Many of us avoid budgets. Maybe it’s the name, or perhaps the assumption that being on one requires giving up the things we want. Yet, that’s not really what a budget, or adhering to one, is about.
What a Budget Really Is
A budget is actually a financial road map that guides you through your daily life’s spending decisions. It’s about balancing choices so you can make informed decisions and remain in control of your money.
Establishing that level of control is straightforward. Like any other healthy habit, you just have to take the first few steps, and repeat, until it becomes your routine. These steps include:
1. Tracking it. To make decisions about your money, you need to know where it goes. The best way of doing this is to keep a money diary for at least a week and, preferably, a full month.
2. Analyzing it. Having a record of your spending will capture your fixed expenses, such as rent/or mortgage, food, utilities, student loans, and car payments. This “fixed” amount is often lower than what you spend overall, which can highlight those areas where you have room to make lower-cost choices.
3. Finding substitutes. Whether it is your cable bill, clothes, or meals out, you may want to consider cheaper alternatives that you might enjoy just as much. For instance, going out typically isn’t about the expense of the meal but the quality and time you spend with friends and family. There are options at every possible price point.
4. Reducing fees. Fees are everywhere, from your gym membership to your streaming and mobile plans. Regularly reviewing and looking for more cost-effective options can help contain your expenses.
5. Deciding what is reasonable. Some experts recommend using a 50/20/30 budget as a shortcut for planning spending. This results in assigning 50 percent of earnings for necessities, 20 percent for savings, and 30 percent for lifestyle choices. It’s a good rule of thumb for determining if you can afford something.
6. Saving before you spend. This is also called “paying yourself first.” Even when you are just starting out, trying to carve out a little bit of each paycheck and putting it aside for the future can make a difference. It’s the habit more than the amount that eventually helps you build up an emergency fund or save for a down payment on a home. It also provides you with financial options later in life.
There are many personal budgeting apps that will help you take these steps and automate them so that it becomes as easy as a few finger swipes. Mint is among the better known for keeping you on task. YouNeedABudget offers more of a tough-love approach and provides coaching. Other popular options include PocketGuard, Mvelopes, and Moven.
Remember: Friends Don’t Let Friends Stick to Budgets Alone
Set yourself up for success by sharing your goal with your friends and relatives, just as you would if you were trying to eat healthier or stick to an exercise plan. From gift-giving to evenings out, let them help you by choosing options you can comfortably afford. No one wants to inadvertently pressure a friend to overspend and cause them financial stress.
Whether you call it “budgeting” or not, the result is still the same. The effort leaves you knowing that you are making informed choices about your money, and that can lead to a lifetime of financial empowerment.