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Even though inflation has receded back to normal levels, the cost of living remains high, especially in certain areas of the country. And if you can’t find a better-paying job, the only other solution to address the cost of living challenges is to start cutting your expenses.
The number one solution to paying off debt and meeting your savings goals is budgeting. Unfortunately, budgeting is about as popular as eating rice and beans for every meal. However, if you can find a budgeting system that works for you, you may be able to change your life.
Read below to learn about the basics of budgeting and how to make it work for you.
What is budgeting?
Based on this assessment, you can make necessary changes. For example, you may have thought that $500 per month for groceries was a realistic goal. Unfortunately, you forgot about the two potluck parties that you were invited to, which pushed you over your limit.
- Another common mistake is that people don’t base their budgets on their actual spending, but rather on how much they think they spend. If you don’t review your current spending, you’ll create an unrealistic budget, often dramatically underestimating your expenses. Make sure to use your existing spending habits to create your current budget. Don’t pull those numbers out of thin air.
Why budgeting works
People often avoid budgeting because it feels like a punishment. However, it’s all about your mindset. Budgeting helps you reach your financial and personal goals. If you don’t budget, you won’t be sure that you’re on track.
People often avoid budgeting because it feels like a punishment. However, it’s all about your mindset. Budgeting helps you reach your financial and personal goals. If you don’t budget, you won’t be sure that you’re on track.
If you haven’t budgeted before, cutting back on your expenses can feel like fasting after years of eating at a buffet. To alleviate the potential shock, try reducing your expenses a little bit at a time.
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Budgeting
People often avoid budgeting because it feels like a punishment. However, it’s all about your mindset. Budgeting helps you reach your financial and personal goals. If you don’t budget, you won’t be sure that you’re on track.
People often avoid budgeting because it feels like a punishment. However, it’s all about your mindset. Budgeting helps you reach your financial and personal goals. If you don’t budget, you won’t be sure that you’re on track.
If you haven’t budgeted before, cutting back on your expenses can feel like fasting after years of eating at a buffet. To alleviate the potential shock, try reducing your expenses a little bit at a time.
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Budgeting methods
There are so many different ways you can budget. Here are the most popular methods – and what makes them helpful.
Spreadsheet
If you’re a whiz at Excel, you may enjoy using a spreadsheet for your budgeting needs. Services like Tiller can create a budget using an editable spreadsheet. Tiller will also import transactions directly from your bank or credit card so you don’t have to manually input them.
Paper and pen
Old-school folks – or those who simply love stationery – can try the paper and pen version of a budget. To do this, simply write down everything you spend and use a calculator to track how much you’re spending compared to how much you’ve allotted.
Some people find this system more meditative because they’re forced to think about every purchase as they write it down. However, it can also be harder to manage and it may be easy to inadvertently forget some smaller purchases.
Zero-based budget
With this method, you automatically transfer the amount you need for fixed expenses, such as rent, gas, utilities – basically anything with a set dollar amount. You’ll also set aside money for your loan payments.
Anything else will be transferred to a checking account that you can spend. Once that money is gone, you’ll have to wait until your next paycheck.
Which budgeting system should I implement?
There’s no perfect budgeting system. Every person is different. What works for your best friend may not be the right method for you to manage your finances.
Experiment with a few different methods for a month or two and see which one sticks. You can even try to combine a couple of methods to create your own budgeting smorgasbord. For example, you can use the 50/30/20 method just for your needs, savings and loan payments, and use a detailed zero-based system for your wants.
Budgeting is like exercise. If you don’t find a system you like, you won’t stick with it. And remember, it takes time to draft a budget that you can follow. Be patient and keep trying.
