Nothing is more frustrating than working hard to earn more but saving less. I know because I’ve been there.
And I know that’s many peoples’ frustration too.
Many people struggle with spending, and what I mean by that is they have a tendency to overspend.
Good money management and personal finance is not just about how much you make, but also how much you spend.
It’s a balance.
If you spend more than you make, then you’re not balancing your finances. You are not putting away enough money aside for rainy days and for investments.
Even celebrities and athletes who make millions of money can and have ended up losing it all. While some are bad investments to blame, many of it is poor budgeting.
They spend far more than their income can keep up with.
You can make all the money in the world but if you’re not careful with your spending, you can end up with no money in the bank.
So how do you keep your spending in check and budget your spendings? Glad you asked!
It starts with creating a budget and keeping track of your spendings.
It’s the easiest and only way I know to prevent overspending.
With a budget in place and have a way to track it, you’ll know exactly how much is coming in and how much going out.
If you feel you don’t have good control of your finances, a simple budget can give more awareness. And most importantly, it gives you back the control of your money you’d had all along.
Before we get to budgeting tips, let me also tell you this.
Don’t let the idea of budgeting overwhelm you. When most think of budgeting, they think of extensive Excel spreadsheets. While they can help, you don’t need all that to take control of your monthly budget. You don’t even need to be a number-savvy or computer literate.
Budgeting is simple and easy, especially if you follow these 3 helpful budgeting tips.
3 budgeting tips to help you take control of your finances.
1. Write Down All Your Expenses
The first step to budgeting your monthly expenses is to know how much you are actually spending. Understanding where your money goes every month is where your budgeting starts.
This is because we don’t always accurately estimate our spending.
In fact, we too often underestimate and forget little expenses like coffee and tips, which add up fast.
Yes, most likely, you are spending way more than you think you are.
Before setting a budget, it’s essential you get a clear and honest picture of your actual expenses.
To do this, start tracking all your spending no matter how small or large.
There are several ways to do this, and the best method for you is the one you can commit.
Here is a classic, manual way you might want to try.
Carry a pocket-sized notebook on you at all times, and every time you make a purchase, you write it down.
If you want a more uniformed way, here is a monthly expense tracker pdf you can download and print for your use for free.
There is something about physically writing things down. It’s a simple yet powerful way to increase your awareness of your spending habits.
But I get that not everyone can keep up with the manual work. If you prefer more of a digital approach, you might want to try using an app.
You can easily track your monthly expenses on a mobile app like Mint, Wally, or charity money. A lot of times, it’s quite effortless, especially most of your purchases are on credit.
If you are a procrastinator like me who ends up doing all the work at once at the end of the month, you can collect receipts. On top of each receipt, write down the date, what it was for and the payment method used. This will help you track back your expenses and categorize them correctly.
Once you have gathered all the receipts, you can start listing up all your expenses to see where your money went.
I have a receipt jar in my house where I dump all my receipts every day when I get home. For online purchases, I just print out my statements and add them to the jar.
One word of caution using this method is that you may need to reconcile your records. Double checking them with a credit card and bank statements may be necessary. Without the step, it’s too easy to miss some of your purchases you didn’t get receipts for.
What’s most critical here is that you track your expenses and list them up. It’s the only way you’d know where your money is going and become better aware of your finances.
The tracking method only matters to the extent of helping you commit to the task. So find a method that fits your life and that you can keep up.
Once that’s done, you are ready to set up your realistic budget.
2. Create a Budget
Once you completed monthly expense tracker, let’s get started on budgeting.
If you have your expenses recorded per category, great! You are already one step ahead.
If not, you can start by creating categories that apply to you. Here are some of the common ones:
- Housing (mortgage, repair, maintenance, etc)
- Auto (auto loan, gas, auto maintenance, etc)
- Groceries (foods)
- Living Expenses (household items, cleaning products, cell phones, etc)
- Insurance (home insurance, life insurance, etc)
- Education (student loans, tuition, etc)
- Entertainment (dining out, cafes, Netflix, TV cable, movies, etc)
You can make as broad or narrow as you want.
If you are a detail-oriented person, having subcategories can help you stay on track even more.
If you are a big-picture person, you may want to keep your categories broad so you don’t get lost in details.
After you categorize your expenses, calculate the total for each section.
With that amount in mind, it’s time to set up a realistic and attainable budget for each of your category.
We start by writing down your net income.
This is because your total expenses must stay under the monthly income.
Better yet, aim to keep all your expenses below 80% of your net income.
Think of that amount (80% of your income) as your ultimate budget for the month.
Going over the amount means you won’t have any money left over to save. Or worse, you may find yourself overspending and dipping into savings and debt.
The best place to start is your fixed expenses like mortgage/rent, auto loan, and student loans.
These expenses tend to be fixed and your primary needs. Budget them first so you can allocate enough money for them every month.
Other expenses like entertainment, groceries, and living expenses are considered variable. This means there is room for cutting out some of the costs.
Look at your actual spending for each category and see if you’ve been overspending. If so, determine how much you need to cut and how you can cut them.
A lot of times, the easiest place to review is your groceries and entertainment.
By planning your meals ahead and buying in bulk, it’s actually quite easy to cut your grocery bills. And you wouldn’t believe there are so many healthy whole foods that are less than $1.
Here are the top 21 health foods you can buy with a dollar.
Entertainment is also fairly easy to cut.
You can cut back dining out from 3 times a week to 2 or instead of dinner, go out for lunch.
That alone can cut your dining out bills by 30%.
Another approach to setting a new budget is to look at your last month’s spending.
Take a look at your expense list from last month and mark ones you thought unnecessary.
It could be your morning latte at Starbucks or late night drive-throughs.
I would also question your subscriptions like TV cable and phone landline (if you still have it). They can easily be replaced by cheaper alternatives like Netflix and cell phones.
Once you identify expenses you can cut, mark them to see how much those come to be. Set a new budget that doesn’t include those expenses.
Once you have a budget for all categories, add up to make sure it stays under 80% or so of your income.
Great job! You are almost done with budgeting.
3. Work on Saving Money
Now that you created a budget that fills up 80% of your income, let’s take a look at the other 20%.
I highly suggest having a set amount for savings every month.
If your take home is $4,000 a month. 20% of it would be $800 a month. 10% would be $400.
20% should be your goal, but if you can’t allocate this much for savings, start where you can.
What’s important when starting is not necessarily how much you save. Rather, it’s about building a saving habit that routinely puts money away.
This comes especially handy when life’s unexpected events happen.
It may be a surprise addition to your family or auto repair.
Whatever it is, I urge you to have savings for rainy days. The best place to start is an emergency fund that covers 6 months of your living expenses.
If your monthly expenses come to be $3,500, build up to $21,000 in savings.
There are many other reasons why you want to build up your savings. Here are some of the most common examples of savings and how much to save:
- Emergency Fund (6 months of living expenses)
- Christmas gift (up to $100 a month depending on your family size)
- Child’s college fund (4 years of college tuition x # of children)
- Home down payment (20% of your home sales price)
- Retirement (consult with your financial planner)
Whatever you need to save money for, I hope these 3 simple budgeting tips show you how you can start. They will also show you where your money is going and how you can take control of your overall personal finance.