Who has tried budgeting? Who has said, “it’s too hard? I can’t do it!” You’re not alone. I’ve lost count of how many times I’ve started and stopped my budget, until I found the budget hack that meshed with my personality.
Most of us have tried budgeting not once but many times during our lifetime. Why? We probably didn’t use a budgeting or tracking system that meshed with our personality. One size doesn’t fit all! In fact, there are many ways to track your expenses and more than one way to budget!
The advice to “know thyself” is perhaps never more applicable than when it comes to sticking to your budget. If you are trying to restore your credit or pay down your debt, managing-to-the penny might be critical for you.
People’s budgeting strategies run the gambit from jotting things down on the back of an envelope to creating a detailed spreadsheet on a computer. Others prefer mobile apps and budgeting software to manage their finances. Budgets can cover everyday expenses, or be geared towards meeting a specific goal such as a wedding or a family vacation.
Everyone has their own individual way of tracking expenses and budgeting and that’s why it’s so important to know yourself. Are you a pen and paper gal, a spreadsheet nerd, or do you like using apps? There’s a method for everyone, and sometimes it just takes experimenting to find the right one for you.
The important thing is to start tracking your expenses today! Did you know by using a spending and budgeting app you are 33% more likely to grow your checking balance by 20% or more as a result of sticking to your budget?
One thing to avoid? Getting so focused on creating the perfect system to budget your money you never even get started. You spend so much time obsessing over what should be included in your budget that you find yourself paralyzed by the next big step.
Even the simplest of budgets is better than no budget at all. The important point is to start today. Remember, progress not perfection!
Step One:
So how do you get started? Step one is to track your expenses. Make it simple by spending a couple minutes each day recording where you spend your money (this includes cash, too). Keep all of your receipts to make this easier. It’s important to track your expenses so you know where you are spending your money, on what categories.
To track your expenses, you can use a pen and paper, spreadsheet, or apps. I personally use Mint because I can link my personal checking and credit cards to it so transactions are recorded automatically. I still have to make sure they are categorized correctly and I input my cash transactions. This only takes me about 5 minutes a day. I recommend making it simple for yourself!
You need to know where your money is going before you can set up a realistic budget for yourself.
Step Two:
Develop a budget. “It’s really a chance to be intentional,” Peter Polson, Founder of Tiller says. “Where do I want to put my money to work over this next month, and how do I want to end up?” Visualize and be thoughtful about where you want your money to go and what you want your year to look like financially. “Consider writing down the #1 financial goal you want to achieve this year, or this month. Put it on a sticky note where you’ll see it daily,” Peter continues in his interview with Jean Chatzky on Her Money Podcast.
Once you track your expenses and know where your money is going, you can make adjustments like saving more or paying off debt. When reviewing your expenses, ask yourself, “Did I spend more than I made or less than I made?” We want to spend less so we can make progress toward our goal. Next, set a budget for next month adjusting as needed to get closer to putting money toward your goal. Be gentle with yourself! Progress not perfection! Change will happen. You will do it better each month as you build your confidence and become aware of where your money is going.
To prevent “over whelm,” consider the “micro budget,” where you plan a month or two in advance, structuring your spending and saving on a much smaller scale. When you do this, you can better monitor your cash flow, and pivot your plans with greater ease, as your new job (or your new cobbled-together side gigs) necessitate. In other words, don’t set yourself up for failure, be flexible and give your self grace. You don’t have to have the whole year’s budget figured out in advance.
There are several “budget hacks,” but here are three methods I’ve used with my clients. Remember, know yourself, and one budgeting technique doesn’t work for everyone.
Budget Hack #1: The Backwards Budget
So, essentially, a Backwards Budget has three steps.
- Save for your goals, FIRST, in a dedicated savings account or investment account (or accounts). This includes building up your emergency fund, periodic spending fund, vacation, home down payment, retirement, etc.
- Pay for your needs SECOND: Rent, groceries, internet, cell phone bill, student loans, credit card debt, etc.
- Enjoy anything in the “wants” category with whatever you have left over — Door Dash, Uber eats, new clothing, subscriptions, you get to choose how to spend the “left over” because you took care of the priorities first. Reality check: the average American spends $240/month on subscriptions.
Budget Hack #2: The Zero-Sum Budget
With this budget, you essentially subtract every dollar you spend or save from your starting amount of take-home pay. That means you’re in charge of finding a specific purpose for every single dollar you earn, (whether it’s rent, groceries, a savings account, your retirement savings, or dinner with friends) and at the end of each month, you’ll total everything up and find that every single cent has a home. So if you started with $3,500 at the beginning of the month, you’d be left with $0.00 unaccounted for by the time the 31st rolls around.
The challenge with this hack is you have to be disciplined and intentional with every dollar you spend.
Budget Hack #3: The 50/30/20 Budget
With this method of budgeting, you’re thinking about how the three categories of your budget — needs, savings, and wants — will be covered. But this budget assigns an exact percentage of your earnings to each category: Needs (50%), Wants (30%), Savings (20%). The goal here is that you’re thinking about each category of your budget, and as long as you stay in line with your bigger goals, then you’re doing great!
Tip: when you reduce your spending in a category, immediately move any “savings” from checking into savings so it’s not available for spending.
Keep in mind, budgeting is easy to stick to as long as you match the right budgeting hack to your personality. That’s the thing about budgeting — it’s flex-i-ble. It doesn’t have to mean creating a three-page spreadsheet and itemizing every single expense down to the penny. But it does mean having a realistic picture of how much money is coming in and going out on a monthly basis, and knowing where it’s going.
Whichever budget you choose, sticking to it is enormously satisfying. Being in control of your money gives you feelings of confidence, power, and independence. Sound good?
I’m here for you when you want more hands-on help. Schedule your free 20 minute call with me here.