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Learning to budget money can feel like a daunting process. Often, you know you need to plan better with money but feel afraid that you won’t have fun anymore.
This budgeting guide will help you get started with managing money smarter while having fun with money, too. Here are some ways to begin budgeting your money:
- Create a new money routine.
- Decide why you are changing your money habits.
- Change your money to work for you.
- Set up new budgeting categories.
- Calculate your income.
- Track your expenditures.
- Cut your spending.
From easy steps to more drastic cuts, reducing your spending will positively impact budgeting practices. Keep reading if you want to change your money behaviors into better habits.
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1. Create a New Money Routine
A Harvard study differentiates between a routine and a habit. They assert that we make habits without thought, and routines are actions we do with intention.
One of the first steps to building a habit is establishing a new routine with your money. Here are some thoughts to help you change your money approach from a routine to a new practice:
- Realize that making better choices with your money will take time, commitment, and self-discipline. While building a new habit won’t happen overnight, you’ll establish a new approach when you are intentional.
- Recognize that you will have setbacks. Old habits can be hard to break, but the key is persistence and not letting a setback stop your progress.
Acknowledge your wins with money. While it is easy to focus on a failure, practice celebrating the times you make an excellent money choice.
2. Decide Why You Are Changing Your Money Habits
There are multiple reasons why you might want to change your money habits. The reason is not the same for everyone, so giving thoughtful consideration to your purpose will help you focus on the goal.
Some reasons to begin budgeting are:
- Saving for a big trip: If your firstborn child is graduating high school or college, you might decide to take the entire family on a big, costly trip.
- Preparing for retirement: If you have not done a proper job of preparing for retirement, you could choose to buckle down and save as much money as possible before your retirement date.
- Spending more than you make: The discomfort of not having enough money to last until the next payday gets very old and stressful. Managing your overspending is a motivator to budget your money.
- Eliminating debt: Whether you have school, auto, or credit card debt, budgeting money wisely will help you remove that financial obligation.
- Regain control of your spending and money: If you don’t know where your money is going, you will feel increasingly frustrated.
3. Change Your Money to Work for You
Once you set up a money plan, you have taken control of your money instead of allowing the money to control you. You can track where you are spending, prioritize saving, and identify where you should make changes.
Budgeting money is the number one tool for preparing for your future. You also might want to consider investing so that your money can do even more for you.
4. Calculate Your Income
Identify all the sources of your income. You might think your only income is what you earn from working, but there are other sources to include.
Total up money from parents, financial aid, scholarships, and passive income sources, and don’t forget interest from your investments.
5. Set Up New Budgeting Categories
Creating budget categories is specific to each person. To start, look at all the places you spend money, including the following categories.
This will help you start with broad divisions that you can expand to personalize your budget.
- Utilities: Electricity, water, trash removal, natural gas. This can also include phone bills, internet, and cable bills.
- Transportation: This includes automobiles, gas, insurance, maintenance, bus fare, subway fare, parking fees, and toll fees.
- Housing: This might include apartment rent, home mortgage payments, property taxes, HOA dues, home improvements, or home maintenance.
- Food: Consider your grocery bills, convenience store purchases, dining out, and meeting friends for drinks.
- Medical bills: While you might not have these bills, you’ll still want to consider out-of-pocket expenses for dental visits, primary care co-pays, urgent care, medical devices, prescription medicine, specialty medical care.
- Insurance: Think about auto insurance, homeowner’s insurance, renters insurance, home warranties, disability insurance, and life insurance.
- Investing, debt-reduction, and saving: This category has a massive implication for your future money goals. Many people term this an emergency fund for unexpected events that require you to spend unplanned money.
- Vacations: Vacations are not cheap and should have their own category. Whether your vacation is less expensive or lavish, you should budget for what you can spend.
- Personal: The personal category should include any recurring bills or money you spend. Examples are gym memberships, clothing, gifts for others, home decor, and furnishings.
- Hobbies and entertainment: Entertainment and hobbies are an essential part of life, but you can spend too much in this category. Tracking your spending can help you see where you might need to cut back.
- Miscellaneous: This category tends to be the overflow of spending. If you watch this category closely, you could find regular spending that needs its own category.
6. Track Your Expenditures
Most people think they don’t spend that much money on items like coffee, snacks, or drinks with friends. The ideal way to get an accurate picture of your spending is to track expenditures.
There are multiple ways to do that, so choose the one you are most likely to continue. Consider utilizing one of the following.
Write Them Down
While writing your expenditures on paper seems archaic, it is an effective way to track spending. When you carry a piece of paper and pen with you, write down what you spent and where you spent the money so you can record it under the proper category when you return home.
Choose an App
Tracking how you spend your money is as simple as downloading an app in this digital age. Some money-tracking apps are free while others cost.
