Are you trying to figure out how to manage your money better? Making a budget can be one of the easiest ways to maximize the value of each dollar you earn and achieve your financial goals. As only one-third of Americans actively budget and approximately two-thirds of Americans live paycheck to paycheck, this reason alone is a compelling reason why you should budget. Starting a budget might feel intimidating at first, but, here are several ways to help you get started.
The Ultimate Budgeting Goal: Live on Last Month’s Paycheck
The ultimate budgeting goal to strive for is living on last month’s paycheck instead of relying on the next one. Living paycheck to paycheck is stressful and spending a few minutes to create a simple budget can allow you to sleep peacefully at night.
No matter how you decide to budget, you need to budget for the expected and unexpected. Start with a small savings goal of $500 that gradually increases up to 3 to 6 months of living expenses. Eventually, you will have enough money that you can afford to take a month off a work and still have money to pay the bills.
Each month, take a few minutes to compare your actual expenses to your budget. Some months will be more expensive than others, but, by making your reasonable goals you will not feel like quitting and develop a small nest egg in the process.
Several Budgeting Styles to Try
There are several different styles of budgeting and you will need to decide which is best for your income and personality. To avoid “budget burnout” make small and realistic goals that gradually increase. Your big goal might be paying off student loans, buying a new car with cash instead of getting a loan, or saving 50% of your income. But, it might start small like saving an extra $25 each month by cutting spending somewhere else. Make sense?
Remember, a budget is a plan that helps accomplish your financial goals quicker.
The 50/20/30 Budgeting Rule
This might be the easiest budgeting strategy to start and follow as you spend your paycheck as follows:
- 50% on Essential Expenses
- 20% on Savings
- 30% on Personal Expenses
As a Millennial just beginning your career, you have quickly learned that a good portion of your paycheck is used to pay bills. This can include student loans, a car payment, and rent. This is why half of your monthly income is allocated to paying bills.
You then divide the rest of your income between saving for future expenses like retirement, an emergency fund, and also for your next vacation. Instead of having to borrow money or carry a credit card balance.
Depending on your financial goals, you might decide a 60/30/10 ratio is better. The important thing is to be flexible. While you can create a budget using pen and paper, using an online service like Mint (Free) or You Need A Budget ($50 per year) can streamline the process and help you track expenses and make savings goals in real-time.
This second style is more detailed than the first approach, as you write your spending categories on various envelopes and place enough money in each one. For example, you might put $300 in groceries and $100 for entertainment. Once an envelope’s money is spent for the month, you don’t buy anything else in that category until next month. It’s like receiving an allowance as a kid as you could spend it all at once at the candy store or space your purchases to get a little bit each month.
As you most likely do most of your spending online or with a plastic credit card, you can digitally follow this budgeting style with Mvelopes by allowing you to track your spending for free.
Making a budget and sticking to. Sounds easy, right? Let us know what has worked for you and secrets to the success.
- Won't over spend
- Encourages Savings
- Hard to Start