Making a budget is difficult. Sticking to a budget is even more so. But they’re both critical to a person’s financial health. To help you create and execute a budget for your needs here are 26 personal budgeting tips.
Mobile apps have simplified many of our day-to-day tasks, and budgeting is not an exception. For those who don’t know how to make a spreadsheet, there are dozens of mobile apps to help you, including Mint, You Need a Budget, and Pocketguard. These tools not only save time, they often provide information at your fingertips to help you make better use of your money.
Are you really going to live on macaroni and cheese and canned beans to save money on food? Can you go an entire year without giving a gift to anybody? Planning on never getting sick or needing a doctor?
Budgets sometimes don’t reflect reality. One that doesn’t will not work for very long.
It’s easy to overspend when you’re using a debit card or smartphone app for every purchase. For budget items like entertainment, gas, and groceries, you may want to consider using cash. Withdraw the amount of cash you have budgeted for these items at the beginning of the budget period. Once the cash is gone, you should commit not to spend any more on these items until the next budgetary period.
Your budget depends on your ability to earn income. Lose that ability due to injury or illness, and there goes your budget.
You can minimize this possibility by including the premium for disability insurance in your budget.
Disability insurance replaces much of your lost income in the event an injury or illness limits your ability to work.
An emergency fund is money set aside to help you through unexpected events that can hurt you financially. Having an emergency fund can improve your financial security and minimize the stress of a job loss, temporary disability, or major repair. Include a contribution to your emergency fund int your budget to minimize the impact of an emergency on your budget down the road.
There are a number of budgeting methods to try. Some require more work and organization. Others are more flexible. Some budget methods may emphasize saving money, while others are geared to those who need to look for areas to cut back. Examples include:
- The line-item budget, which requires you to list out all of your expenses, both necessary and discretionary.
- The 50/30/20 budget, where you 50 percent of your income to necessities, 30 percent to wants, and 20 percent to savings and debt.
- The zero-based budget, which requires you to project your income at the beginning of the month and make a plan for how you will spend every dollar.
Maybe you want to buy a house in five years or take a dream vacation. The money for those and other long-term goals won’t magically appear when it’s time. If you have long-term goals, include those in your budget.
If you own a car, it will need oil changes, tuneups, radiator flushes, and new tires. If you own a house, you’ll be replacing or fixing everything from furnace filters to appliances. Include maintenance as a budget item so you don’t have to use a credit card every time something breaks down.
Budgeting doesn’t mean you have to give up everything you might find enjoyable. But it can encourage you to find ways to get more with less.
Go to matinees instead of nighttime movies, buy generic products when available, skip the beverages when you eat out, and travel during offseason periods are just a few examples of ways to save on recreational spending.
Your mortgage lender says you can afford a $300,000 home. But imagine the flexibility you’ll have in your budget if you settle for a $225,000 home. Anytime you hold off on spending money you don't need to spend, you’re strengthening your budget.
Check your accounts and receipts as regularly as possible so you know where you stand. If you’ve spent more than half your budget before the middle of the month, you probably need to slow down on some items in the second half. Keeping track of your progress can help you avoid surprises at the end of the month.
Treat your household as if you’re a business: Don’t always settle for making budget, but strive to come in under budget from time to time. If you have extra money at the end of the month, don’t automatically spend it. Save it. It can come in handy down the road.
Little expenditures add up. You can easily spend small amounts without thinking or accounting for them. $3 on coffee, $10 to buy something from your co-worker’s kid’s fundraiser, $25 on a parking ticket.
A miscellaneous category serves two purposes. It helps you account for items that don’t easily fit into another category. It can also serve as a buffer if you go over budget in another category.
There may be times when your best efforts aren’t enough to stay within budget. You’ve cut everywhere you can.
In these circumstances, look for ways to increase your income. There are a number of opportunities, including part-time jobs, seasonal employment, contract work, freelance work, and gig work/side hustles.
A number of expenses may only occur once or twice a year. Many people make tax and insurance payments annually or semi-annually. Gifts for birthdays, anniversaries, and Christmas are an annual expenditure. Yet despite these events happening every year, they still catch people off guard. That’s why people so often use their credit cards for these types of expenses.
Instead, set aside money each money so you know you have it. For example, if your annual insurance payment is $600 a year, then budget $50 each month. The same goes for gifts; set an amount you want to spend for the year and divide it by 12. Put it in a savings account until you need to spend it.
When you create your budget, start with the most expensive line items and the ones that are fixed. The same goes for spending money.
The sooner you repay debt, the sooner you’ll free up your income for other budgetary items. If you have the means, pay more than the monthly minimum payment, which will save you interest in the long run.
If you have several personal loans, medical bills, and/or multiple credit card balances, you should consider consolidating those unsecured debts into one loan. You can also potentially lower your interest rate and the amount of money you spend each month on loan payments.
Your first few attempts at making a budget may not work out. In addition, circumstances, whether internal or external, may require alterations to your budget. Don’t treat these instances as failures; just make adjustments and continue on your financial journey.
To repeat, creating and sticking to a budget is hard. This is true whether you're creating your first budget or you’ve done it for years. The numbers don’t always add up the way we want. The temptation to overspend perpetually exists. It’s easy to give up when mistakes happen.
Stick with it. Learn from your mistakes. Re-dedicate to the discipline of budgeting every month. Know that the more you stick to budgeting, the better off you’ll be financially.
Everybody that is covered by the household budget — spouses and older children — should be on the same page. Otherwise, a spouse may spend more money on clothes or recreation than what is budgeted.
Your budget should include a buffer for items you don’t think about. These items can be covered with an emergency fund, a miscellaneous category, and/or a maintenance fund.
Also, prepare for medical bills that you don't plan for. Even with insurance, you’ll likely have co-pays, deductibles, and out-of-pocket expenses when you need medical attention.
One of the challenges of budgeting is accounting for expenses that vary month-to-month. Utilities vary based on the season. Gas prices fluctuate. Medical expenses may not occur each month.
The best way to deal with these expenses is to budget on the high end. Gas might be $1.80 a gallon now, but budget for it as if it’s $2.50 or more. Assume your highest utility bill last year is the amount you’ll pay every month, or talk to your utility company about budget billing.
Also, any time you come in under budget on a variable expense, put the excess in savings. Because there may be months those expenses exceed your budgeted amount.
The biggest items in people’s budgets are usually the things they own: Mortgage payments, car payments, plus insurance, taxes, and maintenance on those items.
When you're starting out and have little income, avoiding these obligations can help you budget. You may want to rent instead of buying to avoid taxes, insurance, and maintenance. The same goes for owning a car; consider public transportation if it's available.
Only budget for income you’re certain you will earn. You should not budget for bonuses, even if your employer routinely pays them. If you’re a business owner or have a side gig, don’t plan on a large income increase month to month or year to year if such an increase is not the norm.
If and when that extra money materializes, you can then use it to pay off debt, put it into savings, or cover a big-ticket expense. If you budget for extra money and it doesn’t materialize, you may be unable to pay expenses.
Whether it's a car, computer, lawnmower, or treadmill, you will always save money buying used instead of new. It may not always be possible to do so, but look for opportunities to fill needs with quality, pre-owned items instead of buying brand new.
When budgeting, your income should be at least equal to — if not greater than — your expenses. If the opposite occurs on a regular basis, you’ll accumulate credit card debt. And the payments on growing credit card debt can bust your budget.
Joel Palmer is a freelance writer and personal finance expert who focuses on the mortgage, insurance, financial services, and technology industries. He spent the first 10 years of his career as a business and financial reporter.
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