Budgeting… we all know we should do it, but the sad truth is that the majority of us don't have any form of a budget to guide our spending habits. There's an old business saying that goes: “What gets measured gets managed.” This implies that the only things we have true control over are things we keep track of. If we don't track and organize a budget, it becomes way too easy to overspend without even knowing it. This in turn makes it impossible to save for the future. The struggle is real, and the only way to break free is to knuckle down. But how do you get started?
Who should make a budget?
Everyone. The most common objection to budgeting is: “I don't make enough to budget. I live paycheck to paycheck, and there isn't enough to save.” First of all, budgeting is not just about saving. It's about spending efficiently. It's about keeping track of where your money is going.
Before you even consider saving any of your money, the first step is to see where it's being spent. After that, you can then think of spending categories you can cut down on, and put into the bank instead. If you're new to budgeting, or just haven't been able to stick to a budget in the past, this post of simplified budgeting tips was specifically built for you.
12 budgeting tips you can stick to
The right tools are essential to help you take control of your money. The Hardbacon Budgeting App helps you plan, budget, and track expenses in on convenient place. Now that you have what you need to succeed, here are the top 12 super simple budgeting tips you can try today:
1. Budget at the beginning of each month
A budget is part plan, part forecast. You must create your budget BEFORE the month begins. That means estimating what your income all your expenses will be for the upcoming month. I prefer to make my budget the day before the next month begins. If you don't have a regular paycheck, estimate your income on the low end. For example, if you freelance and could potentially make anywhere between $4000 and $5000, budget for $4000. It's better to be under budget than over it.
2. Realize it will take some time to get things right.
For your first 3 months, you may make some mistakes. You might realize you forgot about some spending categories and didn't budget any money for it. Nobody is perfect from the start. It will take at least 3 months before you find your groove, and just remember that that's okay.
3. A budget should change month to month
Every month is different. Some months, you'll have certain expenses that you may not have in others. For instance, during Christmas time, you'll need to budget for Christmas gifts. During September, you might have to budget for back to school supplies. During the Summer, you might have to budget for a trip overseas.
4. Start small, but budget to ZERO
The biggest mistake beginners make is trying to make drastic changes with their very first budget. Remember, it's more about tracking than it is about saving if you're new to this. Be realistic, and give yourself leeway to make mistakes. But always, always BUDGET TO ZERO. Budgeting to zero means that if you calculate your income minus expenses, it should equal zero for the month. If you make $2000, make sure you allocate every single dollar into a bucket in your budget.
5. Get the essentials out of the way first
While everybody's spending and saving categories might be a little different, there are a few constants such as:
Tip: Try separating food into two categories: essentials (like groceries) and eating out and random purchases. This should make it easier to track and you'll know exactly how much you can spend on eating out rather than hoping there's enough after that late night dinner with friends on the weekend. Eating out includes everything from going to restaurants, take out, and grabbing random snacks during the month.
6. Set up a miscellaneous category
For most people, this is NOT an optional step. Unless you never, ever do any unplanned spending, you need a catch all category for miscellaneous purchases like a bottle of water at the store, a cup of coffee, a random purchase at the home and goods store, etc. For many people, this category ends up being the most surprising when they review their budgets at the end of each month. People spend a lot more on miscellaneous things than they realize.
7. Cut down on non-essentials and make paying off debt the #1 priority
What's great about budgeting is that it gives you a full aerial view of your spending. It makes it 10x easier to get a clear picture in the specific areas where you can cut down on non-essential spending. If you're in debt, try and cut down aggressively on spending with the goal to paying off your debt. Your debt is basically lowering your net income (through interest rates). So do everything in your power to pay off high-interest debt first.
8. Create a Just In Case Fund
As you get more and more comfortable with budgeting and tracking your money, you can start to save money in other savings categories as well. For instance, you might realize you could save $100/month on miscellaneous purchases (like buying $25 meals for dinner every weekend) and decide to put that money into a “Just In Case Savings Account”. That could then be used for spur of the moment trips, or for big purchases that come up.
9. Ask yourself outlandish questions
Know thyself. The best money management strategy is to get real with yourself and stop making excuses. Try asking yourself questions that you never asked before such as:
What if I cancel my cable subscription and just watch YouTube?
What if I try not eating out for the whole month?
What could I make if I sell all my old stuff I don't need on Craigslist?
What if I get rid of my car and just Uber or take public transit everywhere?
What if I downgraded my phone or a got a cheaper cell phone plan?
These questions challenge you to realize the things you don't actually need but have been paying for for years without questioning them. These are more drastic changes to make, but if you find one you can implement, it can add up to big savings.
10. Keep track of how you're doing
At the end of each month, as you're creating the next month's budget, look back at the last few months and see what's changed. Oftentimes, simply the act of budgeting itself automatically creates good spending habits in you without any effort from your end. For example, it's highly likely you cut down on eating out by a considerable amount. Or, you might see that you spend a lot less for groceries now that you're more aware of tossing random items into your cart out of impulse.
11. Try a cash only system
For me personally, this was one of the most helpful budgeting tips. Being able to swipe a credit card for any and all purchases made it even harder to track my spending in specific categories. For instance, if I had a $300 grocery budget, I would have to go back and calculate all my spending to know how much I have left in my budget. With a cash only system, you know exactly how much you have left because it's all you can see. If you splurged on $280 on luxury snacks, you'll physically see that you only have $20 left for the remainder of the month.
For a cash only system, create separate envelopes and allocate your budgeted amount in cash to each of them at the beginning of the month. Any left over at the end of each month, you can put into savings. Being able to physically see what you've saved is also a nice little pleasure you don't really get from just transferring funds from one bank account to another.
12. Create a “Personal Reward” account
This is recommended only after you get a handle on your budgeting and get comfortable with it. It's also only recommended after paying off high-interest debt first.
Create a separate savings account for something to reward yourself for sticking to your budget. Obviously, it should only be a low percentage of your savings. But if you've managed to save $250, put in something like $5-$10 (range is up to you) into your reward account. At the end of the year, take that money for guilt-free spending on anything you want to buy to reward yourself for your budgeting discipline.
About The Author: Arthur Dubois
Passionate about personal finance and financial technology, Arthur Dubois is a writer and SEO specialist at Hardbacon. Since his arrival in Canada, he’s built his credit score from nothing.
Arthur invests in the stock market but doesn’t pay any fees because he uses National Bank Direct Brokerage online broker and Wealthsimple’s robo-advisor. He pays for his subscriptions online with his KOHO prepaid card, and uses his Tangerine credit card for most of his in-store purchases. When he buys bitcoins, it’s with the BitBuy online platform. Of course it goes without saying that he uses the Hardbacon app so that he can manage all of his finances from one convenient place.
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