Two things have helped improve my finances dramatically. Firstly, I decided I needed to earn more money. As a Latina, I statistically have the most significant wage gap women experience; 49 cents to every dollar a man makes. Second, I fine-tuned and started using budgeting best practices that worked for me.
A budget is a plan to spend based on your expenses, income, and financial goals. You tell your money where to go and make it work for you. There are various budgets for everyone’s individual needs, and you can adjust them.
This is why I love budgeting. I firmly believe that you can make financial progress faster if you have one in place.
Why are budgeting best practices important for your financial health?
A financial goal of saving $10,000 can be a destination. But you'd still need directions on how to get there. Enter, best budgeting practices.
For example, you could take your $10,000 goal and divide it over 12 months which lets you know that you need to save at least $833 per month. The next step would be figuring out how to save that amount per month which is where a budget comes in.
Implementing some of the budgeting best practices we'll share in this article will help you stay accountable to your goals. You'll know how much money you spend in various categories.
And once you have a handle on your spending, you can decide where to cut back and earn more to hit your goals.
7 Budgeting best practices
So you know why budgeting is so important and how it can help you achieve your dreams, but you might be asking yourself where to start. You could also be frustrated due to a failed budgeting attempt you experienced.
No matter how things have played out in the past with budgeting, you can still succeed. Here are seven of my favorite budgeting best practices to help you get started.
1. Set clear goals
Setting clear financial goals is key to keeping yourself on track with analyzing your spending. You’ll know how much money you need to save or put towards your debt with a clear goal.
For setting clear goals, I always recommend the SMART Goal Method. It stands for:
Specific: A clearly defined outcome of what you want to achieve.
Method: Ways you will measure progress on your goal.
Achievable: Make sure the goal you set is possible.
Realistic: Ensure the plan is practical to your life circumstances.
Timely: A detailed timeline of when you will complete your goal.
A SMART goal example could be the fact that I am saving X amount of money for a Saint Laurent bag. It meets all the standards listed above, and I can set an actionable to-do list to get it done.
However, SMART goals can be financially related or even personal ones you’d like to achieve. Using the SMART goal method as one of my best budgeting practices means I know what to focus my energy on.
2. Get clear on your spending with both variable and non-variable expenses
To start allocating your money to the categories in your budget, you first need to know exactly where your money is going.
In any budget, you need to know two types of expenses:
Your non-variable vs. variable expenses
Non-variable expenses are payments that never change, like your rent. Then you have variable expenses that fluctuate, such as gas, groceries, and clothing.
Using this as one of your budgeting best practices will help you know where to cut back. You can make note of how much you spend in each category over a period of several months, or even look back over the last year.
Using this approach, you'll be able to build your budget from there based on realistic numbers.
3. Find a system for budgeting that works for you
I am a total believer that there is a budgeting style for everyone. Everyone is different and needs their unique money plan to get them where they need to go.
For example, my current budget is zero-based, but when I want to save even more, I’ll switch over to using cash envelopes. As someone with ADHD, I’m not a great abstract thinker, so budgets that leave a lot of gray areas don’t work for me.
4. Remember to pay yourself first
Yes, there is an actual budget called the pay yourself first method, but you should pay yourself first no matter your budget.
An example of paying yourself first is to make sure you contribute to your 401(K) at work before deciding anything else.
It can also look like making sure you have an adequate emergency fund set aside or making a credit card payment when you receive your paycheck.
Make future you proud and take care of these things as part of your best budgeting practices.
5. Create space in your budget for miscellaneous expenses
We cannot predict the future. I know; I just heard audible groans coming through your computer screen.
You may be saying, “Athena, what’s the point of making financial goals if you’re saying we can’t predict the future?” We can’t know the future, but we know stuff happens.
Eventually, cars will need oil changes or new tires. Your cat might meow so loudly you decide to take them to the vet (not that I’m speaking from experience or anything).
The point is that stuff does happen, which is why you should create a miscellaneous category.
When you use this as one of your budgeting best practices, these hiccups won't derail your financial progress.
6. Do regular check-ins with your budget as often as needed
When you start budgeting, you may get overwhelmed with tracking your expenses. This is why it’s essential to check in as often as necessary to see where your money is going.
You’ll be able to evaluate your spending in real-time instead of doing damage control at the end of the month.
7. Adjust your budget when your life or income changes
We already mentioned things happen, so in this case, feel free to change your budget. If you decide to pivot the direction of your life, it makes sense that your old budget won’t fit your new needs.
Or if you get a pay raise or a new job that affects your income, this could also be a cause for a budget change.
A budget is supposed to grow to keep you on track with whatever you want, or need, to achieve.
Key advantages of using these budgeting best practices
Using the best budgeting practices we've mentioned has some definite advantages. Here are some of the ways it can help you.
Pay off debt
Budgeting can help you achieve your goals by knowing how much money you have to save or put towards debt.
You'll reach debt freedom faster when you improve your budget and look for ways to add to your debt payoff category.
Control your spending
By setting up a budget, you are assigning every dollar to a category that helps you control your spending.
Having a plan for your spending and sticking to it will leave you amazed at how much money you have left at the month's end to put towards things that matter.
When I cut certain items out of my budget, like home decor or buying stickers for my planner, I'm able to save more. The funds left over go towards bigger dreams I’ve set for myself.
I am working towards my first luxury purchase, a Saint Laurent Vicky Bag. A budget can ensure you hit any financial goal like a vacation, home improvement projects, or even a new car.
Do not give up on your budgeting best practices
I can say there will likely be a time when you want to throw in the towel. You may overspend, have too many things happen at once, or get stuck with new expenses you weren’t counting on.
Or maybe the house you want to save for might seem out of reach, or you feel like you’ll never get rid of your debt. When this happens, don’t give up.
Finding the best budgeting practices that work for you is crucial to your financial wellness (and stability).
Try different methods, adjust categories, or make more income to help when you can’t cut back anymore. You can do this so you can live a life you love.