Ok, I’ll admit it. This is click bait. This title is designed to get you to click on this article hoping I will give you some insider genius idea on budgeting. Maybe I’ll suggest a one stop shop app or maybe I’ll give you some spreadsheets with detailed instructions to create an infallible budget. I don’t have one budget to rule them all. What I do have is real world advice on how to set your budget to give you some breathing room in life.
“Come up with categories for YOUR spending”
First things first, be honest with yourself. Print out your spending reports from ALL of your accounts for the last three months. Categorize everything and come up with categories for YOUR spending. This doesn’t mean you need to use the categories that bloggers or “experts” use. If you don’t have a car payment, throw that category out. If you don’t need an entertainment budget, gone. Make the categories work for you, don’t try and fit your spending into ten predesignated categories.
Once you have your categories, here are four quick tips to start with
- Split spending into regular and irregular categories. Rent…probably regular. Car insurance…twice a year…irregular… get the picture? Good,
- Make a list of things you can cut out or lower payments on. If you are paying over $100 a month for any service, try and cut that down. Cable, internet, electricity, etc. call the company, change your service(changing from cable to streaming can save you over $100 a month). Call the company and ask them to lower your bill. The internet has great scripts to lower your bills for places like Verizon, DirecTV, etc.
- Keep it simple. If you have twenty categories and constantly need to update your chart or spreadsheet, the likelihood of you sticking to your budget decreases greatly. If you have five categories, you can handle a budget.
- Overestimate your spending. Spending categories are much easier to decrease than to increase.
Ok, now you have a starting point. What next?
Use your budget for three months and then audit yourself. Did you exceed any categories? If so, was it laziness or did you actually underestimate your necessary spending?
Can you cut out any spending category? Do you really need XM radio? Are you using your gym membership( hint, you probably aren’t . . .gyms make money and support themselves by charging people who don’t go regularly)
If you cut a spending category, immediately place those funds into savings or investment
If you have three months of your income saved for emergencies, pour the rest into an investment account like Betterment or Wealthsimple. We want our money to be active and earning income for us. Money in a savings account is actually losing you value over the long run due to inflation. If you don’t believe me, read this article.
Once you’ve gone a year, look back and see how you’ve done. Are you on track, great! Did you overspend, no worries. Make a plan to get back on track in the next three months. If you break down your spending into three month segments, it’s incredibly difficult to get into trouble with debt or overspending.
General advice that we follow:
- Use the 80/20 rule for any windfalls
- Audit yourself once a year
- Make a promise to save any increases in salary or income over the next five years. Live within your means and save the rest.
- Tackle high interest debt first (this means any debt with an interest rate above what you get in average investments).
- Don’t beat yourself up if you break your budget. This happens to everyone. Start over the next month with a plan.
- Treat yourself. If you’ve stuck to your budget for a year, don’t be afraid to splurge and spend 1-2% of your savings on a vacation or something nice for yourself. For example, if you have $50,000 in investments, go take a $1000 vacation or day trip. Buy a nice pair of shoes or a new tv. This helps keep you interested in budgeting.
Have any tips or think we are insane? Let us know in the comments
-B&T