Budgeting is something everyone must do, no matter how much money they make. You can make the most money in the world, but you may not make ends meet if you don’t know how to budget.
Budgeting doesn’t have to be overwhelming. Here are five simple steps anyone can use to make budgeting successful.
Know Your Income and Expenses
You can’t budget if you don’t track your income and expenses. You must know how much money you bring in and how much you spend. Your expenses should be less than your income. If they aren’t, budgeting will set you straight.
Consider the 50/30/20 Budget
The 50/30/20 budget is something anyone can follow. Here’s how it works:
- 50% of your income should be enough for your fixed expenses, such as housing, utilities, basic food, transportation, insurance, and childcare
- 30% of your income should cover wants, such as entertainment, non-essential clothes and accessories, and dining out
- 20% of your income should cover savings and debt repayment, such as credit card or personal loans
The budget gives you a framework to handle your money appropriately and ensure you have enough funds for necessities, fun things, and savings.
Cut Back on Expenses
If, after budgeting your income, you realize your expenses exceed the 50/30/20 thresholds, see where you can cut back.
Everyone has different expenses, but some common areas people cut back include:
- Dining out
- Entertainment
- Subscriptions
- Cellphone plans
- Internet plans
- Negotiating lower interest rates on credit cards
- Shopping for cheaper insurance
Automate Savings
To avoid forgetting to save or spend before you save, put your savings on autopilot. Your employer may offer direct deposit, allowing you to direct a percentage of your paycheck to your savings account. If not, most banks offer automatic transfers that you can set up to automatically transfer on your payday.
Don’t Give in to Lifestyle Creep
Earning more money makes it easy to naturally elevate your lifestyle, but you shouldn’t. Instead of increasing your spending, save more money.
For example, if you get a raise from $2,000 to $2,200 a week, increase the amount you put in your regular savings account or contribute to retirement savings by $200 a week. This is a much better investment than buying a new car you don’t need or spending money on material things that don’t provide a return on your investment.
Final Thoughts
Being new to budgeting doesn’t have to be overwhelming. A basic budget means you track your income and expenses, ensure you save monthly, and constantly track your progress to see if you should make any changes.
The key is to find what works for you, such as budgeting online, on paper, or using an app. Find the method you’ll be the most consistent with and make it work for you. If it doesn’t work after a few months, try another method, but the key is to never give up and always budget.
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