18 Budgeting Tips to Make Money Management Easy
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Budgeting is an essential part of a healthy financial life. It allows you to create a spending plan for your money to ensure you always have enough for the things that are truly important to you. Rather than being restrictive, these 18 budgeting tips help you form a clear picture of the money you have to spend and can help you discover extra income that you can use more efficiently.
People who budget, set themselves up to get out of debt faster, achieve their savings goals over time, and practice smart spending. The best part is that it only takes a few easy tweaks to your money routine to implement good budgeting habits.
How To Make a Budget in 6 Simple Steps
To create a budget that works and allows you to live a comfortable and happy life, you need to get a firm handle on what you’re currently spending, what you can afford to spend, and what your priorities are.
While you can use old-fashioned pen and paper to budget your money, it’s easier and more efficient to use a monthly budget spreadsheet or a budgeting app. These will contain designated fields for income and expenses in various categories, as well as built-in formulas to help you figure your budget surplus or shortfall with minimal effort.
1. Gather Your Financial Paperwork
You want to have access to any information about your income and expenses. One of the keys to the budget-making process is to create a monthly average. The more information you can dig up, the better.
2. Calculate Your Income
How much income can you expect each month? If your income is in the form of a regular paycheck where taxes are automatically deducted, then using the net income (or take-home pay) amount is fine. If you are self-employed or have outside sources of income, such as child support or Social Security, include these as well. Record this total income as a monthly amount.
If you have a variable income (for example, from a seasonal or freelance job), consider using the income from your lowest-earning month in the past year as your baseline income when you set up your budget.
3. Create a List of Monthly Expenses
4. Determine Fixed and Variable Expenses
Fixed expenses are those mandatory expenses that you pay the same amount for each time. Include items like mortgage or rent payments, car payments, set-fee internet service, trash pickup, and regular child care. If you pay a standard credit card payment, include that amount and any other essential spending that tends to stay the same from month to month.
5. Total Your Monthly Income and Expenses
If you have more income than expenses, consider adopting the “50-30-20” budgeting philosophy. In a 50-30-20 budget, “needs,” or essential expenses, should represent half of your budget, wants should make up another 30%, and savings and debt repayment should make up the final 20% of your budget.
6. Make Adjustments to Expenses
If you’re in a situation where expenses are higher than income, find areas in your variable expenses you can cut. Look for places you can reduce your spending—like eating out less—or eliminate a category—like canceling your gym membership.
If your expenses are far above your income, or you have significant debt, reducing your variable expenses may not be enough. You may need to trim your fixed expenses and increase your income to balance your budget.
How To Use Your Budget
After you have set up your budget, you must monitor and continue to track your expenses in each category, ideally every day of the month. The same budgeting spreadsheet or app used to make your budget can also be used to record your expense and income totals.
Recording what you spend throughout the month will keep you from overspending and help you identify unnecessary expenses or problematic spending patterns. Take a few minutes each day to record your expenses, rather than putting it off until the end of the month.
If you’re not confident that you can budget your money, adopt the envelope system where you divide cash for spending into separate envelopes for different spending categories. When an envelope becomes empty, you’ll have to stop spending in that particular category.
As you use your budget, keep an eye on how much you have spent. Once you have reached your spending limit in a category, you will either need to stop that type of spending for the month or move money from another category to cover additional expenses.
Budgeting Tip for Inconsistent Income
Good news, guys. You can budget with an inconsistent or irregular income. A good rule of thumb is to budget based on what a low-earning month would look like for you. This will be your budgeting income. Here’s how it works:
Budget Step 1: List your income.
Budget Step 2: List your expenses.
Next, list out your expenses, starting with the Four Walls I talked about in Tip 4. (That’s food, utilities, shelter and transportation.) Then list out all the other monthly expenses. We’re talking debt, insurance, savings, entertainment and any personal spending.
Budget Step 3: Subtract your expenses from your income.
What if you get a negative number? Hey—it’ll be okay. But you will need to cut back on the extras or pick up extra work to cover it. Just make sure that picking up extra work never means blowing that money. Put it to work to make your budget work!
Budget Step 4: Track your transactions.
Can I let you in on a little secret? The way you’ll really win with budgeting is to track your transactions. That means you put every expense and every bit of income into your budget all month long.
This helps you stay accountable to yourself, your spouse (if you’re married), and your money! You aren’t hiding spending from anyone. And you won’t overspend because you’ll know what’s left in every budget line.
Budget Step 5: Make a new budget before the month begins.
How Can I Make a Budget Quickly?
Wherever you are in your financial journey, the quickest way to do a budget is by using our free budgeting tool I keep mentioning. With EveryDollar, you can map out next month’s budget with ease!
When you realize the purpose of budgeting isn’t to limit your freedom but to give you freedom, you’ll be on the road to loving your life and your bank account! That’s what we call winning with money.
Rachel Cruze is a #1 New York Times bestselling author, financial expert, and host of The Rachel Cruze Show. Rachel writes and speaks on personal finances, budgeting, investing and money trends. As a co-host of The Ramsey Show, America’s second-largest talk radio show, Rachel reaches 18 million weekly listeners with her personal finance advice. She has appeared on Good Morning America and Fox News and has been featured in publications such as Time Magazine, Real Simple Magazine and Women’s Health Magazine. Through her shows, books, syndicated columns and speaking events, Rachel shares fun, practical ways to take control of your money and create a life you love. Learn More.