yourself
Money can be stressful, no doubt. But you want to ensure you're flexible with yourself to a point where you're missing out on experiences and opportunities just because of your budget. It's okay if you spend a few bucks here and there on a dinner or movie with friends. Be kind and understand that you might not be able to follow your budget perfectly.
And if you spend a bit more in one month, see if you can cut back on the next one to try to match. Again, budgeting is a fluid process subject to change over time.
Make Saving Fun
Saving money and budgeting sounds like a chore. Still, by following just a few beginner steps, you can have more money at your disposal to pay for personal expenses, emergency expenses, and everything in between.
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