No one likes to think about budgeting, really.
Well, ok, some people do — the people who know the honest truth about budgeting: with just a few myths dispelled and some solid budgeting tips in your toolbox, you’ll learn to LOVE budgeting, we promise!
You’re probably wondering how anyone could love budgeting; it’s pretty simple.
Once you know where your money is coming in and where it is going out, you will have all the information you need to start spending money stress-free on the things YOU want to spend it on.
Really, that’s it.
Table of Contents
Myths About Budgeting
There seems to be a LOT of misinformation when it comes to budgeting, which might be the reason why so many people shy away from budgeting like it’s the plague.
So before we get into some simple budgeting tips for beginners and on up, let’s clear the air a little.
Myth #1: Budgeting takes too much time and it’s constraining.
Truth: This couldn’t be more WRONG.
Most people associate the word “budget” with negativity, sweaty palms, and being cringe-worthy. But in reality, a budget is simply a written plan for your money. It gives you the opportunity to stop spending your money on things outside of your control and lets you focus on WHERE to spend it and HOW MUCH to spend on any given item.
Myth #2: I don’t make enough money to have a budget.
Truth: You don’t make enough money to NOT have a budget!
The lower your income is, the more important it really is to have a solid, reliable budget. This is what helps families avoid awful financial situations, such as foreclosure, collection calls, and bankruptcy!
Even if every cent of your paycheck goes towards expenses and debts, knowing which pennies go where is still so important in maintaining your overall financial health. The minute even a few dollars gets freed up to be applied elsewhere, you’ll know, and you’ll be ready to jump on it and start making even more progress.
Myth #3: I make too much money to need a budget.
Truth: Did you know that people who win the lottery are actually MORE LIKELY to declare bankruptcy than non-winners?
Yeah, that surprised me, too. But it makes perfect sense.
Even if you live a tremendously comfortable life and have never had a money woe in your entire life, that does not mean that you’re managing your money as effectively as you could be. I mean, have you ever stopped to wonder how much more your net worth might be if you were living a little more frugally and putting even more money into investments?
Do yourself a favor and make fill out some sort of budget template, and see if you aren’t wasting money in some category. You may be totally surprised!
Budgeting Tips And Tricks
Now that we’ve established that yes, budgeting is for everyone, it’s time to get you well on your way to budgeting success with some tips that can not just help you learn how to budget but might just help you improve on an existing budget plan as well.
1) Start with expenses first.
It’s easy to get overwhelmed when learning how to start a budget from scratch.
The very best (and safest) way to start your budget is to get those pesky expenses recorded and out of the way as the very first thing. These may include:
- Mortgage/Rent
- Groceries/Food
- Insurance
- Gas/Transportation
- Car payments
- Loan payments
- Credit card payments
- Gifts
- Savings
- Etc.
A wise man once said, “show me your budget, and I will show you what you prioritize in life.” It’s important to always start with all of your needs in life, then fill in the rest of your wants.
List your absolute necessities as your expenses (so new clothing probably shouldn’t be included here), and you’ll be off to a good start. If some of your expenses have varying monthly amounts, do yourself a favor and overestimate those values in your average monthly budget.
2) Include your spouse/partner/family, if possible.
A lot of households rely on one person to manage the finances and this is a great way to set everyone up for failure.
If no one else knows how much is ok to spend on clothing or entertainment, for example, then how can you possibly expect to stick to a budget? Pure luck?
We have been together for over 11 years and from experience communication is key. We hear too often of married couples not being on the same page when it comes to finances. Budgeting together gives you a sense of understanding, even if you have different views of money.
If you don’t have a family member to help out, find a friend to be your budgeting check-in buddy and help keep you on track.
Involve your children, too, if they’re old enough. You’ll not only be giving them a valuable family budget example, but you’ll also be getting help in sticking to your own budget. If each child, for example, gets a fixed line item amount for themselves each month (either as a regular allowance or purchases-by-request), then you can hold them accountable to their own money limits.
3) Create your zero budget BEFORE the month begins.
Straight from the man himself, Dave Ramsey, a zero budget is THE best way to make sure that every single penny you bring in is accounted for.
Using even a simple budget worksheet to track your income and expenses can be incredibly valuable for getting you started off on the right foot.
We only started budgeting to zero recently, but let me tell you it’s been AMAZING. We used to have this momey mindset with budgeting to see how much we had left. The money we had left would either go to our savings account or our “nest egg” account on Betterment.
Now we budget down to every dollar every month. Doing this gives you a much clearer understanding of your monthly finances. Whether you choose to put the “leftover” into an entertainment fund, vacation savings, or retirement savings, you’re still making sure that when the budget is finalized you have nothing left “on the table.”
4) Be flexible.
Your budget does not need to stay exactly the same month to month, so be flexible.
