Just the thought of creating a budget is enough to make some people groan or break out in a panicked sweat. But a budget can be crucial to understanding — and directing — where your money goes.
Budgeting doesn’t have to be unbearable. Whether you’re a first-timer or have struggled to budget in the past, these budgeting tips can make it less painful and more likely to stick.
1. Decide why you’re budgeting
Start by articulating what’s inspiring you to create a budget. Are you overspending, in debt or looking for expenses to trim? Maybe you’re saving up for something, like a wedding or new baby.
“Knowing why you are doing something can make it easier to follow through,” says DeDe Jones, a certified financial planner and managing director of Innovative Financial, LLC in Lakewood, Colorado.
When budgeting with a partner, discuss the details together to ensure you’re on the same page.
2. Use empowering language
The term “budget” can be off-putting.
“People resist it because it comes from a place of scarcity,” Jones says. She recommends switching to language you’re more comfortable with, such as “spending plan,” to help keep you motivated.
A budget — or whatever you choose to call it — shouldn’t intimidate or restrict you. It should be an opportunity to take control of your money.
3. Select your budgeting method
Just as there are many reasons to budget, there are many ways to budget. Some people check in and track expenses by hand daily. Others want to do as little work as possible and opt for an app. Read up on different budgeting methods — like the 50/30/20 budget or the cash-based envelope system — and try one that fits your lifestyle.
The key to the game is just sticking with it and recognizing those first months are really tough.
“The key to the game is just sticking with it and recognizing those first months are really tough,” says Liz Gillette, a certified financial planner with Mainstreet Financial Planning Inc. in Odenton, Maryland.
If you give it a fair shot and can’t find a way to make it work, explore other options. “Be realistic and jump ship to something else that you feel is going to make an impact,” Gillette says.
4. Prioritize expenses and goals
Understand the difference between needs and wants, then focus on the essentials first — those include groceries, housing and transportation costs. That doesn’t mean other expenses aren’t important, though. Your financial goals, such as paying off debt or saving for retirement, should still receive attention.
The purpose of a budget, Gillette says, is to understand whether or not your money is going toward things that you’re happy with, you’re proud of and align with your values.
The 50/30/20 budget is a good guideline for covering the major spending categories. It suggests using 50% of your income toward needs, 30% toward wants and 20% toward savings and debt.
5. Leave room for surprises
Don’t expect your budget to be perfect. Surprises will happen, and some expenses may slip through the cracks. But you can take precautions to soften the blow.
Set aside a little bit of cash to cover miscellaneous expenses each month and make regular contributions to an emergency fund. That way you can handle an unexpected car repair or other emergencies without taking on credit card or loan debt.
6. Automate responsibly
Technology can help alleviate the tedious aspects of budgeting and prevent setbacks. So why not let it do some of the work for you? Try setting up automatic transfers so you can regularly pay bills or sock money away without thinking about it, and lean on apps and tools to conveniently track your spending.
Keep an eye on everything you automate. “You may discover monthly subscriptions that you’re paying for that are no longer valuable to you,” Jones says. “If you’ve got three streaming music subscriptions, maybe one would be plenty.”
7. Revisit your budget monthly
Some expenses vary from month to month or pop up infrequently, like holiday gifts or vehicle registration fees. Income can change, too. Perhaps you earned a little more from your dog-walking gig this month than you did last month.
Checking in on your budget at least once a month gives you the chance to deal with fluctuations in a timely manner. Depending on your style and the method you choose, you may decide to check in more frequently — that’s OK, too.