Financial dreams come true, but without a set of lucky lottery numbers, you’ll need a budget. When fiscal times are beyond tight, setting aside funds might seem like a dream all by itself. Yet, even small amounts can compound into a secure future over time.
Likos is an investing reporter at U.S. News. O’Neill is the owner and chief executive officer at Money Talk blog. Together, they joined financial experts at consumer credit reporting company Experian to offer hope for those planning for a sane fiscal future.
“Budgeting is an important personal finance practice that helps you reach long-term financial goals,” Likos said. “It can be aligned with your investment strategy to help grow your net worth and overall wealth.”
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According to Experian, a budget is a foundational piece of a financial plan. For those serious about reaching their financial goals, a budget can help them succeed.
Experian’s blog looks at the benefits of making and following a budget.
“If you build savings for financial goals into your budget as a ‘fixed expense,’ it helps you to achieve them,” O’Neill said. “Also, if you follow it, a budget provides a sense of control and organization, which can reduce stress and anxiety about finances.”
Pandemic Bucket List
Thanks to her own budgeting, she has a host of attainable financial goals:
- First-class travel to Alaska after the pandemic. It’s the only U.S. state that I haven’t visited at least once.
- After things settle down, travel across the United States to do book signings and presentations to promote my new book, “Flipping a Switch.”
- Continued expansion of my solo financial education business, Money Talk, including learning new tech skills.
- Continued tax-advantaged philanthropy through the donor-advised fund I set up this year.
“My financial goals in the short-term are to budget, save and invest those savings,” Likos said. “My long-term goals are to grow my retirement accounts. Both my short- and long-term goals line up with one another.
“You can create a personalized budget with email notifications for your credit card once you reach a certain spending threshold,” she said. “That way you can keep tabs on your purchases. If you want to be more disciplined, you can set up credit card purchase limits.”
Whether you’ve tried budgeting before or you’re completely new to the concept, Experian’s blog has tips to get started on how to make a budget.
O’Neill has three steps for budgeting:
- Track income and expenses.
- Add data to a worksheet, spreadsheet or app.
- Stick to the budget.
“Actually, there is also a Step 4,” she said. “Review and revise the budget. Tweak the income and expense numbers as needed.”
O’Neill recommends “a useful personalized budgeting tool,” a spending plan worksheet for budgets.
Simple Yet Effective
Among assorted budget systems, Likos prefers a simple, flexible formula.
“A popular budgeting method is the 50–20–30 rule,” she said. “That’s 50 percent necessities, 20 percent personal goals and 30 percent wants and desires.
“Depending on your situation, you can adjust these percentages accordingly,” Likos said. “If you want to save more toward your goals, you can adjust to have a 50–25–25 rule.”
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“I use the ‘running balance method,’” O’Neill said. “Twice a year, I project income and expenses on paper for six months ahead.
“Budgeting methods include apps, Excel spreadsheets, envelopes, ‘paper and pencil’ worksheets and more,” she said. “Find one that works for you.”
Whatever the method, just keeping a budget alive is a challenge.
“If you keep your priorities top of mind, that will be the best motivation to stick to your budget,” Likos said. “Always keep your eyes on the prize, and remember why you started.”
Expect the Unexpected
“Add a ‘fudge factor’ such as ‘miscellaneous’ for expenses that pop up,” O’Neill said. “They always do, so budget for them.
“Build in money for fun expenses so it does not feel like you’re depriving yourself,” she said. “Build up an adequate emergency fund by budgeting money for unexpected expenses so they won’t ‘blow the budget.’”
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Budgeting apps can help, although not a necessity.
“Apps can be a great tool,” Likos said. “However, I am very in tune with my finances and prefer to manage them on my own. It has become a ritual for me to track my spending and project what my expenses will be each month. I also monitor my investments to plan my next steps.”
Those who have a free Experian account — or sign up for one — can track expenses through the Personal Finances tool as explained on the Experian blog.
“I like the running balance method that I do on paper,” O’Neill said. “You can work in ‘extra’ paycheck months and occasional expenses.”
The happy ending comes after you create the budget that best matches your needs and see it through as a daily part of life.
About the Author
This article is intended for informational purposes only, and should not be considered financial advice. You should consult a financial professional before making any major financial decisions.