As a result, it’s easy to feel like your money controls you instead of you effectively managing your money. If you fall into this category, you may benefit from learning some budgeting basics, including how to use technology, choose a budget system that works for you, and give up bad financial habits.
Find a Budgeting System That Works for You
Kate Mielitz, special programs manager at the Association for Financial Counseling and Planning Education, suggests finding a budgeting system right for you. “Remember that your budget is your budget—it’s not your neighbor’s, it’s not your best friend’s, and it’s not your co-worker’s. You need to do what works for you financially,” Mielitz said. You can try a variety of budgeting systems, including the pay-yourself-first budget, zero-based budgeting, envelope budgeting, or following the 50/30/20 rule of thumb. For example, the 50/30/20 rule is a common budgeting method. The 50/30/20 rule was created by Senator Elizabeth Warren and popularized by her book, “All Your Worth: The Ultimate Lifetime Money Plan.” This rule involves dividing your expenditures into three categories: fixed expenses, discretionary spending, and savings. This strategy can be helpful for anyone new to budgeting. For example, if you earn $5,000 per month, the breakdown would look like this:
50%: $2,500 toward fixed expenses such as housing, groceries, and gas30% $1,500 toward discretionary spending such as eating out or going to the movies20%: $1000 toward savings
Leverage Technology
According to financial planner Brian Walsh, senior manager of financial planning at personal finance company and bank SoFi, leveraging technology can help you adopt better financial habits. The right tools help you save and manage spending habits. For instance, automating your monthly savings is an excellent way to ensure stashing cash happens monthly. Take the time to learn more about personal finance and budget basics through blogs, online articles, podcasts, and media. “Financial literacy is prone to a decay effect, and if you don’t use it, you lose it,” Walsh said in an email interview with The Balance. When it comes to tracking your finances, there are numerous tech tools to help you. While you could take pen to paper using old-fashioned methods, you can perform math a little faster using an Excel or Google Sheets spreadsheet or by downloading a budgeting app. Intuit Mint and You Need a Budget (YNAB) are popular budgeting apps to try. Both apps help you create financial goals, formulate a budget, and track monthly spending.
Track Your Progress
Creating a budget is only the first step toward improving your financial situation—you also need to track your budget throughout the month. Mielitz recommended tracking your budget daily and reflecting on it weekly. A daily budget review ensures that every transaction cleared for the correct amount. At the week’s end, when contemplating your budget, think about what you spent and how you felt when you spent that money, Mielitz said. The occasional unplanned expense is unavoidable, Mielitz said, but added, “Did you cope with stress by dining out or shopping for some form of relief?” Often, your emotions can derail your budget. Mielitz acknowledged the tedium of budget tracking. “Yes, tracking is a pain—no lie, I hate it—but it increases my awareness. At the end of each week, I look back and figure out what went right and what I could have done better.”
Consider Giving Up One Bad Habit
According to Walsh, most people have at least one spending habit holding them back financially. He recommended giving up that habit for a certain period of time and putting unspent money into savings. For instance, let’s say you spend too much money on eating out every month. Commit to cutting that item out of your budget and diverting the dining cash into a separate savings account.
Don’t Try to Do Everything
Walsh cautioned readers away from doing everything at once. “Many times, people get excited about improving their finances and want to do it all at once in a short period,” he said. “Not only is that not possible, but it sets people up for failure.” Walsh recommended picking one achievable goal and committing to it for the next 30, 60, or 90 days. Once you’ve achieved that goal, move on to the next financial goal. For instance, your first goal could be to save up for your $1,000 emergency fund. After meeting that goal, work toward saving up to three to six months’ worth of expenses.
Have control over your daily and monthly expensesEasily handle a financial emergencyMeet your financial goals, such as retirement or home purchaseHave the freedom to make financial decisions that work for you
