Let's talk about better budgeting! When you think about the word 'budget,' it has such a negative connotation associated with it, the same as treating it like that awful diet.
First things first, if it gives you that blah feeling, change the name. Don't call it a budget. I personally like to address mine as my "glow up" plan because it holds me accountable, and my dollars are flowing in my favor. I know you’re probably saying, “I already tried, but it didn’t work.”
Was it that it didn't work for you, or was it that you weren’t realistic about it? Budgets work, but you have to be willing to be transparent with yourself. The goal is to have every dollar work for you vs. the other way around.
To be clear, not every budgeting method works for everyone. You have to find your style and flow that works for you. Whether it’s the envelope method, the zero-sum method, or the cash diet method, something has got to stick. I personally like to use a little bit of all three based on my current system, it works, and it makes sense. The key is to figure out why your current method isn't working and how to budget better.
Why your budget isn't working
If you’re still figuring out why your budget is not working, here are 3 possible reasons:
1. You didn't count all of your real expenses
Budgets are not meant to be restrictive. In fact, it’s an important document that tells you your input and output of funds. If you don’t include things such as your Netflix, or Hulu subscription, etc., you’re probably going to go over every month. If your monthly expenses aren’t real, then your budget isn’t either. Just sayin’.
Make sure you take the time to add every single expense every month. A great way to do that is to take out a piece of paper and start looking at your debit and credit card recurring expenses.
2. Spending more than you’re making
Often we make the mistake of creating a budget where the income doesn’t match our expenditures. If your income doesn’t match, it’s time to not only go through your expenses to see what you need but also what you can live without. If you need every single item in your budget, it’s time to decide how to make extra money to cover your expenses, so you’re not in the red all the time.
3. You forgot to make room for "fun money"
If you have the cushion in your budget, you should, of course, make a line item for "fun money." Let’s keep it real here; no one wants to not have any money to do some of the things that they love. Every month, I allocate a specific amount of money in my budget for going out to eat, entertainment, etc. It allows me to not feel deprived as I pay my bills and prioritize paying down debt and saving money.
Note that although you have fun money, there are times where you will need to cut it down as you prioritize some of your other expenses, but the line item is there for you.
5 Key steps to better budgeting
Now that you have an idea why your current budget isn't working, try these 5 tips to create a better budget.
1. Pick a better budgeting method
Sticking to a budget can be difficult, but it's even harder to stick to if you pick a budgeting method that isn't right for your financial situation. If you're a super busy person, then you need to simplify your budget, so it isn't too time-consuming. For example, the 80/20 budgeting method may be the best choice for you because it's simple to do.
With this method, you allocate 20% of your income to your savings accounts, and the other 80% goes to your living expenses and other amenities. So, if you make $2,000 a month, $400 goes into your savings accounts, and the remainder is left for everything else. This makes budgeting your money much easier because you don't have to break your money down into multiple percentages or categories. There are many types of budget templates and tools to choose from. The key is to pick what suits you best.
2. Pay yourself first
21% of Americans don't save money from their income! It's so easy to put off saving money, especially if you do it last. When you "pay yourself first," you put money towards your savings goals before spending any money. When it comes to better budgeting, paying yourself is one of the best things you can do! Create a savings goal, start paying yourself before you spend any money, and see how fast your account grows!
3. Automate your finances
The simplest step to better budgeting is automating your finances. Setting up direct deposit, automatic bill pay, and savings transfers keeps you on top of your finances and saves time. It also prevents you from paying bills late, which saves you money in late fees. However, it's important to still review your finances monthly to ensure everything is being paid correctly.
4. Review your budget monthly
The important thing to remember when you're trying to create a better budget is no two months are the same. That's why creating a budget every month is essential to financial success. You may have upcoming expenses that you didn't have last month or may need to adjust your debt payoff plan because you recently paid off a credit card. Whatever the situation is, checking in and making a budget every month or even every paycheck will keep you from having financial mishaps.
5. Cut expenses
Finding various ways to cut expenses is vital to better budgeting. Cutting cable, unused subscriptions, and shopping savvier at the grocery store can save you a bundle of money. If you find a way to cut $100 from your budget every month, that adds up to $1,200 in just a year! Cutting expenses wherever possible is how to budget better quickly.
Better budgeting will save you more money
Budgeting is only a piece of the puzzle when it comes to managing your money. Money can be an emotional trigger for most, but changing your mindset and beliefs can help you move through your financial journey.
As you figure out what budgeting method works for you, remember that pivoting is ok. Pivoting is necessary for every aspect of your life when something is not working. Once you find something that is seamless for you, stick with it. Learning how to budget better and adjusting your budget can prevent you from overspending and help you save more money. Learn more on how to create a budget that works with our completely FREE course!