Having a budget is a good way to grasp where your money is going. Although the idea of using one can feel somewhat limiting, it can actually give you more freedom if done properly. As you save up more money from creating a budget, you can work toward and eventually reach your financial goals. Here are some of the best budgeting tips to help you manage your money in 2021.
Figure Out Your Reason for Budgeting
Some people use a budget to increase savings, while others simply want to know where their money is going each month. Sit down and ask yourself why you feel compelled to create a budget and why now?
Maybe you’re saving to buy a house, there’s a little one on the way, or you finally want to become debt-free. When sticking to the monthly budget feels challenging, you can always come back to why you started and use that goal to keep you on track.
Be Realistic
Many budgets fail because people try to cut back too much too fast. If you’ve been averaging $500 each month on eating out, it’s likely not wise to set your first month’s eating out budget at $100. Try instead for $450 the first month and progress from there.
Not hitting your budgeting goals in the first months can lead to dropping the idea of budgeting altogether. By achieving small wins and decreasing budget categories slowly over time, you can build confidence and motivation to keep going.
Track Every Expense
For many people with regular employment, income tends to stay pretty much the same, while expenses can vary wildly from month to month. It’s critical to track every expense down to the dollar to make sure you understand precisely where your money is going. You can track expenses by:
- Using a budgeting app. Some apps can link to your bank accounts or credit cards and let you know how much you’ve spent to date in each of your budgeting categories. If you check the app each day, it can remind you how much you have left and enables you to cut back as needed to stay on track.
- Going old school with pen and paper. Sometimes the most effective way to track progress with a budget is to write down every expense. Spending can feel more real when you track it physically instead of on an app. Keep a pad of paper on the kitchen counter and commit to writing down every expense when you get home each day.
Make Sure to Budget in Fun
Budgets can sometimes feel restrictive. And when certain people are faced with the restraint month after month, it can lead to a big splurge or shopping spree. Be sure that your budget has a category that allows you to do the things you enjoy.
Obviously, the “fun” category shouldn’t be the majority of your budget. But you can figure out what small expenses bring the greatest joy. Maybe treating yourself to a coffee and muffin from the shop around the corner once a week makes you super happy. Budgeting in an extra $10 each week to treat yourself on Friday mornings may be able to give you the satisfying feeling of a splurge without going overboard.
Give Yourself Grace
The majority of people who decide to start a budget won’t be 100% successful or even close to it for the first few months. You’ll need to monitor progress and make changes as you go.
It’s important to practice forgiveness and give yourself grace instead of beating yourself up over a lack of progress. As long as you continue to do a bit better each month, you’re on the right track. And your financial picture is benefitting, whether it feels that way or not.
The Bottom Line
A budget is meant to empower you to manage your money and work for you, not against you. If you feel like the budget you created is suffocating or not serving its purpose, try something else. Then, keep trying new things until you land on the one that works for you. Budgeting is not a one-size-fits-all tool, but these budgeting tips to help you manage your money can steer you in the right direction.
Notice: Information provided in this article is for information purposes only. Consult your financial advisor about your financial circumstances.