For example, one month we took a ski vacation at Mont Tremblant in Canada. Obviously, when you go on vacation you have extra expenses. Do your best to plan ahead for this upcoming expenses, setting aside money in the months prior, and in shrinking a couple of categories after the trip if possible, such as cutting back on work lunch costs by meal planning, or not letting yourself have an entertainment budget for a month or two.
Some other expenses to keep in mind that may change from month to month:
- Birthdays
- Christmas/Holidays
- Vacations
- Utilities
- Insurance
- Doctors visits
Be sure to adjust your budget at the beginning of each month to account for any of these variable items. Being prepared, early, is an excellent idea for the larger budget items, for example, by working on setting aside or earning extra money for Christmas in advance.
You might also consider including a “miscellaneous” category for those one-off, odd expenses that crop up here and there. Keep this to about $50 or less if you’re on a tight budget!
5) Pay off debts as your absolute priority.
Whether you choose to use the snowball or the avalanche method to pay off your debts, only one thing matters — get rid of them as fast as possible!
There are two reasons you want debts off your shoulders ASAP: first, to relieve the stress that being in debt causes, and second, because it’s just good money management to give yourself as much extra cash to invest as possible.
If you’re at all interested in being smart with your money as you get older, you’re going to have to come to terms with giving up some fun budget items in favor of getting rid of your debt payoff budget items.
If you’re in need of some inspiration, try reading about this incredibly motivated couple!
6) Make budget cuts if you’re tight on money.
This is the part of budgeting that can get people down and make them think budgeting is no fun – and can even cause them to give up the whole effort entirely.
Unfortunately, whether you’re either paying down debts or simply short on income, sometimes it’s a necessary evil to start making some smart decisions to reduce expenses.
A few places where you could probably scrape out a few extra dollars are:
- Reduce or eliminate your cable package
- Lower your energy usage (such as turning the thermostat down just 1-2 degrees and wearing layered clothing)
- Reduce water usage
- Go out to eat less frequently or entirely
- Learn to say NO (to gift exchanges at work, nights out with friends, special events whenever possible, etc.)
- Attempting to negotiate lower bills with any company you deal with
- Reduce grocery spending (or get cash back when you do shop)
7) Keep your goals and values in mind.
Just because your well-off friend tells you that it’s absurd that you don’t have a manicure or new clothing category in your budget, doesn’t mean that you actually need one.
If you’re prioritizing achieving financial freedom as the driving factor behind your budget setup, don’t let anyone else but you and your spouse tell you what should or shouldn’t be in your budget each month.
So long as you are planning for slightly larger expenses and prepared in case of unexpectedly lower income each month, then you’ll be absolutely right to include whatever you see fit in your budget.
If your goal is simply to get some of your spending in check, then try starting out with just 2-3 categories that you’d like to shrink, and work from there.
While many people may think that “leftover” money should be applied to a “fun” or “entertainment” category for their happy spending, you may find that you prefer to use every bit of that leftover money towards fully funding your retirement accounts, or maybe you’re saving a down payment to buy your first home.
Whatever your personal finance goals are, write them down and stick to them. If you get some naysayers, simply agree to disagree and move on.
8) Keep things simple.
Create a simple system for everything relating to your budget and stick to it.
Make sure all of your bills and receipts are organized and easily accessible. Including a “drop zone” for these things in your kitchen or home office can help prevent anything from getting lost in the daily bustle.
Establish a regular “budget planning” session on at least a monthly basis, but ideally more like bi-weekly or even weekly, if you can fit it in. Are you the type that gets a paycheck and finds that it’s all gone in just a few days? You’ll want to make a point to check in with your budget much more often than those who are lucky enough to find themselves with “too much money at the end of the month.”
Use this time to review how your budget is going vs. the plan, and recalculate/adjust categories if absolutely needed. This is also a good time to jot any notes that may affect the following month’s budget, such as expected income or expense changes.
You can make your budgeting simple enough using good old-fashioned pen and paper, but in today’s world using a digital budget tracker is MUCH easier and faster (not to mention more accurate)!
We have really enjoyed using Mint and Personal Capital for our digital budgeting software, but this is just one of many options. Adding in other digital financial apps will make a big difference in your overall grasp on your financial picture!
9) Don’t get upset if it does not work out how you’d hoped, at first.
Budgeting takes time to learn! Even if you grew up in a home that taught budgeting well, grabbing the reins for yourself can still feel foreign at first.
Have patience, especially if you have a spouse or loved one that you are planning on budgeting with. It’s best to just START. The sooner you start to budget the sooner you start controlling your financial freedom.
Remember: your main, underlying goal in budgeting is to spend less money than you make, so anything you can do to either cut spending or total debt, or increase what gets put into savings is a step in the right direction!
