The kids are back in school, the weather is cooling down, and now it’s time to get your spending back in line with your regular routine. But before you dive back into budgeting, how can you be sure a new budget will actually help you save money?
Most people start a budget by punching some numbers and spending categories into a spreadsheet. Or, they resolve to never buy coffee again. Before you do anything rash, it’s important to take a step back and make sure your budget aligns with who you are.
Take a look at these 5 tips for setting yourself up for budget success.
1. Know why you want to budget
Creating a budget isn’t hard, but sticking to one can be. And keeping up that self-control day after day can be a recipe for disaster, especially if you’re new to budgeting.
So, take a few minutes and jot down your financial goals. Why are you considering budgeting in the first place? Are you saving for a fancy vacation, trying to get out of debt, or preparing for retirement? Figure out what you want to achieve – and why it matters to you – and then prioritize your goals and write them down, with the most important goal at the top of your list.
Knowing what is most important will help you make smart trade-offs when it’s time to fit your goals into your budget. You may want a comfortable retirement on the beach down the line, but you may also want your lattes now.
When creating your list of goals, remember to add one short-term goal to your list that you can achieve early on. Some examples: paying off a credit card with a low balance, buying a dress for your sister’s wedding with cash, or creating a small emergency fund. Whatever your goal is, let it be something small that you’ll be excited to achieve. An early win can help you keep your budgeting momentum.
2. Understand where you went wrong in the past
Budgeting is a powerful financial tool. Yet less than 50% of Americans actually use a budget, and even fewer stick to one over time.
If you’ve tried to budget before but got tripped up, figure out what happened. Taking the time to learn from your mistakes will make you a more successful budgeter this time around.
Did an expense, like your auto insurance bill, take you by surprise? Did you tighten the belt too much and rebel with a major spending splurge? Or, maybe you set a family budget before getting your spouse on board?
Making a list of expenses and planning for them can help make those large bills feel less stressful. And making room in your budget for your favorite luxury, even if it’s just a weekly ice cream cone on Friday afternoons, can stave off that feeling of deprivation.
Thinking ahead to what might go wrong also helps you design a system that works today. Remember: A budget should fit in with your lifestyle and goals. Don’t be afraid to customize your strategy.
3. Identify weaknesses in your spending
I’ve budgeted every dollar since college. But years later, my weakness is still food. It is easy for me to overspend at the grocery store when I see the perfect produce or my son asks for fresh blueberries. Because who denies their kid fruit?
We all have spending triggers – something that you can’t pass up even when you’re committed to your budget. For you, that trigger may be overspending when shopping with friends or going out for drinks with colleagues. Or, maybe you can’t resist splurging on last minute getaways. For me, it’s fresh produce and expensive granola.
But spending triggers don’t only come in the form of stuff. When you’re sad, lonely, or have had a few too many glasses of wine, you may be more likely to overspend. In fact, one study found the average American spends more than $440 a year on “spontaneous drunk purchases.”
Identifying your spending triggers, and making conscious steps to keep them in check, makes it less likely that you’ll blow up your budget. Some ideas to consider: Invite your friends for coffee at your place instead of the mall. Or switch to grocery delivery to avoid impulse purchases while also saving yourself some time.
4. Remember to be realistic
Unfortunately, your budget isn’t a magic wand. For most people, no amount of massaging the numbers will let you fit in every little thing you want to do. And cutting to the absolute bare bones of rice and beans doesn’t work well either.
Before setting out to create your budget, get real about your numbers. Look at your last few paystubs to understand exactly how much you earn and take home every month. Pull up your recent bank and credit card statements to see how much you’re spending now. Resist the urge to throw high months out as anomalies, since those “off” months tend to pop up more often than you’d like. Instead, take an average of the last three to six months.
Once you’re clear on your numbers, you can start to sketch out where you can easily cut back. Curbing your spending is a little painful, but this will help you reach the goals you’re passionate about.
Once you’ve prioritized your spending just like your goals, you’re ready to put your budget together. During this process, you can continue to make tradeoffs.
5. Never be afraid to adjust your budget
There is no such thing as a “normal” month.
Life changes. Unexpected expenses pop up – like the dog’s annual check-up or a friend’s birthday dinner. And when you view your budget as an attempt to dictate the future, that’s going to feel like a failure. This is when many people choose to give up.
Not you. Remember that budgeting is a learning process. If the power bill is a little higher than expected this month, don’t be afraid to shift a little from your take-out budget to cover the difference. Making a change doesn’t mean you’re terrible at budgeting. It just means you’re sticking to your goals even when faced with a little adversity instead of throwing your hands in the air. (And heading to Starbucks since “The budget is already blown!”)
Will there be setbacks? Sure. But if you’re ready to roll with the punches, you’ll keep making progress towards your goals.
A budget can be an empowering tool. It puts you in control of your money, instead of constantly feeling stressed that there isn’t enough of it in your bank account.
But before diving into the number crunching, take a step back. Understand why you want to budget. Learn from your past mistakes and find ways to design a budget that fits your unique lifestyle. Remember: There is no “right” way to budget. Any strategy that you can stick to – while moving closer to your goals – is perfect for you.
This page is for informational purposes only. Chime does not provide financial, legal, or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for financial, legal or accounting advice. You should consult your own financial, legal and accounting advisors before engaging in any transaction.