Creating a budget can seem like a daunting, boring, or even downright pointless task. Many people relate budgeting to accountants holed up in stuffy rooms pouring over spreadsheets. Others are just overwhelmed with all of the numbers and factors involved. Before the internet was the vibrant ecosystem it is today; finance savvy people did typically resort to paper-and-pencil methods for tracking their expenses. While these are still valid methods, there are much easier and modern ways for beginners to manage their money. The importance of budgeting cannot go understated, especially for people who are struggling to crawl out of debt and save money. In this article, you will learn how to get started with budgeting, as well as some tips to integrate along the way. You will then learn about some of the best budgeting apps that are taking money management to new levels. Continue reading to discover just how easy it is to get started with a budget.
Goals. An important thing to ask yourself before setting a budget is why you want to do it in the first place. Do you want to make a big purchase? Are you trying to pay off all of your debt? Having a goal in mind when setting and implementing your budget will help you to stick to it for as long as possible.
Income. When forming a budget, one of the first things you’ll want to do is to add up all of your income sources. Anything you’re making from a salary, side-hustles, or capital investment gains should be added here.
Expenses. How much do you typically spend each month? Before setting a budget, it’s a good idea to obtain a historical record of your spending so that you know exactly what needs to be budgeted and by how much? Take a look at your monthly bank statements, subscription services, receipts, and utility bills to get a big-picture view of your spending. Try to break these expenses down into main categories, like mandatory expenses, entertainment, and miscellaneous.
Things to add to the budget
Once you’ve set a goal and calculated how much you’re spending versus how much you’re earning, it’s time to figure out which categories to budget.
Mandatory. There should be a higher level category for all of the mandatory expenses each month. It includes essential monthly expenses such as rent, mortgage, insurance, utilities, groceries, and transportation.
Entertainment. All of the non-essential expenses in your life, like video games, streaming services, movie outings, restaurants, alcohol, and consumer electronics should be documented here.
Miscellaneous. It’s always a good idea to track a miscellaneous category, which includes some of the more unpredictable monthly expenses. Clothes, car maintenance, and doctor visits fit well into this category. Set aside a chunk of your budget to cover the unexpected.
So how do you figure out how much money to budget for each category? The 50/30/20 rule is a good starting point, and I will explain it further below. Additionally, certain budgeting apps have ways of automating this particular process, and I will cover it too.
Create goals. As mentioned before, setting goals is a great way to ensure that you’re sticking to your budget. Whether it’s a big vacation, getting out of debt, or creating emergency savings, having a goal in mind is key to your success.
Pay off debt. No matter what your goal is, getting out of debt should be a priority. The thing about debt is that the longer you have it, the more money you’re losing over time. Most loans and credit cards charge a monthly interest, which becomes more massive, depending on the amount of your statement balance each month. Only paying the minimum payment each month means that you are eventually paying much more for smaller purchases. The best approach is to try paying off debt aggressively, but continue saving for emergency expenses.
If you put all money into savings each month, that money will ultimately become less valuable as you continue to accumulate debt through interest. Whenever possible, focus more effort on paying down debt than building savings. Once you’re out of debt, or it’s at least low enough, you can begin saving more for other things.
Save leftover money. Assuming your debt is low enough, start putting money that you have leftover from your budget each month into investing. Rather than perceiving your leftover money as extra funds to spend the next month, you can instead put that money towards precious metals or other investing assets.
Make adjustments. If you find that you can’t stop exceeding your grocery budget despite your best efforts, it may be necessary to increase that budget. Frequently people miscalculate how much they need in one of the mandatory categories when setting their budgets.
Also, our needs tend to change from month to month. For example, the holiday seasons usually require that we up our spending a bit for family events. Back to school season sometimes requires extra spending on school supplies. Don’t be afraid to make adjustments throughout the month that better reflect your optimal lifestyle.
Use cash over card*. Sometimes the mere convenience of using debit and credit cards makes it hard to resist overspending. Credit cards, in particular, can be powerful and convenient financial tools if used responsibly, but they can also become just as detrimental if used impulsively. If you find yourself in this category, it’s beneficial to use cash over cards. Being able to see money leave your pocket physically is a psychological trick that can reduce spending. People rarely keep large amounts of cash in their pockets anyway, so this will also limit how much money you have to spend when you are out and about.
