Spending less than you make is an important financial goal, but doing so can be harder than it sounds.
Creating and sticking to a budget allows you to track all money coming in and all expenses flowing out. When you get a budget on paper (or digitally) you’re able to clearly see, understand, and tweak your financial situation.
New to budgeting or want a budget refresh? We’re here to help.
First Things First
A budget doesn’t have to be super complicated or track every penny. In fact, you could track every cent that leaves your wallet and still not have an effective budget. A budget’s primary purpose is to help control and prioritize spending, allowing us to focus on the things that are most important.
Automate
Simplify your life by automating your spending and your tracking. Set up bills to auto-pay monthly so that you never miss a payment and never owe a late fee. You can also automatically move money into a savings account, making saving the right amount pain-free and guaranteed.
If you’re sick of collecting receipts and recording all your expenses in a notebook, technology is here to save the day. Download an app like Mint that tracks everything for you on the go. Most bank apps also have tracking features.
Get Started
Now that you’ve begun tracking your spending, it’s time to get to the actual budget. First, analyze where your money has been going and which areas are lacking. Then, pick one of the techniques below and stick to it.
Zero-Based Budgeting
The key equation for ZBB is Income – Spending = Zero. Your spending includes all expenses, savings, and investing. This type of budgeting keeps things simple and allows you to roll over leftover cash into savings or investing at the end of the month.
To start, write your expected income at the top of a piece of paper, or use an app like EveryDollar. Below, write out how much you’ll save and how much you’ll spend on necessary expenses such as rent, groceries, clothing, and transportation. Then, write down your flexible spending numbers such as dining out, entertainment, and travel. Subtract your expenses from your income and tweak the number until you reach 0. Voila!
Cash-Only
If you struggle with credit card debt or find yourself swiping way too easily, a cash-only budget might be perfect for you. Start by paying all your necessary bills and living expenses. Then, decide how much you’re able to spend on other expenses such as dining out, travel, entertainment, groceries, etc. Once you’ve got those numbers down, write them each on their own individual envelopes.
Next, stop in to see us and withdraw your allotted amounts in cash and stuff your envelopes. Whenever you’ve got things to buy and money to spend, reach for the proper envelope. If your dining out envelope is empty by week two, you may need to take a trip to the grocery store instead.
50-30-20
This budgeting technique is based on three spending categories: living essentials, financial goals, and flexible spending. The idea goes like this: spend 50% of your monthly income on living essentials, 20% on financial goals like savings and debt reduction, and 30% on flexible spending.
The percentages for living essentials and flexible spending are the maximum that you should spend. If you don’t quite reach them, that’s awesome! Roll the extra cash into your financial goals category.
Extra Tips
Budgets are a lot like diets, they take time, practice, and tweaking to get them right. Don’t beat yourself up if you don’t immediately hit your desired goals. Keep adjusting until you find the perfect fit.
Sometimes making more money is easier than spending less. Look for ways to bring a few extra bucks in each month to help even out your budget. This could mean finding a part-time job, or listing items for sale on Craigslist.
Lastly, stick with it! Whatever you do, don’t give up. Sit down each month and reevaluate your situation and plan for the upcoming month. Set an alert in your calendar to have a “budgeting date.”
If you’d like any assistance setting up a budgeting plan, contact NSP Credit Union. We’d be happy to help!