Budgeting and sticking to a budget is one of the hardest things for most people. But just understanding what goes into budgeting, how to start, and even beginning with your own finances!
HOW TO MAKE AN ACTUAL BUDGET:
You can do this in excel, on paper, whatever works best for you. You can change the categories a little bit to fit you. If you have credit card debt or student loan debt, those can be necessities for you but it might not for other people.
- Calculate your income- it doesn’t matter if it’s only $50 a month, but write that number down.
- List your expenses- Round these up to the nearest 10th ($36>$40). There are 3 types of expenses people have, list these separately from each other:
- Fixed Expenses- Necessary items in which the amount paid for this item remains the same every month (rent, cell phone bill, car insurance, etc.)
- Variable expenses- Necessary items where the amount changes from month to month (groceries, credit card bills, utility bills, etc.)
- Discretionary spending- Non-necessities [can split between fixed and variable] (subscriptions, going out
- Subtract your expenses from your income to see how much you have leftover.
- Make sure to factor in savings. I know this can be a very hard step, especially for people who don’t have a lot, but if something unexpected comes up, like a pet emergency or your phone breaks, or even if you have something you’re saving for like a new phone, then you need to have savings to rely on. You can even divide your savings into those two parts (a savings account and an emergency fund) and make separate accounts for each of them so that the amount for each doesn’t get confused. It can start off small like $5 a month, and most of the time you can automate your bank to do it on a schedule. I automate $20 to come out of my checking and be put in my savings every week! That’s how I saved hundreds of dollars a year without even realizing it.
- With all of this done, and all your expenses listed out, you can see where you can cut costs. Having bills on hand that have itemized charges helps do this because you can see exactly where your money is going and how much.
- You can also do all those steps with your bank or credit card statements and different colored highlighters. Assign a color to one of the spending categories above and you can more easily see each expense.
WHAT KINDS OF BUDGETING METHODS ARE OUT THERE?
Now that you have identified all the numbers, finding a budgeting method to stick to is the next step. Like I mentioned earlier, there is an automated option to have a set amount put into savings, and you can use this option in coordination with either of the options I list below.
- The Zero-Based Budget
- This does not mean you have no money in your bank account or that you spend everything. This means that at the end of the month, all of your money has either been spent on expenses or put in a designated bank account, like savings. This means that you have no money left over for any random, unplanned purchases. These both take will power, but with this method of course there will not be $0 in your bank account so there WILL be money sitting there able to be spent.
- The 50/30/20 Method
- The premise is that you allocate 50% of your income to your needs, 30% to your wants, and 20% to savings and debt repayment. This method gives you a bit more of a parameter on how to structure your spending, which can be helpful. You give yourself room for fun, but with a limit to keep you in check.
HOW TO STICK TO A BUDGET
- Put money in your savings FIRST. If you do it after the fact, you won’t ever do it.
- Check your expenses each week to make sure you’re sticking to your allotted budget for the week. If you are going off of one card or cash, at the middle and end of the week total up how much you spent in each category. For example, when I was a freshman in college I had a $50 per week budget for any fun things I wanted. During the middle and end of the week I would calculate, using my bank app’s calendar function which lists my purchases per day, how much I was spending during the week and see how close I got to $50. It kept me mindful of how much I could really keep spending for the rest of the week.
- You may not have to cut out things entirely, just make smarter money decisions with your choices. (i.e. you may not have to cut out morning coffee entirely, but go to Dunkin instead of Starbucks.) You’ll cut down on how much you spend, but you don’t have to completely cut out the things you enjoy.
- Adjust as needed- REASONABLY. If you find that you just can never seem to meet your budget no matter how hard you try, adjust your budget so that it is less of a jump from your starting number. But make sure you’re decreasing your budget enough so that you slightly feel the strain of having to make choices to better you financially.