Budgeting is at the heart of financial success. Whether you earn six figures or 17 dollars an hour, how you build your budget can make or break your finances. You need to know how your money is being spent if you're ever to control it. But unlike what is commonly accepted, a budget doesn't have to restrict you from doing what you want. On the flip side, a lot of people find that they actually have EXTRA money after creating a budget.
Budgets aren't hard to make either. You don't need to save money quickly and aggressively to build a budget. A budget is just a plan for how you're going to spend your money. It can be as complicated as an excel sheet, or as simple as a sticky note. Regardless, a good budget lets you know what you can and can't spend on. And THAT gives you the freedom to enjoy your money stress-free while cruising to your financial goals.
10 Budgeting Tips That Will Save You Money
Ready to optimize your personal finances? Here are the 10 best budgeting tips that you NEED to know.
#1: Pay Yourself First
Paying yourself first is by FAR the easiest way to build wealth over time. How do you pay yourself first? By taking a percentage of your paycheck and immediately saving/investing it BEFORE you do anything else with it. Usually, it's around 10-20%.
What this means is that if you receive a bi-weekly paycheck of $3000, you will take $300-$600 and transfer it from your checking account to your savings/investing account every two weeks. You won’t go and pay for the gas in your car first. Likewise, you won’t go and pay your rent to the landlord first. You will pay yourself first by putting away money for your future.
This does two important things:
- Because you invest/save money first, you won't be tempted to dip into that money because it will be gone already.
- You become freed up mentally to budget the rest of your expenses and not need to worry about saving your money.
Pay yourself first for long enough and you'll realize that you have a huge chunk of change saved up. The key now is to resist the urge to spend it and buy assets with the money. Do that and not only will your financial health improve, but you might even realize financial freedom!
#2: Use Multiple Accounts
By opening up multiple bank accounts you keep your money organized. Instead of having one master account with all the money going in and out of it, open up a bank account for each major expense bucket in your life.
Some account suggestions:
- An income account where all the money you make gets sent
- A bill account where you pay all the bills you know you'll have
- An individual retirement account
- A savings account / investing account where you grow your wealth for the future
- An emergency fund where you store away money for a rainy day
- An account for occasional expenses like if something breaks in your house
Having multiple bank accounts might seem like a lot to handle, but it'll actually make your finances easier to manage.
#3: Automate Your Finances
Automating your finances means setting up automatic payments to things you know you'll spend on. These include fixed bills but most important of all… saving/investing!
You can roll tip #1 and tip #2 together with the automation of finances like this:
- Set up separate bank accounts for each of your endeavours.
- Every month when you get your paycheck pay yourself first… automatically!
- What this means is set up automatic payments to your investing/savings account and make it the first thing that gets paid.
- Then set up automatic payments to your fixed bills
- All of these will be made way easier because you have separate bank accounts
Try to auto-transfer all your bills every month so you don't have to think about it. Then, whatever is left over is your discretionary spending money. Some investing apps like Acorns even does it for you (check out this Acorns review). Isn't it nice knowing that every dollar you see in your bank account is something you can spend guilt-free?
#4: Plan for Every Dollar
More often than not, we UNDERestimate the amount we'll need to spend in any given month rather than OVERestimate. Planning for every dollar means that you know exactly what you're spending money on and how much you're spending.
One of the easiest ways to do that is to use an expense tracker or app. Some of the best apps out there are:
- YNAB (You Need A Budget)
- QuickBooks Online
That being said, you can always stick to good old-fashioned Excel spreadsheets. Once you track your expenses for a few months, you'll have a pretty good understanding of what you spend money on. Use the information from your budget worksheet to plan for every dollar you'll spend in the future months.
#5: Start With the Big Categories
When planning for every dollar, make sure to prioritize. Start with the big categories and work your way down. These could include:
- Rent, mortgage payments, home insurance
- Credit card payments (you should get rid of these ASAP)
- Student loans (if you have any left)
- Gas, car payments, or transportation costs
- Clothing or clothing subscription boxes
Find out which categories are pulling most of your money and make sure to account for those. It's ok if you forget about certain tiny expenditures like toll fees and fail to budget for them. But NOT ok for you to forget to budget for something like rent.
#6: Plan for One-Off Expenses
As the old Yiddish saying goes “men plan, God laughs.”
