Budgeting is one of those activities that can pay dividends – literally! However, building and sticking to a budget can be daunting, particularly as you try to align categories with your real-life spending. Is Chipotle a want or a need? What about Starbucks (just kidding, it’s absolutely a need).
Whatever tools or methodologies you decide to use, all budgeting concepts start with the same goal: defining how you spend your money. If you’re struggling to find extra money at the end of the month or trying to put aside extra money towards future goals, utilizing a budget can mean the difference between success and failure.
Here are three steps for budgeting success!
1) Track your spending.
The whole point of budgeting is to get a clear view of what you’re spending your money on, which means you need a way to track how where your money goes. Consider using your debt or credit card for purchases to create a paper trail and make it easy to go back and look at you’re spending habits.
2) Group your expenses.
Group all of your expenses in a way that makes sense to you. Some common group types are household necessities, auto maintenance, groceries, dining out (you get the idea). Now, allocate which expenses fall into which group. Most major banks will group expenses for you automatically, but there are also free apps to help you accomplish this. They’re pretty smart, but they’re not always perfect, so be sure to double-check the work.
Once you have everything grouped, find the average spend amount for each group. You need a sense of what your average expenditures are per month so you can judge if you’re spending more or less than expected.
3) Follow a plan.
When cutting back on spending, weigh your options. If you love Starbucks coffee, it’s okay to keep it but you might need to balance that against your habit of eating out for lunch every day.
You won’t stick to a budget if it makes your life unpleasant, and you’ll never get ahead. Try to automate saving for specific goals by setting up a recurring transfer from your checking to your savings account. Don’t go overboard on the automated saving – just set up a manageable amount and let it run for a few months. You’ll be amazed at how quickly it builds up.
The hardest part is getting your budget set up. Once that happens, it’s just updating the expenses, comparing the current month’s spending to the last few months to see how things tallied out. Stick with it, and soon it will become a habit!
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