Almost everyone can agree that having a budget is a good way to save money and not live beyond your means. However, only 32% of American households put together a monthly budget. Maybe you’ve tried to start budgeting before and found it too difficult or time-consuming. Or, maybe you’re not sure where to start or what might work for your family.
Thankfully, putting together a budget that works doesn’t have to be complicated.
By being realistic with your finances and knowing exactly where your money is going each month, you can create a healthy budget that fits your family’s needs while saving comfortably for the future. If you’re not sure how to get started, we have a few tips that can make the process easier.
One of the reasons so many people avoid budgeting is that they don’t “want” to know what they’re spending each month. In a way, Ignorance is bliss, after all. Unfortunately, that can end up being financially irresponsible, especially if you don’t have a cushion in savings.
If you’re willing to be realistic with your finances and your budget, you might be pleasantly surprised by how well you can balance your income with your current monthly spending.
Start by setting attainable goals for yourself and your family based on your current financial situation. It might help to put steps in place that help you manage your current income while looking toward the future. While you don’t need to follow these steps exactly, they can help to give you a roadmap when it comes to your goals:
- Prioritize your finances;
- Establish investing and saving habits;
- Have an emergency fund;
- Pay off debts quickly;
- Avoid mindless spending.
You should also consider opening a savings account for your family. Some accounts allow you to automatically deposit money into savings with each paycheck. This can make it easy for you if you tend to spend a large portion of your income right away. When that money is immediately put away, you won’t be as tempted to use it, and you’ll build up a bigger cushion over time. Small actions like that can make it easier to form realistic goals for your budget without feeling like you’re changing too much at once.
Understand Needs vs. Wants
One of the easiest ways to start organizing your budget is to separate your needs and wants. We touched on prioritizing your finances, and that starts with making sure your needs are covered each month. Needs include things like:
- Food costs;
- Childcare costs;
- Housing costs;
- Transportation expenses;
- Debt expenses.
While the cost of your needs might fluctuate slightly, they should remain fairly consistent each month. These should be your top priorities, so make sure you’re budgeting enough toward them each month before looking at your wants. Things like dining out, entertainment, and clothing should all come second. That doesn’t mean you should always go without those things. However, if you’re having trouble covering your needs each month, it might be time to get rid of some of the “wants” you can live without.
Consider dining out less frequently. If you’re part of any subscription services you don’t use, cancel your membership. As you start to track your spending and pay closer attention to where your money is going, you’ll have an easier time seeing where you might be “wasting” it, and where it could be of better use.
For example, you may find that you spend more money on groceries each month because you inevitably let certain produce go to waste or that your utility bill may be high from leaving your lights on even when you leave the room. It can take a few months to put together an accurate portrayal of how much you’re spending and where it’s all going. But, once you do, you might be shocked to see how much more you could be saving by giving up a few wants now and then.
Set Savings Goals
Many people who start budgeting do so because they have a large savings goal in mind. Maybe you want to get a new car or start saving for your child’s college fund. Having that kind of motivation is a great way to stick with your budget, but it’s still important to have some strategies in place that will make saving money easy – especially if you’re not bringing in a lot of disposable income each month.
If you’re feeling overwhelmed by your savings goals, try breaking them down into smaller steps. For example, if you want to purchase a new car, you might have a goal of saving $5,000 in a year. That might seem like a large undertaking, but break it down by week, and then by day.
Imagine if you skipped going out to lunch each day. That could save you about $10 per day, which would grow to nearly $4,000 by the end of the year. That’s just one small way to save. Some of the easiest ways to save include:
- Calculating a savings goal;
- Establishing a minimum goal of savings each month to meet this goal;
- Putting away excess money into a savings account instead of rolling it over into the next month;
- Rolling spendings previously used for “wants” into your savings account.
You can end up having a lot of fun “gamifying” your savings goals. By breaking them down and seeing how much you can save each day, you’re less likely to feel overwhelmed by a large purchase in the future.
A budget is easy to put together and a clear way to track your finances. Hopefully, these tips have helped you see how important a budget is, and how it can help your family stay comfortable now while planning for your financial future.