How to Budget Your Money

Sharing is caring!

Today, I’ll be sharing my personal budgeting tips and other tips that are useful to help anyone start their budgeting journey!

I’m so excited for you to check out my page! I love sharing my knowledge with others. Especially now, while times are harder for those just entering the workforce or who have been in it for a few years now. In this article, I’ll explain why budgeting is important, how to create a budget, useful techniques, how to manage your debt, saving, useful apps and tools, and how to stay motivated.

I hope you find this article helpful and inspiring!

The Importance of Budgeting

Before you create a budget, you need to have a “plan of action”. Imagine you have a big trip coming up, and you want to create a budget to save for this trip but don’t have a plan as to how to get there. How will you ensure you hit your budget in time? There is more to budgeting than just saying, “yep, I’ll just pay this much, to this bill, each month and hope it gets paid off in time”. That’s not the best mindset if you’re really wanting to make a difference and not have to worry about money all the time. Who doesn’t want to be free from bills and not have to worry about how much you have to put aside to go on this trip?

It’s important to understand and know where all your money is going. Recording all your data will help you physically see what you’re paying for monthly/ weekly/ bi-weekly, etc. I will go into more details on how you can effectively record that data to begin your budgeting journey. Once you can see, you’ll be on you way!

Creating A Budget

Knowing how to create your budget will allow everything to fall in place. First, you need to identify your income. If you don’t know what’s coming in, how can you determine how much you need to budget to reach your financial goal? Depending on what you are using to budget, whether that is by using a spreadsheet, financial advisor or an app, you’ll want to record that amount so you know how much of it can be used.

Next, you need to track your expenses so you know what every dime is being used for. At this point you can determine if everything you’re spending your money on is legit. After all expenses have been tracked, it’s time to categorize them effectively so you understand how to control your cash coming in and cash going out.

Budgeting Techniques

Financial Advising

A Financial Advisor is great, because they can assist with various techniques to help you budget properly, but there are ways you can do it on your own as well. You should first determine which method best fits your lifestyle before just choosing one.

The Envelope System

The envelope system essentially assigns a specific amount of money that can be spent per category. This would be the “extra” money left over after all fixed expenses are paid, such as rent or a car note. A zero-based budget is another method that can be used in a case where you receive a set amount each month. You would assess your monthly spending to match the income, that way you won’t be in the “red” or overdrawn in your account. People also use a pay yourself first budget. The focus is to save money or prioritize any debt by saving a set amount each month and make do with the amount left over. Although focusing on paying off debt or saving money is very important, this is not my favorite technique. I prefer to know all of my bills are paid off first and then know how much I can put in my savings, pay towards my credit cards or just having that money to spend.

50/30/20 Rule

The 50/30/20 rule is great for someone just learning how to budget on their own. All expenses would be broken down into three categories, 50%, 30%, and 20%. This method will help to determine what bills are necessary versus what is just a want, by dividing them into each percentage and customized to meet specific needs.

No Budget Method

The last method I want to include is the no budget method. Essentially, you’re keeping a close eye on your account; you know what bills will come out and what you have in your account. Although this method seems straightforward and easy to follow, you have to be disciplined and know when to say “yes” and when to say “no”.

Managing Debt

Who wouldn’t want to live debt free, enjoy life and not have to deal with the repercussions of what
debt can do? It almost seems like once you make a payment to your credit card, the amount just continues to increase! The reality is, this is how credit card and loan companies make their money.

To save yourself some interest, it is best to pay more than the minimum amount due. For example, if your minimum amount is $25, try putting $50 towards your bill or even $100. This will help to reduce the amount of interest charged each month. Paying your bills in a timely manner is also important, as this can directly affect you credit score. If your score drops, it can make it more difficult to apply for a credit card, loan, renting an apartment or even trying to buy a home. Knowing your debt to income ratio (DTI) is important if you are trying to apply for a loan or open up a new credit card. The Lender looks at this before approving or denying you a loan. This is purely so they know that you, as the borrower, will pay the money back.

It is also important to think about the number of accounts you have open. If there are too many, this could negatively impact your credit score and make it more difficult to apply for anything new. Many people believe that closing an account is good and can help their credit score, when in fact, it can actually negatively impact your score by closing your account. If you have a good payment history with that specific account, it’s better to leave it open with a zero balance instead of closing the account. Personally, I hide all of those credit cards away, so I don’t have a desire to use them. Out of sight, out of mind! In addition, having an emergency fund is important, especially if you’re in debt.

Saving and Investing

Saving and investing will allow you to have extra funds for a rainy day and secure you financially, by investing early on.

“Did you know that 4 in 10 adults, faced with an unexpected expense of $400 would either not be able to handle it or would need to borrow the money or sell something to cover the expense?” – UNIVERSITY OF MINNESOTA EXTENSION

No one wants to feel like they can’t support themselves because budgeting might be difficult or the economy is getting worse. Now is the time to make a plan for any financial situations that could occur. I remember a few years ago, I got 3 nails in my tires within a 2 month period. We all know tires are not cheap, but fortunately for me, I save monthly and budget my bills, while still allowing myself to have extra cash in my account; so when situations like this occur, I’m not in the red or having to sell something to pay the bill. Once you have a plan as to how much you can set aside monthly to put into your savings account, then consider investing money for your future. Although, it is never to late to save or invest, doing this early on, can result in a higher investment amount.

I currently use Acorns, although it is not directly a budgeting app, but it helps with investing and saving. The overall purpose of the app is to help someone grow their money. There is a subscription fee, but it’s only $3 per month. I know, we just want something that we don’t have to pay to use, but the sad truth is that, these apps are assisting you with saving your money, so really, what’s $3 a month? I currently have my plan set to pull $20 weekly and pull the extra pennies to the dollar. This just means, if I spend $1.75, Acorns will pull the additional $0.25. Trust me, the money adds up because you really don’t notice the small amounts coming out of your account. The best part is, if you’re in a pinch, you can withdraw that money with no penalties.

Budgeting Tools and Apps

 As I mentioned, when you begin to create your budget, the first thing you need to do is record that data, so you know exactly what you’re working with. How I started recording my data for my budget was simply to use a spreadsheet. This method is a bit more difficult since you manually have to monitor it. Don’t get me wrong, it’s tedious but I love doing this because I have total control of everything, it’s free and I can change it as much I please or add additional notes.

The first one I want to get into is, a Financial Advisor. Ideally, this method works better for those who have more debt or bills to manage than the “average person”. Whereas, the “average person” probably only has a car note, credit card debt, rent/ mortgage and the everyday essentials we all use. If you don’t want to spend money to have a Financial Advisor, having an App do all the work or creating your own manual spreadsheet is the best way to go. A Financial Advisor, for those of you who do not know, is a professional who is there to give you financial advice about your money. The best part is, they do more than just budgeting. A Financial Advisor can assist in the financial decision making to inform you if what you are doing or planning, is a “good investment”, so to speak.

Stay Motivated  

Budgeting and saving can be stressful or seem tedious, but staying positive and motivated will help you on your journey. If you’re having a hard time staying focused on your budgeting goal, it might be beneficial to revisit the budget when you know you’re ready. Budgeting should not make you feel miserable or like you cannot enjoy life and do as you please. It’s really there to help put aside an amount you feel comfortable with and not meant to feel like you’re “breaking the bank”. You don’t have to be rich to be financially stable, you just need to understand how to monitor your spending. Being realistic with what you can budget is extremely important. This is part of the first step to budgeting. You have to be strategic about your fixed bills, necessities and wants.