You can choose what works best for you.
The Goodbudget app offers the following features to help you budget your money:
- Easy for beginners to use.
- 20 Virtual envelopes for categories are free.
- Exceeding the budget in an envelope makes it turn red.
- Expenses go directly into the categories you set up.
- Sync and share budgets with someone else.
Mint is another easy-to-use app that categorizes your expenses. Mint offers the following features:
- Custom budget categories.
- Tracking for spending.
- Shows income.
- Links to credit and bank cards.
- Shows regular spending patterns.
- Multiple safety measures like two-step authentication and encryption.
You Need a Budget
You Need a Budget operates on the zero-sum method, which means that every dollar is assigned a job. At the end of the budgeting session, no dollar is unaccounted for or left unassigned.
This budgeting app is for the more experienced budgeter. You Need a Budget offers the following:
- 1st rule: Every dollar has a job and as soon as you get your paycheck, you decide what will happen with every dollar. This eliminates unrestrained impulse spending, and you stay in control of the money.
- 2nd rule: Identify your actual expenses. The step aims to budget for high, unexpected costs like the HVAC system dying. When a considerable expense happens, you are not stressed and panicked because you don’t have the money.
- 3rd rule: Don’t panic about overspending. The goal of rule three is to focus on adjusting your spending when you overspend. The premise is that you take money from another category that has extra to cover the excess. Then, the next month you adjust the category to reflect actual spending.
- 4th rule: Spend money that is over 30 days old. Since you are following rules 1-3, you should spend less than you earn, have a purpose for every dollar you spend, and be ready for future expenses.
Many other budgeting apps work well, so find the one that serves your purposes.
7. Cut Your Spending
It might seem like cutting your spending is too hard, but even small changes can add up to significant savings. The key to cutting spending is consistency.
Don't go back on your choice to cut something out of your spending pattern. Cut that item and don’t look back. Here are some ways to cut costs out of your expenditures.
Whether you realize it, dining out can drive up your spending. There are effective ways to reduce these costs while still enjoying time out with friends and family.
Cook at Home
Before you say that you don’t know how to cook, there are plenty of Youtube videos on cooking just about any food. Start simple and move on to more complex cooking.
You might be surprised how much fun you can have when you plan, shop for, and cook a meal with a friend. Follow these tips, as they can make cooking at home faster and easier.
- Air fryers are the trend right now, and for a good reason. They cook multiple foods quickly and give you tasty options for meals.
- Take a cooking class with a friend. You can tailor your meals to your personal taste.
- Meal planning will also contain your grocery budget. There are meal planning guides online that will give you free meal choices and list the grocery items, too.
Here is a post to guide your first cooking steps.
Check out the many streaming services that offer free viewing options. Cable is often unnecessary, especially when you have Amazon Prime and other choices for watching movies and TV series you love.
Smart TVs and other digital media give you multiple selections.
Shop Your Insurance
Most people get insurance and then forget it until they need it. Insurance rates are constantly changing, so set a reminder to shop your automobile, homeowners, renter, and other insurance at least once per year.
If you want to check the insurance rates every six months, you can find great deals.
It can be easy to sign up for a subscription and then forget about it. As you plan your budget, look at subscriptions and cancel those you don’t need.
Sometimes, subscriptions overlap with others, but you don’t require any of them most of the time.
Check Out Thrift Stores
You can find many items at thrift stores. One suggestion is to check thrift stores weekly to see if they have what you need at a lesser cost.
From vintage clothes to dishware, you’ll be paying a fraction of the cost of new things, and enjoy the thrill of the hunt, too.
Sell Items on Resale Sites
If you have clothing that you no longer wear, list it and make some money on eBay, Mercari, and Poshmark. Likewise, if you used to ride your bike, but now the bike and all the gear sit unused, sell the items on eBay and Facebook Marketplace.
These sites are ideal for selling furniture, electronics, and anything you don’t need or want.
Check the Interest On Your Loans
Most people have a car, home, student, or loan that accrues interest. Shop those loans to see if you can refinance to a lower interest rate.
This will allow you to pay off that loan faster when you make the same payment each month, getting you out of debt more quickly.
Cut Up Credit Cards
It might sound drastic, but credit card debt is a financial noose around the neck. When you calculate how much you pay on those cards for things you no longer care about, cutting up the credit cards can stop that unnecessary spending.
However, you’ll want to keep one credit card for emergencies and leave it at home so you won’t be tempted to make an impulse purchase.
The best time to start budgeting is now. Studies show that you can establish a new habit when you choose to change your behavior.
It might seem intimidating to cut spending from your daily life, but don’t minimize the impact of reducing buying coffee out to once per week.
Even if you choose two or three changes to implement in your spending behaviors, you can save money toward your financial goals.
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