Practical Budgeting Tips to Help Lead You Towards Financial Security
The words ‘budget’ and ‘financial security’ might not set off fireworks of excitement inside you. If that’s the case you aren’t alone! Statistics show only 41% of people use a budget. The thing is, it should excite you. In our society, money might not buy happiness but it can buy a lot of freedom. It paves the way for you to have more time, more resources for wellness and relationships, and the chance to move from a mode of surviving to thriving. When we thrive, we have the energy to invest in the self change and community change that is so necessary. Creating a budget is the first essential step to help you get there.
That said, the thought of creating your first budget can feel overwhelming. What are the best tools to use? How do you break down the categories? How do you keep track of expenses? How does a budget factor into your long-term goals?
To help answer those questions and more, here are a few practical tips to help you create a budget and attain financial security!
Get Clear on Your Financial Goals
Before you start putting away money and tackling your budget, get very clear on both your short and long term financial goals.
Short-term goals could be anything from having enough money to purchase new home furniture or appliances, get out of minor debt, or take a vacation. Long-term goals are more along the lines of planning for retirement, saving up for university, planning for your children’s future, or having money to put a down payment on a home.
Then, once you’ve written down your goals, get exact on how much money each of these items will cost. For example, look up all associated travel costs with your vacation, know the dollar amount of that down payment, and calculate the total amount of your debt. If you’re unsure how much your goal will cost, then estimate and leave a little wiggle room.
It’s always better to overshoot than overspend!
Track Every Cent for a Week
When starting to budget your money, it’s first important to know exactly what you’re spending your money on. Whether you keep a detailed notebook or use your banking system to track expenses, keep a note of every single cent that you spend.
Tracking your expenses will not only help you get very clear on how you spend your money, but it can also help you see the areas in which you’re overspending. Knowing exactly where your money is going will help you see whether or not your financial priorities align with your spending habits so you can adjust accordingly.
Creating financial plans a month at a time is a great way to stay on top of your finances, especially when you’re first starting a budget. At the beginning of every month, take note of all your expected expenses, and write them down in categories. These categories should include items such as rent or mortgage payments, groceries, all car expenses (including gas), monthly membership fees (gym, classes, etc.), entertainment, toiletries, and clothing.
Additionally, when creating your monthly budget, take into account the amount of any investments you’ve made and how much you’d like to put into a savings account.
From here, look at your monthly net income and allocate your funds. Start with the numbers that the week tracking your spending gave you, and set a total amount that you’re willing to spend on each of your categories.
Figure out exactly how much money you’re allowing yourself to spend every month, and stick to it.
When first creating your budget, it’s important to take stock of any seasonal expenses you may incur. Seasonal expenses can be anything from back to school shopping, taking a summer vacation, planning for the holidays (food, gifts, etc), or any big projects you’d like to take on.
Now that you know all of your expenditure categories, keep all this information in an easy to understand and easy to access place. To do this, either create your own spreadsheet or use one of the many budgeting apps or tools out there.
Some of the more popular budgeting tools include Mint, PocketGuard, Goodbudget, Prism, and YNAB.
Check out this article for the best budgeting apps on the market!
Think About How You Spend
Meaning, take into account whether you stick to limited spending better by using debit and credit cards, or if you need to stick to cash.
Exclusively using debit and credit cards means that you’ll consistently have a detailed record of every transaction. This way you can see, in detail, what you’re spending your money on. However, for some people, using cards is an easy ticket to overspending.
While cash, on the other hand, doesn’t keep a detailed transaction record, it does allow you to have a fixed amount to spend in a given situation. Of course, cash isn’t always practical to use in every instance but, for smaller day-to-day purchases, this method may come in handy.
Use Direct Deposit
If you’re someone who finds it difficult to put a designated amount into savings every month, then prioritize it, even if it’s just a little bit. Have a mentality that helps you save a set amount of money first and then only spend what’s left.
To do this, you may find it helpful to set up a direct deposit savings account (a tax-free one if you have access to it). On a set day every single month, set up your bank account to move funds from your checking into your savings account.
Personally, I’ve found that once that amount is out of my checking account, I don’t even miss it.
Speak With a Financial Advisor
Sometimes, despite the best of intentions, you just need someone to point you in the right direction with your finances. Enter the financial advisor.
The financial advisor’s role is to understand your personal financial needs and help you with making investments, purchasing insurance, and understanding the tax laws in your area. Sometimes it’s difficult to know exactly how much you should be saving to meet your goals, and how making stock and bond investments can help you reach those goals even sooner.
However, before you make an appointment, equip yourself with the best questions to ask a financial advisor.
Update Your Budget Periodically
Once you’ve got your budget up and running, periodically review and make any necessary changes to it. If you routinely overspend in a non-negotiable area, then perhaps it’s wise to expand your budget in that area, and take some funds out of another area.
These changes are essential to help you not overspend yet keep your budget practical and functional.
Do you have a budget? If you do, let us know your favorite budgeting tips in the comments!