Spending money is fun, and even worse, spending money is awfully easy. This can feel great in the moment, but once that paycheck starts to run low with plenty of days left in the week, we might start to question our spending and budgeting habits—or lack thereof.
Fortunately, while budgeting isn’t necessarily everyone’s first instinct, it isn’t too difficult to get going in your own life. We’ve laid out what we consider to be the fundamental pillars of budgeting; just a few simple steps to make the most out of your income month in and month out.
Track Your Spending
If you’ve ever followed a long-term diet, it probably started out something like this, too. Instead of tracking every last snack you managed to sneak in throughout the day, however, you’re going to need to track every last penny you spend. That’s not an exaggeration, either! Every. Last. Penny.
This step alone can actually help you start saving money right away! Just like snacking, we often make small purchases (often related to snacking) throughout the day that we don’t even think about. Not thinking about these purchases, however, are exactly what lets them add up day after day, week after week.
Being conscious of these purchases gives you a better idea of how you’re using your money, and if there are certain purchases that you can cut back on. It will also help you think twice before making another mindless purchase, which in of itself is going to help you save some money. Make sure to keep track of this spending, whether that be in a notebook you carry around throughout the day or on a tidy Excel spreadsheet. You’ll need these numbers later.
Write Out Your Expenses
You’ll need to keep track of all of your spending, but also specifically what you need to be spending—things like rent, utilities, etc. You can try to write these all down from memory, but chances are you’re going to miss one or two things that might throw off your numbers. We recommend going through a month of expenses and jotting down every time you make one of these payments. Be sure to check your bank account every day, just in case you have automatic payments scheduled that you don’t even have to think about.
A few examples of what to look out for:
– Rent/mortgage payments
– Insurance payments
– Internet/phone bill
– Car payments
– Streaming services
The idea is to couple your fixed expenses along with the spending you’ve tracked from the previous section to get a good idea of exactly how much you’re spending, how much you need to be spending, and how much you can cut back.
Allocate and Save
You’ve gone through your month of collecting data, now it’s time to put it to good use. Compare your income with the amounts that you’ve written down, and set aside the appropriate amounts for each of your necessary expenses, but also for savings! We recommend saving as much as you can afford to save, but 10% of your paycheck is a good number if it fits within your budget.
Saving needs to be a conscious effort, don’t just passively leave 10% of your paycheck set aside in your mind. Whether this means putting it in a separate account, withdrawing it and keeping it in your sock drawer, or investing it somehow, that’s up to you! Just make sure it isn’t something you can easily grab when you’re not thinking about saving.
Don’t forget about your entertainment expenses, either! Minimizing the income you spend on non-essential purchases and activities is an important part of budgeting, but you certainly don’t have to start living a boring life, either! Get an idea of how much you tend to spend on nights out/movie nights/whatever you like to do for fun, set some aside for this if you can, and put the rest in savings.
At this point, you should be two months in: one month of research and one month of actual budgeting. How did you do? Did some necessary expenses slip your mind? Did you end up with more savings than you expected?
The numbers probably aren’t going to match up exactly, especially after the first round of trying this out, and that’s perfectly okay! Check and see what threw your numbers off and adjust accordingly. If you ended up with more expenses than expected, you might have to revise the amounts going into savings and recreation. If you ended up with more extra cash than you thought, consider putting it into savings first thing next time around!
This is really about getting to know your tendencies and how your month-to-month budgeting is going to go. It’s also a good time to reflect if a monthly schedule works for you. We like the monthly approach because it’s easy to set up, but if a month is a long time to be planning for you, you can try to follow the exact same process bi-weekly. Watch out for expenses that fall on one half of the month vs. the other, but the idea is essentially the same.
Rinse and Repeat
After you’ve got that first round under your belt, it’s time for another! It’s important to take your review step into account every time you plan for the following month, and it’s also important to consider that some expenses are going to fluctuate throughout different months.
Maybe some of your bills happen bi-monthly, or maybe you’ll just have different spending patterns during different parts of the year. Your power bill might go up during the colder months, for example. If you have a regular vacation period, spending is probably going to go up during this time as well. Not every month is going to be exactly the same, but the more you track and analyze your spending, the better you will be at anticipating expenses, and the closer you’ll get to perfecting your budgeting skills.