You have read the many guides online and gotten advice from everyone you know, but no matter what you try, you still struggle to budget effectively. If you find yourself just starting to budget or needing to start because you are losing money, keep reading.
These five tips will bring you fresh ideas and change your thoughts about budgeting to bring you closer to financial freedom.
1. Find Your Motivation To Budget With A Clear Goal
The first tip is to find a way to spend your money. You might think, but wait, aren’t I budgeting to save? The answer is yes, but one way to find the motivation to budget is to save for a purchase you want to make.
The first thing you must do before creating a budget is to set a concrete goal. Think of both short-term and long-term goals that will challenge you to save. This motivation will serve as the purpose for creating a budget in the first place and ensure you stick to the budget.
The goal must be attainable and realistic but also challenging. This will motivate you to save money and create a budget to do so effectively. Some common examples are vacations, a gift for a loved one, new cars, or a home.
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2. Take Expensive Habits Out Of The Budget
Instead of continuing with expensive habits like going out, fill your time with more free or inexpensive activities. This could include exercising, reading, and learning a new skill with a free app.
You could also develop habits that make money such as blogging or starting a YouTube channel.
Add more activities to your budget that cost less. Doing so will not only save you money, but it’ll use your time, which will prevent you from doing more expensive habits. You will not have time to go out as much, and you will not think about it as much, either.
Encouraging friends to pick up these habits with you can make the transition easier. It will, of course, benefit them as well.
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3. Don’t Do Your Budget Alone
You should use an automated tool to do it budgeting you. Budgeting apps are the most convenient and popular tool for helping you in this process.
By using an app that can automate some of your budgeting for you, you can spend less time budgeting and more time doing what you want instead. Allow the app to calculate and remove your “necessary expenses” from your income. The rest of your attention can go to saving as much of what’s left.
Mint, Rocket Money, and Empower are some of the most popular budgeting apps. These apps have received some of the best reviews and feedback from their customers. These apps are all free and are available to anyone.
4. It’s Not As Simple As 50/30/20
You may have heard of the 50/30/20 ratio before. While it effectively allocates costs and gives you a clear-cut ratio, it is not right for everyone. Depending on your goal from tip one, your budget may need to follow a different ratio.
The 50/30/20 ratio dictates you allocate 50% of your income to things you need, 30% to things you want, and 20% to savings. This does work for some people. However, say you want to reach your goal faster, you may want to dedicate more to savings instead of to things you want.
An example of an alternative ratio is the 70/20/10 ratio. This is where 70% includes both needs and wants, 20% goes to savings, and 10% to paying off debt. This ratio might fit college graduates with loans or others in debt better than 50/30/20.
Ultimately, you want to find the ratio that fits you best. Just be aware that what works for others may not be the best for you.
5. Start With Less
The final tip is to think of your starting money for each month differently. If you begin by taking off your necessary costs out of your income right away, it can help you divide the rest up more effectively.
To budget effectively, you must divide up your costs and figure out how much you need to spend. Ideally, a budgeting app can do this categorization and calculation for you. The categories of expenses you need are needs, wants, and savings/debt payoffs.
Start by taking off the needs that you know you will need to spend. You will then get a clearer idea of how much you really need for the other two categories. Seeing your money as less from the start can help you focus on putting more into savings or paying off debt.
It may also motivate you to limit your “wants” as much as possible.