Make a pact to remove those money myths that you might have and learn from your mistakes. The key is to just keep moving forward.
Bonus: Budgeting Tips for Different Life Situations
Budgeting Tips For College Students
Whether you’re just thinking about college or already enrolled, give some of these tips a try:
- Live off-campus. Sure, maybe it’s not as cool to not be front and center when the weekend fun happens. But chances are good that you’ll be able to find a place to rent (and cover groceries!) for less than the cost of your room and board. I’m sure your parents would happily help you find a place
to stay out of troubleto be budget-savvy. - Get a part-time job. College can be a full load without taking on extra work, but if you’re smart (and you are in college, after all) you’ll want to find any way you can to avoid student loan payments building up until you graduate. The extra job will not only boost your ability to buy textbooks without going into debt, but you might be able to pay down some of your tuition costs and lower your loans overall. Your 30-year old self will thank you!
Budgeting Tips For Low-Income Families (Or One-Income Families)
Being in a low-income scenario is even trickier than many people realize, because of the often additional stress of worrying about what might happen if you were to lose your income.
- Spend the first couple of months building up a buffer. For the first 1-3 months of your budgeting efforts (or longer if needed), make it a point to only pay the minimum payments on your debts and put aside the extra money into your short-notice emergency fund. That way if your income or expenses fluctuate, you won’t be in a panic wondering how to make up the extra cash, and you’ll also force yourself into the mindset of minimizing expenses as much as possible, right off the bat, to build up that nice buffer.
- Don’t be afraid to use public assistance if you qualify. Check with your local municipality to see the income requirements for the various government assistance programs. Where we live, for example, your family can qualify for free or very cheap health insurance coverage for the kids in the family, even if you make 6-figures! Many middle-income families here choose this option over employer-sponsored healthcare for their kids, because why pay anything out of your pocket if you can get good coverage for free?
- Prioritize togetherness for fun and don’t let any guilt creep in. There’s nothing wrong with using a free streaming service to watch a movie with the family while enjoying a cheap bag of microwave popcorn. I mean, a $5 or less family movie night sounds great to me, regardless of income level!
- Don’t forget about pets – and think carefully before getting one. Every little kid wants a puppy or a kitten at some point. But do some serious checking in your budget before you go adopt one. Even if you were to find a new furry friend at a local shelter’s free adoption event, you’ll still be looking at possibly hundreds of dollars at a first vet appointment for an exam and shots, not to mention the cost of spay/neuter surgery if it hasn’t been done by the shelter (and you definitely want that done, since having a litter of puppies to raise is MUCH more expensive)! If your budget does allow for a pet, make sure you save a little each month to cover their annual checkups and medications in addition to their monthly food, etc.
Budgeting Tips For The Holidays
The same holidays happen every year like clockwork, but it’s amazing how many people completely neglect to plan ahead for them in terms of their finances.
- Start saving for Christmas on December 26th. No matter the size of your shopping budget, why not split that savings goal up into either 12 even amounts to save for it monthly, or 52 even amounts to break it into even smaller, more manageable amounts? The more you can save in advance, the less likely you are to end up going into debt to purchase all of your Christmas gifts. Don’t forget to save for any food needs too, especially if you’re hosting the event!
- Set dollar amounts for each gift recipient. Most people are not made of money and do need to exercise a little restraint when making their Christmas shopping lists. Challenge yourself to keep each person to a maximum gift amount (including sales tax!), and then find meaningful gifts that fit within that budget. The holidays should be about spreading love and cheer, anyway, not about how expensive or cheap a gift is!
- Don’t be afraid to pass on gifts for a year if needed. Sometimes it’s a tremendous burden to even think about buying gifts for all those people on your list, let alone make it actually possible to do so. If you’re truly struggling to make ends meet and the thought of trying to afford Christmas gifts is giving you heartburn, then simply let your friends and family know that you won’t be taking part in any gift exchanges this year. It takes a bit of courage and humility to do so, but if it’s what you need for your own financial and future security, then please do so.
- If you’re traveling for the holidays, find the best budget-friendly accommodations. If you can’t stay with the relatives that you’re visiting, look into some lower-cost options such as staying at an Airbnb to have comparable if not better lodging for a lower price than a hotel. Sure, meals may not be included, but if it’s the holidays aren’t you going to be eating a ton with your family anyway? Ask for a container of leftovers to take with you!
Why These Budgeting Tips Are So Important
When you start to budget your life will change. It will be difficult for the first few months. Just like any habit it takes time and gets easier over time.
We believe that if you give budgeting a try for a few months you will feel so much better about your finances, and life in general.
As humans we are naturally drawn to being in control of things, start being in control of your finances. Imagine not having to worry about money, living paycheck to paycheck, car repairs, having to say no to everyone, and feeling stuck in life.
Budgeting is the key to having financial freedom.
