Money may be the root of all evil, but excessive spending is an evil you can avoid. Tired of living paycheck to paycheck or dipping into your meager savings every month? You need to create a budget and stick to it. Read on for top tips on budgeting wisely.
Know what you buy
Before putting yourself on a budget, carefully track your spending for a month. Save up receipts or analyze your online bank statements. Create several spending categories: home necessities, car necessities, personal necessities, and extras. Keep track of how much you spend in each category. The results may surprise you! Compare your expenditures to your income to see if they balance out or if you need to make some adjustments to maintain your lifestyle.
Reduce your expenses
Once you know how much you tend to spend, you’ll be able to analyze how much you can afford to spend, and make adjustments accordingly. Entertainment expenses are usually the most expendable, even though the prospect of less entertainment in your life may seem gloomy. You’ll just need to get creative—invite friends over for dinner instead of going out, subscribe to Netflix or another money-saving rental service instead of going to see four $8 movies (and buying popcorn, and sodas…) each month, carpool to save on gas, and so on. You may not be used to it, but you’ll be surprised by the way small adjustments can have a positive impact on your bank account. Expenditures like rent, utility bills, car payments, gas, insurance payments, groceries, and other necessities aren’t negotiable, and they need to come first in your budget. You may think your credit card bill isn’t negotiable, but it is—you don’t have to use a credit card, after all, and it incurs interest fees that you could easily avoid by saving up money for a purchase prior to making it. Change the way you think about what’s really necessary, and you’ll be able to change the way you spend.
Lock up your credit cards and don’t use them for a month. Identify the situations in which you reach for the credit card, only to find it’s not there. If you don’t have the money in your bank account to make the purchase, don’t make it—or save up until you do have the funds. Not being able to delay payment for months will make you feel the immediacy of the purchase and decide not to make it if you just don’t have the funds. Keep track of the expenses you wanted to use a credit card for, determine why you wanted to make them, and decide why they were ultimately unnecessary.
Identify your bad habits… and put an end to them
You’ve probably tried to put yourself on a budget before, and it failed for one reason or another—you really needed to spend $300 on a new pair of shoes, the car had to go in for some unexpected repairs, or you couldn’t resist trying out that fancy new restaurant across town (and going back every week—you’ve got to become a regular, don’t you?). Or maybe you decided you would just die without your precious HBO. And once you made that first unbudgeted purchase, many more followed in its wake. Budgeting is like dieting or quitting smoking—don’t let one extra dollar (or candy bar, or cigarette) throw you off track entirely.
Whether it’s shopping, movies, dining out, or cigarettes (a whole new reason to quit smoking), identify what makes you break your budget, and figure out how to accommodate that interest. Don’t just leave that item out of your budget entirely—you’ll end up spending money on it regardless, and this one violation of your budget will make you more likely to keep on cheating. Instead of going out to eat twice a week, go for twice a month, and try to recreate your favorite restaurant meals at home. If you’re into sports, watch some games on TV instead of heading to the ballpark, or sit in the cheap seats a time or two and eat one less hot dog than you would otherwise. Saving just $10 a week nets you 500 extra bucks a year—no paltry sum.
Even if your budgeted expenditures exactly match your monthly income, you haven’t won yet. You need to save at least a portion of your income (a minimum of 5% is recommended) to build up resources for your future. Put saving in your budget and don’t always cut into your budgeted savings when you think you need to—instead, trim something else like entertainment expenses, or put off buying a new suit until next month. A key skill for saving money is patience, and finding the ability to pace your purchases will ultimately reward you with more money in your pocket.
Establish a specific goal
Putting yourself on a budget with the vague goal of “having more money” or “spending less” is not likely to work, since there’s no way for you to determine when you’ve succeeded. Since there’s no limit to the amount of money you could theoretically save up, you could find yourself on the same budget for an unlimited amount of time, becoming miserable or bored because you feel like you’re never allowed to spend any money. Set a goal for yourself: to save up $500, $1000, or another amount to put into savings, a CD, or investments. Once you achieve that goal, reward yourself with a (carefully budgeted) night out on the town or brief weekend vacation. Or maybe a vacation is your goal, and you need to save up $1500 in order to afford a weeklong trip to the beach. Instead of spending the money up front and feeling the effects later, make sure you have money saved up to spend later.
Use these tips and shop around for budget advice, and you’ll be well on the way to becoming the next Bill Gates—or at least having a little money in the bank.