Five tips for getting started with budgeting

Budgeting is essential to managing your finances, whether you’re trying to pay off debt, create a rainy day fund, or deal with the consequences of inflation.

Creating a budget is a bit like trying to eat better or exercise more — everyone tells you it’s good for you, but it’s hard to get into the habit, says advocate Colleen McCreary of consumer finance at Credit Karma.

“A lot of people think it’s too complicated and difficult to do,” Ms McCreary says. “Just like going to the gym, the hardest part is showing up, so you just have to decide that you’re going to give it a try.”

Even with high prices due to inflation, Elena Pelayo, an educator at How Money Works, a financial education organization, says there are small steps you can take to manage your money. These include checking how many online subscriptions you pay for or how often you eat in restaurants and cutting back where you can.

Here are five important steps when you’re ready to create a budget:

Write it

Writing down all your expenses is crucial, says Pelayo. She suggests recording every penny you spend rather than trying to guess, which can lead to errors.

Pelayo recommends using whatever method works best for you, whether that’s writing it down on paper, creating an Excel spreadsheet, or using a website.

Next, she recommends categorizing where your income should be spent. Always start by covering your basic needs.

A well-known budgeting system is the 50/30/20 rule, where 50% of your income is allocated for necessities like food and rent, 30% for things you want, and 20% for savings and repayment. debt.

Wiltrice Rogers of Allen Park, Michigan has used this system for over 30 years.

“It helped me see how beneficial it was and that we had more discretionary funds when I did this method,” says Ms. Rogers, admissions coordinator for a nonprofit organization.

This method works for many people, but it might not work for you if necessities consume more than 50%, in which case you’ll have to allocate less for savings or things you want to do or buy.

Budget format

Writing down your salary and then adding your expenses in a blank notebook or spreadsheet can be enough to make a plan. But if you need help visualizing what’s coming in and going out, resources are available.

“There are plenty of templates online that will help you review spending categories and spending categories for personal finance,” says Pelayo.

Microsoft offers Excel templates for special occasions like saving for a wedding or building a house. If apps are your thing, Mint, PocketGuard, and EveryDollar are some of the best budgeting apps.

Make a realistic plan

If 50/30/20 isn’t realistic for you, there are always ways to save and reduce your debt. Start setting aside small amounts of money each month or set small goals, says McCreary.

“Small steps lead to progress,” she says. “It’s really about progress, not perfection.”

She recommends starting with a goal each week, whether it’s saving a certain amount or reducing the amount you spend on unnecessary things.

“Don’t make it too complicated, don’t make it difficult for yourself,” she says.

Ms. Rogers, for example, usually tries to save as much money as possible when buying groceries.

“I collect the sales documents and mark what we need and if it’s on sale. I try to make a triangle of shops to save time and gas,” she explains.

She also buys in bulk, sticks to her grocery list and shops alone to avoid her son and husband convincing her to buy extra items.

Websites such as Flipp, which displays digital flyers from major retailers around you in the United States, and Groupon, where you can find coupons for products and services, can help you save more easily. But keep in mind that this only works when you use coupons for items you need or plan to buy anyway.

If your income only covers your needs, reducing credit card debt can be difficult.

Pelayo recommends that even if you live paycheck to paycheck, you might want to add at least $10 on top of your credit card‘s minimum payment with the highest interest rate.

If you can afford it, she recommends paying 10% more than the minimum payment per month.

Make it a habit

To achieve your financial goals through a budget, you need to change your mindset, says Pelayo.

“You have to look deep inside yourself and say to yourself, am I ready to change my ways?” She adds.

Once you are mentally ready, you can start setting goals.

Set yourself a time goal: creating new habits can be difficult, and it’s even more daunting to think about having to keep them for the rest of your life.

McCreary recommends that your first goal be to budget for two weeks. After reaching this, you can set a longer schedule until it becomes part of your routine.

Gamify your budget: If you’re still struggling, McCreary recommends gamifying your budget and making it a challenge.

“Maybe there is an outcome involved. Like, ‘Hey, if we save enough money, we can buy a new TV or go on vacation,’” she says.

Record every penny you spend rather than trying to guess, which can lead to errors

Elena Pelayo, educator at How Money Works

Examples of gamification include giving you a small reward after a certain amount of time or money you’ve saved.

Apps such as Mint, which rewards the number of times you check your budget, and Acorns, which allows users to invest with their loose change, can help. Yotta and Save to Win allow users to create savings bank accounts that reward them for the amount they save.

For accountant Tiffona Stewart, gamifying her savings meant using the envelope system, where you put money in envelopes for specific expenses.

“It’s tailored to your life and what you want to save for, so that’s what I like,” says Ms. Stewart.

She also started a business selling budget envelopes and binders on Etsy to encourage and promote financial literacy. She sells “one-month challenge” packages intended to help save $1,000 in cash.

“You play these games and you make these things your own. You try something new, there’s nothing right or wrong, you could be wrong one month and better the next,” she says.

Involve your family or friends

As with any lifestyle change, it’s crucial to have people around you to support your decisions and encourage healthy habits, McCreary says.

This could include talking with your partner about your finances, telling your friends you’re going to start budgeting, or explaining to your children how the family now spends money.

Ms. Rogers’ 11-year-old son now knows that if there’s no coupon for the item, they don’t get it.

In Ms Stewart’s case, using cash when going out with friends helped. If you only take $100 with you and don’t bring your credit card, you just can’t spend any more, she says.

“You need everyone involved in these decisions to engage with you to support them,” says McCreary.

Updated: September 01, 2022, 05:00

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