Budgeting – it’s one activity that everybody seems to dread.
Is budgeting really that bad or does it have a bad reputation? Truth be told, all a budget really is is a plan to manage your finances. That’s not too scary, right? Unfortunately some people see it as a form of torture preventing them from living the good life.
But that’s wrong. Dead wrong. When thought about from the proper perspective, you’ll see that a budget is the roadmap to financial freedom, not the other way around. It’s about making intentional choices to manage your money.
How Can I Benefit from Budgeting?
By starting a budget, you’ll know how much money you need, how much you have, where it needs to go, and where it ends up, which is not always the same place as where it needs to go. If you have financial goals like paying down your debt, or paying into a retirement fund, or just being able to afford the monthly bills, your budget will help you achieve these goals.
In a nutshell, creating a budget is the plan you’ll use to spend your money with intention. When done right, it can lead you down the path to financial freedom. And even more important, when you have this roadmap in place you’ll never feel guilty about spending money as long as you stick to the plan.
Top 15 Life Improving Budgeting Tips
Are you ready to get your financial life in order? Use our effective budgeting tips below.
- Zero-Based Budget
We recommend taking your budget down to zero prior to the new month beginning. So before the next month actually starts, you’ll have a financial plan in place for the next month and you’ll have allotted each dollar to go to a specific expense or category. This is known as zero-based budgeting. Basically, you can have money in your bank account and it’s highly recommended. The meaning of this type of budgeting is that when you take your income and subtract your expenses from it it should equal zero.
- Create a Budget with Your Better Half
Married people need to put themselves on the same page about their finances. Unless you intend to remain married but maintain completely separate financial lives which most people obviously do not do. So, you need to combine your bank accounts and no longer think about “your” money and start thinking about “our” money instead.
Single people can budget with another person as well. Find yourself an accountability partner that’s also single and help each other set your budgets and goals together and make sure you stick to them.
- Budgets Can Differ Month after Month
Remember, your budget should be fluid and have the ability to adapt to the current situation. As an example, if you have children in school then you’ll need additional money in your budget at the end of August to buy new clothes for your kids, back to school supplies, and other additional expenses. The same holds true for the months when you to pay property taxes. And other additional expenses will pop up like Christmas, birthdays, and plenty of other things that will require additional money.
So, the moral of the story is to know that your budget is going to change. Set up a separate bank account to put additional cash to pay for these varying expenses. You can add a little bit of money each month or fund the account however you like. Just have it available so you can pay for things when it’s needed.
- Set Your Budget by Categories
Remember to pay yourself first and also set aside money for charitable giving because these should be at the top of your list. You’ll also need to set aside for shelter, transportation, clothing, food, and utilities. Make sure you cover all of your true necessities and maybe even leave a little money aside for entertainment during the month.
- Eliminate Your Outstanding Debt
Eliminating debt is the best way to get your financial house in order. You can either pay your debt down using the snowball method or attempt the baby steps method. They both work and they both eliminate debt quickly. Or if you have another plan in mind use that but remember to get rid of your debt, especially credit card debt, student loans, and if you have the ability you should even pay off your mortgage.
- Remember to Make Budget Cuts
Nobody likes to hear it but it’s always a good idea to cut your budget from time to time. You may be paying monthly bills and expenses for things that you no longer want or use. Are you still paying for Netflix even though you never watch it? Maybe it’s time to cancel your account. Are you paying the cable company a few hundred dollars a month for movie channels that never have anything on? Get rid of them and while you’re at it cut back on any other expenses that no longer serve you.
- Create and Stick to a Schedule
The best way to make sure you pay your bills on time is to create a schedule and stick to it. For starters, you can set up your bills so that they are automatically paid out of your checking account each month. That will make it very easy to pay just about all of your recurring monthly bills. You should also go grocery shopping on the same days each week and pay other bills at the same time during the month. This will eliminate stress and ensure all of your monthly payments are made at regular intervals.
- It’s All about Teamwork
Anyone in a committed relationship should talk to their significant other about money. It’s an important part of your relationship together and it should be handled by both of you.And remember to have fun during this process.
You can create a date night where you talk about the monthly budget. Obviously it’s going to be a date at home but you can play your favorite songs in the background, make an elaborate meal or chow down on some of your favorite snacks, and get down to the business of setting up your monthly budget together.
- Add a Buffer to Your Budget
Unexpected expenses are going to happen from time to time and you need to be prepared. So every month you should set aside a smaller amount of money to pay for these unexpected expenses. You can create a miscellaneous category in your budget and leave a certain amount of money there to pay for things that you wouldn’t normally have to pay for.
- Get Rid of Your Credit Cards
Some people may consider this a sacrilege but it’s really a good idea. If you are truly committed to getting and staying out of debt, you’ll work on paying off your credit cards as we mentioned earlier and then you have no need for them. So cut them to shreds and cancel them as soon as humanly possible. It’ll also make a positive impact on your credit score.
If you no longer have credit cards then you aren’t going to be tempted to max them out or spend money on them. You’ll feel a lot better knowing that they are gone and your stress and worry about this aspect of your life will severely diminish.
Instead of using credit cards, just use your debit card or even better you can use cash just like we used to do in the old days. With your debit card, the money comes directly from your account and you will not have to pay exorbitant amounts of interest to make purchases.
- Consider the Envelope System for Budgeting
You may have a tendency to overspend in certain categories no matter how hard you try not to. Groceries are a good example. Let’s say you’ve set aside $300 a month to pay for groceries for you and your spouse. Yet you consistently spend $500 a month because you buy expensive and extravagant food items and you’d like to stop.
Instead of constantly paying for your groceries with a debit card, you can withdraw $300 you I might be a few more minutes after that from worth of cash at the beginning of the month and put it in an envelope marked groceries. Whenever you go to the grocery store during the month you can only make purchases with this $300. Leave your debit card at home. If you follow this method, you’ll have a much better chance at sticking to your grocery budget in the future.
- Use a Budgeting Tool on the Internet
If you aren’t interested in manually setting up a budget, you could always use an online tool to make it easier. These tools can make it possible for you to track your spending right on your smart phone. And you can sync it with your spouse’s phone so both of you are in the loop.
- Quit Comparing Yourself to Others
More than likely you have more money than you realize. But you keep comparing yourself to the Joneses and by trying to keep up with them you’re spending more money than you should. Forget about everyone else and focus on doing the right thing for you and your loved ones.
- Set Goals
No matter what you are trying to achieve financially, you’ll have a better chance of making it happen if you set goals. Remember why you are doing it and you’ll have no trouble making the sacrifices to accomplish the task.
- Allow a Grace Period to Get Acclimated to Your New Life
Creating a budget is great but it doesn’t mean you’re automatically going to stick to it.Give yourself of grace period of 3 to 4 months to get your process down pat. No one is perfect when they first start anything and budgeting is no different. Give yourself enough time to get accustomed to the new way you handle your finances and eventually it will feel like a completely normal part of your life.
About Tim Schmidt
Tim Schmidt is an Entrepreneur who has covered retirement investing since 2012. He started this website to share his expertise in using his Self-Directed IRA. Most recently he's been advising individuals to diversify into precious metals ahead of a certain recession. He invested with Goldco.