5 Practical Budgeting Tips That Work
We have all seen the headlines about how your daily latte is destroying your budget. I am here to tell you that skipping coffee won’t fix your budget. Starbucks or McDonald’s alone are not what is keeping your budget from balancing each week. Your habits and systems are the true culprits. These 5 practical budget tips will show you that it is possible to enjoy a tasty morning pick me up and have a balanced budget.
Track your spending
In order to understand where your money is going you first have to know how you are spending it. This is where tracking comes in. Get a small notebook and keep it in your purse or pocket. Write down every purchase you make for 7 days. Every pack of gum, tank of gas and coffee purchase needs to be written down. Don’t forget to write down the bills that you pay daily as well. At the end of the week total your spending then repeat this for 3 more weeks. This will give you a full view of your daily and weekly spending habits. While tracking your spending may feel tedious, it helps you become more aware of your spending habits. You may find yourself skipping a few purchases to avoid having to write them down.
Tracking your spending has the added benefit of bringing full awareness to your daily habits. Seeing how many times you grab a bag of chips when you get gas or drop extra items into your cart at Target really puts things into perspective. For many people overspending is an unconscious habit. It is something that you do when you are bored, angry, sad or even hungry. Having every purchase listed for you in black and white will make it easier to move on to step number two.
Make Realistic Cuts
Now that you have tracked your spending, for a minimum of 3 weeks, it is time to make realistic cuts. Where can you reduce your spending? We all have areas that we can cut back on. The first places to look are your cable bill, cell phone plan and subscriptions that you aren’t using. When you were tracking your spending you may have come across several subscriptions that you signed up for during a free trial but failed to cancel. Cutting those are pretty painless. It can be a bit more challenging when you start cutting areas like cable and cell phone plans.
When it comes to your cable and cell plans take a good look at your actual usage. If you use a lot of data on your phone shop around and see which company has the best coverage in your area as well as the best price. When it comes to phone coverage cheaper is not always better. You may have to stay with a more expensive plan if the area you live in doesn’t have many options or good coverage. Most households no longer have landline phones so make sure that you have a way to communicate in the event of an emergency.
Cable is another popular place to cut but make sure that the alternative that you choose really saves you money. Getting rid of cable is liberating but if you watch a lot of sports and premium channels adding all of these services individually can end up costing you more than you are already paying. Take some time to see what channels you actually watch most often and match them with the best services for your budget.
Create systems to support your new budget
Create a budget based on your actual spending. I recommend using a zero based budget. Zero based budgeting is a simple system that assigns a job to every dollar that comes into your household. This means that you must allot a category for all of your money. If budgeting it new to you or you would like a detailed system for keeping track of your money you can get my budget planner here. While there are digital budgeting systems like Mint and Every Dollar I recommend also tracking with pen and paper. Studies have shown that the physical act of writing things down forms new grooves in the brain and boosts retention. Being able to glance at your budget from your phone while out is helpful, but having it all mapped out on paper makes it feel more real.
Set aside time weekly to review your spending and to change direction when you get off track. Your weekly budget review doesn’t have to take much time, usually 30 minutes or less. The act of reviewing your spending weekly will keep you accountable to yourself and will build your budging confidence. Most people fail at maintaining their budget because they stop tracking their spending. If you don’t know where your money is going then you will never be able to stay on track.
Automate your budget
Automating your budget is a great way to stay on top of your bills. Between utilities, rent/mortgage, insurance, and other household services, paying your bills can feel overwhelming. Many experts recommend setting up automatic payments to avoid late fees and forgotten bills. While I agree with this method I am adding an additional detail. Instead of setting up bill pay with 10-15 different companies setup bill pay directly from your bank account. Most banks offer bill payment services for free. This gives you the ability to control who has access to your account.
There is nothing more stressful then checking your account and seeing a withdrawal for the bill you forgot about. Now you have to scramble to replace that money in order to avoid overdraft fees. Take all of your recurring bills from the budget you created in the previous step and set them up in bill pay from your checking account. This will always give you an accurate view of what is due and what has been paid. You will also avoid pesky overdraft fees because if you don’t have the money the bank won’t release the funds.
Another way to stay on top of your spending is by separating your money. With free checking accounts it has never been easier to have multiple checking accounts. I recommend having an account that is only for bills and one for food. You can also have as many savings accounts as you’d like so create sinking funds for things like car repairs, childcare costs, holiday shopping, etc. in order to keep that money separate and growing.
Review your plan often
You can get your finances in order and enjoy a latte or night on the town if you have clear systems in place. If you find that you are eating lunch and dinner out 5-6 times per week instead of quitting cold turkey try reducing the frequency. Add a coffee category to your budget and once you have reached that limit for the week you have to wait until the next week for another one. If you find that unplanned purchases at Target are the things that are knocking you off course, try ordering what you need online and picking it up in store.
When you are starting a new money management system you will need to review it often. Sometimes daily until it becomes a habit. While it only takes 21 days to create a new habit it can take 3-12 months to make it permanent. So if you try a new financial system and you fail don’t quit. Tweak it then keep going. Consistency is what will get your finances on track and keep them there.