Tips to help you manage your money and grow your savings
To some, the idea of budgeting is cringe-worthy. It has an awful reputation of spoiling any sort of enjoyment and restricting your spending down to the vital necessities. After all, why would anyone set limitations on their hard-earned money if you can’t take pleasure in buying what you want and when you want it. Any attempts at budgeting leave you feeling bad and guilty. Am I right? No! Actually, this is exactly the mindset that could lead you down a path of financial irresponsibility. Suddenly, you’re overspending and accumulating debt that could take years for you to pay off.
It doesn’t have to be this way!
The key to successful budgeting is understanding your priorities. Budgeting is simply having a game plan for your hard-earned money so that you aren’t wasting it on frivolous things that deter you from reaching your goals. It allows you to focus your dollars on things you value giving you greater control of your finances. In fact, having a budget can reduce financial stress and improve your overall health. By establishing spending limits you can avoid overspending, stay out of debt or work your way out of debt. Budgeting isn’t about spending less. It’s about spending wisely.
If you want financial peace it is critical that you take a hard look at how you’re spending your money, but before you can even begin to create a budget, you need to know how much money you’re bringing home and what are your expenses.
If you’re a salaried employee with a steady pay finding out your after-tax income should be pretty straightforward. If you’re a freelancer or Gig economy worker using platforms such as Uber, Lyft, Thumbtack or TaskRabbit to perform jobs where your income is irregular, budgeting your money is all that more important.
Steps to Building a Budget
1. Think about what’s motivating you to budget in the first place
What are your financial goals? Do you want to grow your emergency fund, travel more, save for a big purchase? Are you looking to break the paycheck to paycheck cycle, avoid overspending, or pay off debt? Document your financial goals so that you never lose focus.
2. Track your income
Whether it’s earnings from your paycheck, a rental property, alimony, garage sale, or any source of income, you have to know how much money you have to work with so that you can begin to create your spending road map.
3. Record your non-discretionary expenses
Non-discretionary expenses are those which you need to pay by in order to survive or by obligation. You don’t exactly have a choice in not paying your housing costs, grocery bills, car payments, or the minimum balance to your credit cards. The remaining money left over after you deduct your non-discretionary expenses from your income is your savings.
4. Create your S.M.A.R.T. savings goals
Setting specific, measurable, achievable, relevant and time-bound savings goals for the things that are important to you will allow you to plan exactly how much you need and when you need it by.
5. Track your spending
As you are making your purchases, assign each expense to a category so that you track and can create awareness around your spending habits. Decide whether your spend matches your priorities.
6. Create realistic monthly budgets
Once you understand how you are spending your money, give purpose to each and every dollar by creating a realistic budget that works for you and helps you to achieve your goals. Record how your actual spend measures against your projected spend.
7. Hold Yourself Accountable
Be consistent with tracking your spending and continuously monitor how you are are measuring up against your goals. Make adjustments (not excuses) if necessary when something isn’t working.
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Often, we tell ourselves ‘if only I had more money…’, but until you’re able to control the money you actually do have and create awareness around your spending habits your challenges will only continue and once you’re in control, you can learn ways to increase your income.
50/30/20 Rule of Budgeting
The 50/30/20 rule is a budgeting technique that suggests dividing your income into three buckets: needs, wants and savings.
50% of your after-tax pay should be allocated towards your needs.
This includes all housing costs, utilities, groceries, transportation to and from work and school, minimum payments on your credit cards and loans.
30% of your after-tax pay should be allocated towards your wants.
Trips to the movies, sporting events, dining out, subscriptions to streaming services, and electronics.
20% of your after-tax pay should be allocated towards your savings.
Building your emergency fund to include 3–6 month worth of expenses, extra payments towards debt, contributions towards retirement accounts and investing in stock.
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