Just because you map out all your expenses doesn't mean that everything is going to go as planned. In fact, there are almost certainly going to be months where you have unexpected expenses. Maybe it's an important birthday/anniversary you forgot and you need to buy a gift. Maybe your car breaks down and you need to pay your insurance deductible. Whatever it is, you can't possibly account for everything.
That's why you need to plan for one-off expenses if you're to stay financially afloat. Always set aside a portion of your income (5% or so) for expenses that you can't possibly plan for.
#7: Create an Emergency Fund
No beginner budgeting tips list is complete with a section on the importance of an emergency fund. Unlike the portion of money that you set aside every month for one-off expenses, the emergency fund is a special set-aside. It isn't something you do month-to-month but rather yearly.
Every year, make sure that your emergency fund is sufficient and keeping up with your cost of living. Usually, this means having a special fund set aside with 6-8 months' worth of your expenses locked up.
Building a hefty emergency fund will give you the buffer you need if something does happen to you. But it will also give you the financial stability to be able to take on more opportunities and risks that could advance your personal finances.
#8: Figure Out How Much Money is Actually Coming In
Before you even begin to manage your money, you need to know how much money is actually coming in. That is, you need to be aware of your after-tax income.
Your gross salary doesn't mean anything when it comes to budgeting. That's because the amount of tax you'll need to pay will always be an expense, so you need to account for it. If you live in Canada, you can use this income tax calculator to estimate how much you'll likely pay in income tax. Subtract that from your gross salary and you have a rough guess at what your after-tax income is. If you live in America, you can use this one here.
Be sure to always use your after-tax income when you draw up a budget. Take-home pay is a much better proxy to use than your salary.
#9: Find Out What Your Needs and Wants Are
It doesn't matter if you have the fanciest budgeting software, budget template, or savings plan. If you're not clear on your own needs and wants, you might be able to make a budget, but you won't be able to keep a budget.
Draw up a list of your needs and wants and categorize them. Now, when times get tough, you'll know where you can and can't cut expenses.
You don't need to be super frugal to succeed at budgeting. But you do need to know how to prioritize between eating out and paying back your loans. Identifying what exactly is necessary for you lifestyle and what you don't need is one of the most important budgeting tips.
#10: Set SMART Goals and Stick to Them
The last of the budgeting tips is to have clear goals. In reality, it's very easy to budget. The real tough part comes down to sticking with your budget. That can be made a lot easier if you have SMART goals.
A SMART goal is one that is:
For example, some SMART budgeting goals might be:
“In 5 years, I save up over $100,000 for a down-payment on a house in the area I'm living. I do this by consistently saving away 30% of my after-tax paycheck every month.”
“In 30 years, I save up $1.5 million so that I can enjoy retirement. I achieve this through investing 20% of my paycheck into assets every single month.”
“In 10 years' time, I pay off my outstanding student loan of $60,000. I accomplish this by paying off $500 of the loan every single month.”
It doesn't matter if you have short term goals or long term goals. Just having goals will keep you motivated enough to see your budget through and to stick with it.
Save Your Money: Live Your Best Life
At the end of the day, budgeting is one of the key components to determining your financial future. Whether you're saving for retirement or paying off a student loan or getting debt-free, a good budget can mean the difference between riches and ruins.
These are the 10 budgeting tips that you NEED to follow if you're to successfully manage your money:
- Pay Yourself First
- Use Multiple Accounts
- Automate Your Finances
- Plan for Every Dollar
- Start With the Big Categories
- Plan for One-Off Expenses
- Create an Emergency Fund
- Figure Out How Much Money is Actually Coming In
- Find Out What Your Needs and Wants Are
- Set SMART Goals and Stick to Them
Start saving money today, follow these and it doesn't matter if you have a basic budget or a crazy excel-spreadsheet. You will be on a fast track to having a bright financial future!
Thanks for reading through this post revealing the 10 best budgeting tips and thank you for following along! If you’re a Canadian Student, check out the Ultimate Canadian Student’s Guide to Personal Finance! If you want to be financially free sooner, check out this page here! To learn more about me, head over to this link here. If you want to get exclusive updates and tips, drop your email in the “get updates” box (might have to scroll up a bit.) Let me know your thoughts and suggestions in the comments!