For instance, you might list categories like, “Dining Out,” “Clothing,” “Utilities and Bills,” “Entertainment,” and “Groceries”. If your banking app doesn’t offer this feature, you could print out your statements each month and label them, or you could use a third-party app to help track your spending. Quicken, Mint, YNAB, AceMoney, and BudgetPlus are all third-party apps that offer budgeting services.
For instance, you might put $100 a week into an envelope labeled “Groceries” and $20 into one labeled “Gas. " Then, you’d take the “Groceries” envelope with you when you’re buying food and the “Gas” envelope when it’s time to fill up your vehicle. If you pay your bills online, you can still use the envelope method for controlling your spending money. Don’t borrow from one envelope if you overspend from another—otherwise, you may find yourself running short at the end of the month. However, if you regularly find yourself running out of money in a certain category, you may need to add more money to that envelope at the beginning of the next month.
As a bonus, this approach can help save you from getting hit with costly penalties and late fees. You can use a physical calendar if you’d like, or you can use a calendar app on your phone or tablet.
If you pay your bills online automatically, consider depositing your bill money into a separate account every time you get paid. That way, the money will already be there when it’s time for the bill to come out, and you won’t have to worry about accidentally spending too much.
Ideally, you should eventually have about 3-6 months’ worth of expenses saved, but it’s okay if you need to set a smaller goal at first. For instance, you might start by saving $20 out of every paycheck, or you might set a goal of saving $500 by the end of the year. Keep your savings somewhere separate from your spending money. For instance, you might open a savings account with your bank, or if you prefer to keep your cash in savings, you might keep it in an envelope that’s locked in a safe. It’s recommended that you have 3-6 months’ worth of expenses in your emergency savings. You don’t necessarily have to save that all at once, but over time, if you save into it, you’ll be able to cover your expenses if you lose your job or run into another emergency. [5] X Expert Source Trent Larsen, CFP®Certified Financial Planner Expert Interview. 22 July 2020.
After you have emergency savings built, the extra money you put into savings can go toward bigger expenses like trips, new appliances, a vehicle, as well as long-term goals like your children’s education or your retirement. If you don’t really want to spend much time tracking your spending, you could also try the 80-20 method, where you put aside 20% of your income into savings, then spend the other 80% to cover all of your bills and personal expenses. Of course, if you can’t pay all of your bills with 50% of your income, you’ll have to adjust your percentages based on what you can afford.
Remember, you’ll probably have to cut back on other areas that don’t matter as much. For instance, you might have to do without snacks at the gas station to afford the new designer purse you’ve been wanting. If a situation like that comes up, remind yourself of your bigger goals, and learn to say no, even when it’s hard![7] X Research source
Your income might include money from your primary job, a side hustle like babysitting or freelancing, financial assistance from your parents, or money that your spouse earns if you’re married. You can find this information by looking at your pay stubs or by calculating your average monthly income for the previous year. Your expenses include all of your major bills, such as your rent or mortgage, car note, insurance, childcare, debt repayment, phone and internet bills, and utilities. In addition, you have expenses that may change each month, like your average grocery bill, gas, medical care, and clothing. Try using this worksheet to make it easier to total up your expenses: https://www. consumer. gov/content/make-budget-worksheet.
If the number you get is positive, that means you already have money left over in your budget every month! You may not need to make any changes at all, unless you’d like to reprioritize your spending. If you get a negative number, you’re spending more than you earn each month. You’ll probably need to take a serious look at where your money is going to figure out where you can save. If the number you get is 0, that means you’re spending exactly what you make. If you’re happy with the way your money is allocated, you don’t have to make any adjustments to your budget: this is called zero-based budgeting. [10] X Research source
Don’t think of budgeting as a one-time thing, but as something that will become an ongoing process. That way, it will be easy to make adjustments whenever you need to. When you understand where your money is going, it will be easier to understand whether your spending lines up with your priorities. For instance, if you really enjoy going out to restaurants and bars, you may still be able to afford to do that if you cut back in another area. [12] X Expert Source Trent Larsen, CFP®Certified Financial Planner Expert Interview. 22 July 2020.
It’s usually easiest to cut back on discretionary spending, like eating out, buying new clothes, and going to concerts and movies. However, if you’ve already cut back on those areas, you may be able to save more by shopping around for better deals on bills like your insurance or cell phone plan. Being on a budget doesn’t mean you can never treat yourself—it just means that you’re planning out how you’ll spend your money so you can really enjoy what you get without overspending.
