Practical Budgeting Tips To Help Manage Your Money

A budget can be crucial to understanding — and directing — where your money goes. Whether you’re new to planning your finances or have struggled to do so in the past, these budgeting tips can help you stick to the plan.

Budgeting tips for everyone

1. Decide why you’re budgeting

Start by articulating what’s inspiring you to create a budget. Are you in debt, looking for expenses to trim or simply trying to stop spending so much money? Maybe you’re saving up for something, like a wedding or new baby. “Knowing why you are doing something can make it easier to follow through,” says DeDe Jones, a certified financial planner and managing director of Innovative Financial, LLC in Lakewood, Colorado. When budgeting with a partner, discuss the details together to ensure you’re on the same page.

2. Use empowering language

The term “budget” can be off-putting. “People resist it because it comes from a place of scarcity,” Jones says. She recommends switching to language you’re more comfortable with, such as “spending plan,” to help keep you motivated. A budget — or whatever you choose to call it — shouldn’t intimidate or restrict you. It should be an opportunity to take control of your money.

3. Test out different budgeting methods

Just as there are many reasons to budget, there are many ways to budget. Some people check in and track expenses by hand daily. Others want to do as little work as possible and opt for an app.

Different budgeting methods

A. 50/30/20 budget

What’s appealing about this system is that it gives you room to pay down debt, cover current costs and save for future expenses. It splits your income across three major categories: 50% goes to necessities, 30% to wants and 20% to savings and debt repayment. You can use it by itself or as a baseline for other flexible budgeting methods.

B. Build up your savings: Pay yourself first

Designed to align your spending and values, this “reverse” budget puts savings before immediate expenses. With this system, you decide how much to set aside from your monthly income for savings goals like retirement and an emergency fund, then use the rest for bills and other costs. That way you don’t have to crunch every number.

C. Make the most of every dollar: The zero-based budget

This budget suits over spenders and meticulous planners alike. It makes monitoring your spending clear. You take your monthly income and use every dollar in a deliberate way — like saving a certain amount for a trip and paying for utilities and groceries — until there are zero dollars left. But if you don’t strictly use cash as with the envelope system, you’ll have to log each expense to make sure you’re on budget. Budget apps such as YNAB and EveryDollar can help you follow a zero-based budget.

D. Curb your spending: The envelope system, or 'cash stuffing'

If you need a rigid system to help you stop spending money frivolously or stay out of debt but don’t want to track every purchase, try this cash-based approach. You set a spending limit for each expense category, like groceries, then fill envelopes with the allotted cash you can spend in each (hence the "cash stuffing" nickname that's often used on social media). Once an envelope is empty, you can’t spend any more money on that particular category for the month.

“The key to the game is just sticking with it and recognizing those first months are really tough,” says Liz Gillette, a certified financial planner with Mainstreet Financial Planning Inc. in Odenton, Maryland. If you give it a fair shot and can’t find a way to make it work, explore other options. “Be realistic and jump ship to something else that you feel is going to make an impact,” Gillette says.

4. Prioritize expenses and goals

Understand the difference between needs and wants, then focus on the essentials first — those include groceries, housing and transportation costs. That doesn’t mean other expenses aren’t important, though. Your financial goals, such as paying off debt or saving for retirement, should still receive attention. The purpose of a budget, Gillette says, is to understand whether or not your money is going toward things that you’re happy with, you’re proud of and align with your values.

5. Leave room for surprises

Don’t expect your budget to be perfect. Surprises will happen, and some expenses may slip through the cracks — like the occasional impulse buy. But you can take precautions to soften the blow. Set aside a little bit of cash to cover miscellaneous expenses each month and make regular contributions to an emergency fund. That way you can handle an unexpected car repair or other emergencies without taking on credit card or loan debt.

6. Automate responsibly

Technology can help alleviate the tedious aspects of budgeting and prevent setbacks. So why not let it do some of the work for you? Try setting up automatic transfers so you can regularly pay bills or sock money away without thinking about it, and lean on budget apps to conveniently track your spending. Keep an eye on everything you automate. “You may discover monthly subscriptions that you’re paying for that are no longer valuable to you,” Jones says. “If you’ve got three streaming music subscriptions, maybe one would be plenty.”

7. Revisit your budget monthly

Some expenses vary from month to month or pop up infrequently, like holiday gifts or vehicle registration fees. Income can change, too. Perhaps you earned a little more from your dog-walking gig this month than you did last month. Checking in on your budget at least once a month gives you the chance to deal with fluctuations in a timely manner. A check-in also gives you an opportunity to talk about money with your partner, if you're working from a family budget. Depending on your style and the method you choose, you may decide to check in more frequently — that’s OK, too.

(Partially reprinted from www.nerdwallet.com)