Budgeting tips – such a FUN topic.
Okay, maybe not so much.
Budgeting can be boring, daunting, overwhelming, or all of the above. For the longest time I felt like I was living paycheck to paycheck and could never quite keep up with my finances. I would get the WORST anxiety going into my checking account to see what my balance was.
When I finally felt like I was catching up, something unexpected would come up. Or I thought my bills for the month were paid so I spent the remainder of the money (in my checking account) only to realize I mis-timed an expense.
I finally got tired of feeling like I could never keep up with everything and really started to get ahold of my finances.
Here are my 6 budgeting tips to effectively manage your spending:
1: List Out All Monthly Expenses
This includes literally EVERYTHING, from recurring bills to all the fun you like to have.
Anything that is automatically deducted from your bank account or is a set bill that must be paid each month.
Rent, Electric, Gas, Water, Cable, Internet, Student Loans, Personal Loans, Gym/Workout Payment, Car Payment, Car Insurance, Phone Bill, Streaming Services (music/tv), etc.
If you’re not sure if you have other recurring monthly expenses, I would recommend using TrueBill. It’s an online platform that syncs all of your accounts and recognizes frequent purchases. I actually noticed a recurring charge for a subscription I thought I had cancelled.
Other Recurring Expenses:
For me, random Amazon or Nordstrom purchases are a given. I also like to spend a certain amount on getting my nails or eyebrows done. Since those are monthly expenses, but things I have control over in terms of the amounts I’m spending, I list them as “other”. I also think of little things I spend money on usually, such as shampoo/conditioner, my favorite Nespresso coffee pods, etc.
I like to pay for these expenses with my checking account. It makes me feel like I’m actually spending money vs. my credit card which can seem like play money sometimes.
Gas for car, food, coffee, random shopping, beauty treatments, house buys, household necessities, etc.
2: Divide Monthly Expenses Into 3 Categories
Not everyone will have the same “necessary” expenses. Rent, for example, could seem like a necessary expense for one person, but another person might be able to give up their own place and move in with a family member until they save up more money. On the other end, a music streaming service could seem like a “nice to have” for one person, but others (aka ME) could never live without Spotify. Figure out what is most necessary for you and essentially a “non-negotiable” expense.
Nice To Haves:
Sure, it may seem necessary to go out to eat 5 times/week, but 2 or 3 of those times could probably be more of a special occassion. Take a look at what are more “nice to have” expenses and categorize those accordingly.
Could Live Without:
Obviously, it’s nice to have Netflix AND Hulu, but chances are you could live without one. Or maybe you spend $160/month on a gym membership, but could work out at home for less than $30/month with a streaming service (+ save more time going to/from the gym). Figure out what you could live without or areas where you might be able to adjust your recurring cost.
3: Calculate Saving Amounts For 3 Categories
When I was finalizing my budget, I created three separate categories for my monthly savings. I also decided it was easier for me to track each of these savings in three separate accounts.
Long Term Savings:
This one is pretty obvious – long term savings are important. I set a goal each year of where I want my savings to be. From there, I calculate the ideal amount I want to save to help me reach that goal at the end of the year.
Short Term Savings:
Are you planning a trip to Europe at the end of the year? Do you want to save up to buy a Louis Vuitton for your big 30th birthday? Calculate those short term expenses and figure out how much you need to save each month in order to have the funds you need, when you need them.
Emergency Fund Savings:
This is for all those expenses that always seem to come up at the most inconvenient times, like new tires, an oil change, an unexpected doctor’s expense, etc.
Pick a certain amount you’d like to have in your savings at all times. Let’s say that’s $2,000. Once you hit $2,000, obviously continue to contribute to your emergency fund savings. However, you can (comfortably) skip a monthly deposit in this fund every once and awhile so long as you don’t need to dip below the $2,000.
4: Calculate Your Monthly Income
This shouldn’t be too hard. If you receive a regular paycheck, you can calculate this by looking at your pay stub. Be sure to calculate your “net pay”, which is your take home after taxes/other deductions such as benefits or 401K.
If you paycheck isn’t a regular/set amount, take a look at your income over the past few months. Record your lowest, highest, and average monthly pay.
- Lowest monthly pay amount = the number you use to budget for necessary bills + your savings.
- Average monthly pay amount = the number you use to budget for necessary bills, savings + the nice to haves.
- Highest monthly pay amount = the number you use to budget for necessary bills, savings, the nice to haves + a split between savings and additional spending.
When you hit those amounts each month, you can spend accordingly.
5: Make Monthly Expenses + Savings Updates
After you calculate your monthly income, chances are you’ll have to go back and make some updates to your monthly expenses + savings amounts. The key here is to be realistic. Let me explain-
If you over-budgeted to begin with and have some spending money left over after allocating your income to necessary expenses/savings, take a look at what you listed as “could live without” or even “nice to haves” and think about if you really want to let those go. You’re not doing yourself any favors if you’re not rewarding yourself in small areas where you can.
The above also goes for savings. My problem for the longest time was thinking I needed to save more than I did. I would set aside a certain amount every month. Obviously, that seemed great, but I had zero self-awareness when it came to realistic expectations of fun spending.
I get it, it sounds weird. Like I should probably have more self-control when it came to my spending. But in reality, I ended up spending more money because I would start charging things to my credit card when I ran out of money in my checking account before my next pay check.
To make this easier, let’s look at an example, k?
Let’s say I made $4,000 / month after taxes and my benefits. And let’s say my necessary expenses came out to $2,000 so I decided to save $1,500 and allocate $500 to groceries/shopping/going out/dinners. I would automatically save that $1,500 and then, after blowing through my $500, would start to use my credit card here and there to make up for additional spending.
Since I was already using my credit card (and let’s be real, I wasn’t tracking my spending there), I just kept charging expenses. In reality, I should’ve been more realistic with my monthly “fun” spending and allocated even a little more rather than continue to rack up my CC bill.
6: Evaluate + Adjust
Your monthly budget isn’t set in stone. I always recommend reviewing things every few months to figure out spending patterns and areas you might want to adjust the budget allocations to stay on track.
+tell me some more of your favorite budgeting tips below.
++more budgeting tips: check out 20 Stay At Home Activities if you need ideas on how to save more money.