Budgeting: Why You Should Budget Your Money and Practical Tips

For some reason, many people are often turned off by the simple term budget. They associate it with restrictions and a lot of hassle and headaches. In fact, budgeting is one of the biggest keys to manage your money. It allows you to make the most of your funds. Your budgeting style can determine how successful you are at budgeting. Here are some things that will help you look at budgeting in a new light.

Why You Should Budget Your Money

Budgeting Stops Overspending

Most people who do not have a budget end up overspending each month. This limits their spending power in the future as more and more of their salaries have to be applied to debt payments. If you are worried about restricting your spending, consider what it would feel like to have the majority of your paycheck be applied to credit card payments. The stress of finding a way to pay for the rising cost of gas and food can be astronomically when most of your paycheck is already planned.

Budgeting Helps You Reach Your Goals

A budget is a plan that helps you prioritize your spending. With a budget, you can move focus your money on the things that are most important to you. This may be getting out of debt, saving up for a home or working on starting your own business. Your budget creates a plan and lets you track it to make sure you are reaching your goals.

Budgeting Helps You Save Money

People who do not have a budget tend to save less money than people who do. This is because when you budget you assign your money to do certain things. This allows you to automatically put money into a savings or investment account each month. A budget can help you stop dipping into your savings each month. As you do this you will begin to build wealth. This will give you true financial freedom in the future.

Budgeting Helps You Stop Worrying

Most people do not like the restrictions that having a budget puts on them. However, you decide how much you spend in each category. So, if you want to put a large portion of your money towards your leisure activities, as long as you are saving and meeting your other needs, you shouldn’t feel bad about that. However, once you set up limits you need to stick to them. If you aren’t doing that you may have a budgeting weakness that you need to address. Budgeting is not about limiting the fun in your life, but opening up opportunities and money in order to have more fun. The key is remembering to include these categories in your budget.

Budgeting Helps You to be Flexible

Budgeting can be flexible. You can move money between categories as you need to throughout the month. Generally, you should restrict yourself from touching the money you have set aside for savings, but you can adjust the amount you spend on each category as you go. This is another way that you can keep yourself from overspending. It also allows you to recognize issues and adjust so that you do not end up eating ramen at the end of every month.

Budgeting Puts You into Control

If you feel like you are not in control of your money and you are constantly wondering where it went and what happened to it, budgeting can put you in control. It allows you to prioritize your spending, track how you are doing and realize when you need to stop. It puts a solid plan into place that is easy to flow and gives you the chance to plan and prepare for the future. It is the biggest tool you have to change your financial future and it gives you the power to make changes starting today. Checking on your budget each day can help you to monitor it and keep you from overspending. Making decisions at the beginning of the month makes it easier to manage your money.

Break Your Bad Spending Habits

To break bad spending habits, consider how they make you feel. Most spending feels fun in the moment. It’s in the minutes — or even months — afterward that buyer’s remorse sets in. Take a moment to jot down the last not-so-great choice you made with your money. Note how you felt when you made the decision, how you felt in the minutes and days after, and how you feel right now.

You might notice a downward trajectory. This is what we want to work to change. Good spending habits might be a tough call at first, but they produce a lifetime of rewards!

Practical Tips

Decide Which Bad Spending Habits You Want to Break First

Take a look at your bank account, talk with your spouse, or just look around your house to get a feel for the spending habits you’d like to break. Feel free to start small and select just one or two to address first. A few ideas:

• Going over on cell phone data;
• Eating out when you have food at home;
• Buying duplicates of items, you forgot you already own;
• Shopping impulsively online;
• Shopping sales because you love the thrill of a good deal.

Let’s say you want to stop scrolling through Amazon Prime before bed. You’ll do best to replace this bad habit with a good one. You might decide to use a digital alarm clock instead of your phone alarm, so you can leave your phone across the room at night. Now you can spend 30 minutes reading a juicy novel or helpful book before you hit the lights.

Continue working through your list of bad spending habits in this way:

· Recognize the spending habit you want to break.

· Brainstorm ways to replace the bad habit with a good one.

Stick to Your Spending Limits

You will need to stop spending when you see that you are out of money. It is the essential step in staying on budget. You may find that your budget is unrealistic or you may need to transfer money between categories. Take the time towards the end of the month to adjust next month’s budget so that will work for you. It is important to remember that saving and debt payments should take precedence over eating out and vacations. You will need to cut back in some areas, but you should still be able to eat every day.

Track Spending for a Week

While not the goal of budgeting, tracking every dime you spend for a short period of time will be eye-opening. It will show you how spending even small amounts of money adds up over time. It will also reveal areas of spending that otherwise go unnoticed. Ideally one should track their spending for a full month, but even tracking for a week can provide valuable information about your spending patterns.

Use the 3-Category Budget

Given the goal of budgeting, most people do not need to track every dime they spend. For example, knowing how much you’ve spent on gasoline may be interesting, but if it doesn’t change your behavior, there’s no point in tracking this expense. Most people overspend in just a few categories. Common examples include eating out, buying clothes, buying gadgets, and entertainment. Using the data accumulated from tacking your spending, pick the three budget categories you’d like to bring under control, and monitor your spending in just these areas. The 3-Category Budget is easy to implement and can have a significant effect on your finances.

Use the Right Tools

Finally, using the right tool can make budgeting more effective and less painful. There is no single best budgeting application. What works best for one person might not work best for somebody else. Yet, there are several really good budgeting tools that are either free or very inexpensive. Many of these tools link directly to your bank account and credit cards to automatically download and categorize transactions. They also come with smartphone and tablet apps, and they provide a clear picture into how money is being spent.