Budgeting doesn't have to be intimidating.
While there's a lot of information here on the blog to help you get started, I thought it would might be useful to provide some quick tips to make the process go a bit more smoothly.
1. Budget before the month begins.
Having a clear plan to follow before the month begins is key. This way you don't end up having to go back and clean up or dig out from issues earlier in the month.
2. Address your "needs" vs. your "wants"
Bucket your expenses accordingly. List out needs like your rent or mortgage payment, electricity, food, gas so you can get to work, etc. Separate your "wants" out into a different list. Wants include a new pair of jeans, cable TV and drive-through meals. Be honest with yourself!
3. Mark what's a "fixed expense" and what is "variable."
Fixed expenses are the the same each month. Car payments, rent or mortgage, etc. While the amount of your electric or water bill can vary from month to month, it's still a "fixed" bill that comes each month and you ultimately don't have a ton of control over each day. "Variable" expenses are the ones you DO have control over. Variable expenses are the first place you should look when giving the budget a "haircut." Avoid eating out, opt for hamburger over steak at the grocery store, and put off buying new clothes if you can.
4. Every month is different.
You will need a new budget each month. While you can start from your previous month to save time, there will almost always be something that will change. For example, you won't have the same birthdays two months in a row. Our garbage service bills us quarterly, so we only have that particular bill once every three months. Every month needs some customization, and that's a good thing.
5. Budget to zero each month.
Every dollar that comes into your account has a job each month. Assign it, or you'll be surprised how fast the money disappears when you didn't even think you spent it. Think in broad categories if you need to - housing, food, entertainment, savings, gifts, etc.
6. Use the right tools.
Whether you need an app to help you monitor your budget and spending on the go, a paper-based budget or a spreadsheet on the computer, decide which tool is one you can stick with... and then go with it. The tool you'll use, even if it doesn't have every bell and whistle, is better than the fanciest tool you never open.
7. Get organized.
Opt in for your bank's online bill pay service (it should be free - if it's not, shop around for a service that is). Make an office in a box if you have physical statements and bills to keep track of, and you write a paper-based budget. Make note of your due dates on some kind of a calendar, whether it's an app or in your planner. When you know what's coming and going througout the month and you know where to find things, it removes so much stress!
8. Prioritize paying off debt.
If you have debt, pay it off as fast as you can. I don't care so much if you tackle things in order of the highest interest rate to the lowest, or if you pay them off in order of smallest balance to biggest, just make it a priority. Reduce and eliminate debt and you have so much more available to invest, give to benefit others, enjoy, and plan for your own future. The longer it sticks around, the more interest you pay... and the more expensive those awesome shoes on the credit card turned out to be.
9. Don't forget fun/entertainment.
One year in college, I was on such a strict budget that called my mother in tears because of the stress. I had given myself zero fun. After we hung up, I went out and gave myself permission to spend $8 on a paperback novel at the nearest bookstore (yeah, I'm that old, this was before e-books). It was only $8, but it did so much for my soul. Humans need fun and entertainment and a bit of an escape sometimes. Keep the cost reasonable, and try to do free things whenever possible. There are probably a lot more free/nearly free activities near you than you might think. Budget $3 a week for family Redbox movie rentals, or go explore a local museum on the free/really cheap "First Thursday" of the month. Do some searches to see what's available near you.
10. Save the extra, don't blow it.
If you budget all your fixed and variable necessities, and you don't have debt that could use an extra push, save it. Bank the extra and make sure you have a plan for how you might spend it. Reduce impulsive purchases as much as possible.
11. Are you investing in insurance?
If you have a mortgage, you're required to have homeowner's insurance. If you're a renter, you need renter's insurance, as the owner's policy won't cover your stuff in case of theft or disaster. But what about life insurance? Do you have someone to protect and care for if something happens to you? Look into it, and make sure you're covered.
12. Max out your retirement once debt is paid and savings is established.
Pay off all the debt that costs you money, and fully fund a 3-6 month emergency fund. Then max out your retirement savings. In 2021, employees contributing to a 401(k) plan can contribute a maximum of $19,500. If you're over 50, that limit is $26,000 for the year. While we're at it, make sure you haven't left any orphaned 401k funds at previous employers. Talk to a retirement professional to make sure you're saving enough, and have them walk you through a direct rollover of any old funds, if appropriate. The quality of your meals in your retirement years depends on it!
13. Set up an emergency fund.
This can't be stressed enough. Emergencies happen. There's an unexpected vet bill, a kid breaks an arm, the car breaks down, a job is lost. Put yourself in the best position to handle these events. If you're focused on paying off debt, set aside $1,000-$2,000 for a rainy day. If you're debt free, aim for 3-6 months of expenses. Avoid reaching for the credit cards.
14. Meet with your spouse regularly (if you have one) to check in.
When you're on the same page, you make SO MUCH progress! Avoid getting caught off guard when you find out three weeks too late that your spouse forgot all about the upcoming orthodontist bills. A weekly or bi-weekly meeting can help you course correct if you notice any budget category that's starting to go off course.
15. Assess and adjust, on a regular basis.
Are you constantly over budget in one category? You might be under-funding it, or you might not be paying attention to what you're actually spending. Take the time to review your last budget against what you spent, and adjust as necessary. You'll get better over time. You'll also make sure your budgets are accurate - don't assume the cable bill will never increase!
16. Set some goals and dream.
Why are you paying off the debt as fast as you can? Why are you saving? Is it so your kids don't have to take out student loans like you did? Is it to buy your dream house on a lake, or to be able to take that trip you've always wanted to? Figure out the why, and remind yourself each month what this is all for. I don't know who said it originally, but I once heard someone say, "Don't give up what you want most for what you want in the moment." Keep your eyes on the prize and it will help you keep going.
17. Celebrate your wins.
Did you pay off the car or a credit card? Celebrate! Don't go crazy and set yourself back, but recognize the achievement. It could be as simple as opening a nice bottle of wine with your sweetheart. It could even be a high five in the kitchen after the kids have gone to bed. You worked hard and did something big. Little celebrations along the way make it easier to keep going and achieve your long-term goals.
18. Try some "no spend" weeks.
Set aside a week here and there to not spend any money except on necessary bills. Plan your meals from what you have in the fridge, freezer and pantry so you don't have to go to the grocery store. Don't go to the coffee shop or out to eat. Avoid buying anything online. You might have to start with a weekend if you're taming some bad habits. Then stretch it to a full week. Heck, go two weeks if you can (or more). Just like those juice cleanses are designed to get you off the sugar, you might find this is a good way to reset your budget and save some quick cash in the short term.
19. Give yourself some grace.
Everyone makes mistakes. Screw-ups happen. Acknowledge them, clean up the mess as best you can, and make plans to avoid those mistakes in the future. But don't beat yourself up about it too much.
20. Do it together.
If you're part of a couple, make this journey together. If one spends money like it's going out of style and the other pinches every penny, there's going to be friction, and you won't make progress. It will lead to frustration, anger and resentment if you're working so hard for a goal but your significant other has no idea the goal exists. Sit down and dream together. What do you BOTH want? How can you get there? What are you willing to do? How can you work together? (Hint: you might need different tools, depending on what works for each of you. Just make sure the numbers are the same!) When you work together, you'll win together.
