How to Create a Budget and Start Saving Money to Invest

This is the second post of the Not Another Boring Article About Investment series, on how to create a budget. We designed this series to cover the basics of finance and introduce you in baby steps to the world of investing. If you missed the first post on how to calculate your net worth, have a look at it here. 

John D. Rockefeller, probably the wealthiest American of all time, started tracking his money from early childhood, counting everything he spent and writing it down in a small notebook. His fastidious approach is a testament to the importance of knowing how much you spend and creating a budget. 

Just hearing the word budget might be enough to make you yawn, but it’s essential to know exactly how much money you have and what you are spending it on. That daily coffee habit might be costing you a small fortune, costs of magazine subscriptions that you hardly read could be quietly mounting up. Do you know how much you really spend on eating out?

With current technology, thankfully you no longer need a notebook and pen to track your spending. If you are unsure where to start there are a wealth of apps designed to do the job for you. Here is an overview of three popular ones which can not only track your spending, but can also help you create and manage a budget as well as suggest changes you could make to save more money.

Mint

Mint has been around for some time and is one of the best-known budgeting apps out there. Their aim to is to seamlessly create a budget for you by simply connecting the app to your bank account. The app will then send you tips unique to your spending pattern, identifying areas where you could be saving money. As an added bonus they also provide your credit score. 

Goodbudget

The envelope system involves breaking up your income into different categories of household spending and keeping them in separate folders. While this used to involve actual envelopes the  Goodbudget apps creates virtual envelopes for you. The free version allowing you up to 20 envelopes to plan and track your spending. It also syncs across multiple phones so you can combine your budget with your partner’s.

You Need a Budget

YNAB was born out of the founder’s frustration at living from paycheck to paycheck. They want to educate you about your spending and how to save more. Their mantra is ‘Give every dollar a job’ meaning that as soon as you earn some money you prioritize what you are going to do with it. They offer a free trial extensive amount of content and courses to educate you on how best to manage your income. 

Strategies for Saving Money

Now you have a system in place to track your money, its time to consider how to save more of it. Who hasn’t reached the end of the month only to see there is barely enough left to live on let alone save. If you are really dedicated to saving money, using the ‘pay yourself first’ strategy puts saving at the forefront of your monthly forecast.

Pay yourself first involves taking a portion of your paycheck as soon as you receive it and putting it into a savings account. This is sure fire way to start saving, a good rule of thumb for this amount is around 10% or your salary. Alternatively, you can look at your expenses in detail and see which you can afford to cut down on. There are two types of expenses to consider, fixed and variable.

Fixed are the ones you can’t easily change, your rent, phone bill or car payments. Variable expenses like groceries, entertainment, shopping and eating out can be worked with. Take your time deciding what you can and can’t live without and set realistic goals. 

If you are really trying to save money, going through your expenses with a fine tooth comb can make a big difference in the short and long term. It’s easy to think you don’t have the means to even consider investing. But even something as simple as giving up your morning latte could be enough to get started. In our next post, we are going to start to demystify the world of investing and the stock market. 

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