Budgeting is one of those words that always seems to send chills, or at least feelings of annoyance, up one’s spine. There are so many bills and expenses coming in that it can feel like we’re just fighting to get by – how could a budget possibly help?
By creating a budget, you’re giving your money a purpose and a home. You are able to proactively determine where your money is going to go and how it’s going to work best for you.
Everyone has a different financial situation and one size does not fit all. The following are the tips and tricks I’ve found helpful for making that first budget and sustaining it month-after-month. (Disclaimer: I am not a financial advisor and this information is meant as a guideline for what has worked for me. Results may vary.)
How much money you bring in after taxes and deductions is the first number you want to determine. By knowing how much money you have coming in, you know how much you have available to spend for all of your needs. I personally find creating a monthly budget works for my situation, but some people might prefer biweekly or simply each paycheck. Figure out what works for you. I created an excel spreadsheet that has a tab for each month so I can easily see how much income I have that month. (Hint: If you’d like to use my template, simply make a copy and download it to your computer!)
If you are a contract worker or someone who doesn’t have a regular paycheck, budgeting is going to have some additional challenges. The first few months might be spent saving a little here and there so you can pay for the current month with last month’s earnings. Doing this type of budgeting will help you go from stressing paycheck-to-paycheck and will give you the freedom of knowing that you have the money in the bank to pay for your bills each month.
Fixed costs are going to be those expenses you know come every month and are the same amount each month. Things like your rent/mortgage payments, phone bill, student loans/ISA payments, savings, etc. Since these are costs that you know will happen every month, you want to make sure you take these into account first. How much does this add up to? Once you know that number, you’ll know how much you have left to spend on your necessities.
Necessities are those things like your groceries, gas, electricity, etc. You need these things monthly in order to survive, but the costs may fluctuate each month. Looking through your bank statements can help you see how much you typically spend in these categories month-to-month. From there, you can assess to see how these typical costs fit in with what remains of your new monthly budget.
What does your budget look like at this point? Are you surprised by any of your budget categories? This a good time to go through your budgets and see if there’s any place you can cut back. Do you see you’re spending more on restaurants than you thought? Are your cable and streaming service costs taking up a large chunk of change each month? Start to see where you can cut back to allocate more money towards the things you need and commitments you must see through (such as rent, ISA, etc.).
Once you have the basics down, then you can start thinking about some fun additions to your budget. I personally utilize the following to keep my financial goals on track:
Let’s say you have extra money after going through all of your budget categories (this is a great “problem” to have!). After you’ve accounted for your fixed and variable costs and still have money left in your budget, there are a few good options. One would be to put more money into retirement. Retirement compounding is an amazing thing, but you have to put money in to get any reward from it. The second option I would recommend is to put the extra money toward any loans or debts you might have. If both of those budgets are full or you feel that your budget isn’t sustainable because you can’t do anything “fun”, create a fun or allowance account! This works really well in my family of two: we each get a specific amount each month to do with what we want. Some months I save mine, some months I buy a dress or some books. Having an allowance lets you spend money guilt-free because it’s not taking away from any of your needs in life.
One of the best ways I’ve found to stop living paycheck-to-paycheck is to pay yourself first. This means that before any other bills or payments for the month, you take out what you’re going to save for the month. When you have money in your bank account, it’s easy to spend it thinking that “well, I have money, so why not buy X?” By taking out your savings first and placing it in a separate account (even at a separate bank!), it makes it much harder to spend that money than if it were sitting in your bank account.
Making an emergency fund is one of the first savings funds you should build up. This helps you when your car breaks down, a kitchen appliance stops working, or you have an unexpected medical bill to pay. I’ve personally been saved by having an emergency fund, so I can’t stress enough how important these are.
In addition to an emergency fund, I also break up my other savings goals into different accounts. All said and done, I have about 7 savings accounts (travel, house downpayment, car, etc.). This way I know exactly how much money I have saved for each bucket and it’s a reminder to myself that this money is already earmarked for something specific. I personally use Capital One because there are no fees and they have excellent customer service.
Creating and maintaining a budget can be stressful, but there are countless resources out there to help keep everything on track. From Mint.com to YouNeedABudget.com, there’s a platform out there to help. You could even use pen and paper or create your own excel sheet (this is how I keep my budget on track!). It’s important to figure out what works for you, and it may take a couple of tries to find the perfect tracking option for yourself.
Lindsey Baltz is a career coach at Lambda School who is helping to prepare students for the world of work through application materials, networking, interviewing, and negotiating. In her free time, she loves tinkering with Excel spreadsheets and reading books and articles about personal finance. You can connect with her on LinkedIn.