Sincerely, April
Dear April,
Congratulations on starting your personal finance journey—making a budget is the best place to start since it will help you set aside money for emergencies, to invest, and also to buy things that you want. Thanks to technology there are easy ways to plan a budget and track your spending—without needing a pen, paper, and calculator. We’ve looked at all the most popular budgeting apps so you don’t have to, and Mint is our top choice. But don’t be afraid to look at the others in case they have features that better suit your needs. Remember, tracking your income and your expenses isn’t exactly a budget. A budget goes a step further and creates a plan for your money each month. The same apps you use to track your money can also be used to determine how much you should spend, or save, each month (after taking your bills into account). I always think the best way to make a budget is by first creating some financial goals for yourself. Do you want to buy a house or pay off all your debt? Fill your closet with fancy shoes? Save $1,500 a month? Write them down, so you can create a plan to achieve them. Whatever your goal, a budget can make your money work for you so it becomes a reality. So, gather up all your financial documents, and use the app you’ve chosen to chart out how much you earn and what your expenses are. This will give you a baseline from which to start your planning. Be sure to include any debt, like a car loan or a student loan. A great framework to use when creating financial goals is to ensure they are SMART. It’s an acronym that says each of your goals should be Specific, Measurable, Achievable, Relevant, and Timebound. Let’s say you want to buy a car and need to save $3,000 as a down payment. You want to buy the car in six months, which means you’ll need to save $500 a month. Thanks to your budget, you might already know that you have $750 each month for discretionary spending—you can pull the money from there to achieve your goal! Just remember that no matter what goal you set, always allow room in your budget to enjoy time with family or friends, or to buy some items that you want. Being too restrictive with yourself isn’t good either! But what if you don’t have specific goals just yet? That’s OK, too! Having a robust amount of savings and monitoring your personal finances is a great place to start and will help you reach your goals once you set them. If this is you, you can follow the 50/30/20 budgeting rule of thumb to get yourself on track. This plan says you should dedicate 50% of your funds to your needs, like rent, and groceries, while 30% goes to things you want, like clothes, or going out with friends. The last 20% can be set aside for savings (or paying off debt). By following this plan, you can ensure you’ll build a solid savings account. When you’re ready to reach for a goal, you will be well on your way. And in case you don’t want to use an app and prefer to “DIY” it, you can always make a budget yourself using our easy calculator. Once you have a budget, you can track your spending and saving using a spreadsheet. I will caution you against this though; relying on just your memory to log all your expenses, income, and spending could make your budget fall off track quickly. Good luck! -Kristin If you have questions about money, Kristin is here to help. Submit an anonymous question and she may answer it in a future column. Want to read more content like this? Sign up for The Balance’s newsletter for daily insights, analysis, and financial tips, all delivered straight to your inbox every morning!