Try different budgeting methods. There are several effective budgeting tricks that people have been using for ages. Arguably the most popular is the 50/30/20 rule. While you initially set your budget, make sure that 50 percent of it goes to needs, 30 percent of it goes to wants, and 20 percent goes into savings.
Another trick is the use of cash envelopes. With the main categories mentioned above in mind, you can split them into actual envelopes to help visualize your budget. Here’s how it works: purchase envelopes for each of your categories. Label them, and after you receive a paycheck, fill them with cash equal to the budget you’ve set for each group. Not only does this help you visualize your spending, but it also aligns with the cash over card tip. You can even purchase special-made envelopes online specific for this budgeting trick.
Leverage software apps. Utilize the power of modern technology to automate and visualize your budgeting efforts. Dozens of companies have already perfected software applications that take a lot of the manual legwork out of budgeting. They also offer unique design features that help you visualize spending and implement all of the tips mentioned above.
Many of these apps can be used on both smartphone and desktop devices. Here is the list of the best budgeting apps available.
The Best Budgeting Apps
1. You Need A Budget (YNAB)
You Need A Budget is an innovative app that applies forward-thinking to your spending. Instead of using historical spending records to determine how much to spend each month, YNAB uses the money you have right now to recommend how to spend each dollar going forward. Many people find this method to be advantageous. Because they believe that seeing how much they went over budget in previous months does not necessarily prevent them from overspending again the next month. YNAB’s goal is to teach users good spending habits, which requires only budgeting with the money you have on hand.
For $7 a month, YNAB will provide you with everything you need to manage a budget. If used correctly, the money saved over time will be worth the monthly subscription. YNAB is compatible across all devices, including Apple Watch and Amazon Echo. Additional features include pie charts and graphs, educational resources, and real-time customer support.
Mint is a budgeting app created by Intuit, the same company that makes the popular tax software called TurboTax. You can download Mint on your smartphone or access it on a desktop computer through its web client. It works by linking all of your online banking and lender accounts. Once you synch all of your financial accounts, it will automatically import all of your spendings and provide you with summaries across all accounts.
After syncing your accounts, you can then use Mint to break expenses into dozens of categories and set budgets for them. Likewise, you can even use Mint to set and track goals. The app will calculate your provided income, budget, and goals to show how much money you’ll have leftover each month.
Aside from budgeting, Mint also features credit monitoring, which is very important if you’re trying to build and maintain excellent credit. It’s also completely free to use.
Wally is a free personal finance app that is only available on Android and iOS devices. With Wally, you can track all of your spendings while setting budgets and goals. Unlike other budgeting apps, Wally does not require you to connect your online financial accounts to track spending and create budgets.
Unique features include the ability to upload and recall receipts, geotag purchases, and the ability to use it with different currencies. Instead of linking your bank accounts to track purchases, Wally lets users scan receipts, set the location of the purchases, or manually add expenses into the system. In this way, Wally is a little more secure than apps that require linking financial accounts. New premium features, as well as a desktop web client, are on the horizon for Wally.
Goodbudget is essentially a digital version of the envelope budgeting method mentioned above. The user interface is set up to allow you to visualize your income placed into envelopes that represent different budget categories. Beyond that, Goodbudget also lets you set and track goals and pay off debt. The creators of Goodbudget agree that paying off debt should be the priority, but it also has ways of helping you save at the same time.
Accompanied by a podcast that offers budgeting advice and anecdotal experiences, Goodbugdet is also interactive and educational. All of these features and more are provided to users for just $6 a month.
PocketGuard is similar to Mint in that it requires users to link all of their online bank accounts to see the big picture in terms of spending. The difference is that PocketGuard has a feature that automatically generates budgets for you based on your income and past expenses. This hands-off approach helps reduce the stress involved in coming up with seemingly arbitrary budget amounts. The app also provides continual advice for saving money.
Free to users, PocketGuard offers a modern, minimalist user interface with all of the essential tools for creating and tracking a budget. Create savings goals and utilize financial services provided by the app.
Make budgeting fun
Not only is budgeting a smart way to save money, pay off debt, and reach financial freedom. It can also be an interactive activity that teaches you money management along the way. Experiment with the different tricks listed above until you find a method that works for you. Nowadays, with the various budgeting apps available on all devices, much of the work involved with creating a budget can be automated. Utilize advanced tools and find the best budgeting apps for your needs and goals. Achieving financial freedom has never been easier. No matter your financial status now is the time to get out there and make a budget for yourself.