Whether you’re planning your first budget or re-evaluating your current one, these six tips will set you up for success by changing the way you look at budgeting.
1. Budgeting is about confidence, not guilt
Many people avoid budgeting because they think it means giving up everything they love and converting to a super-frugal lifestyle. However, budgeting is not meant to shame you into being financially responsible – it’s simply about awareness. If you fully understand where your money is going each month, you can design a budget that allows you to truly enjoy your money and spend it confidently.
2. Stop comparing yourself to others
An effective budget is tailored to a combination of your wants and needs, so don’t force yourself to live within a sample budget you found online. Budgeting categories can vary wildly depending on where you live, where you work, how you get around, what you do for fun and what your personal goals are. Finding a budget that works for you will take some trial and error, and the end result will look different from every other budget out there.
3. Be real about your income
A rookie mistake when it comes to budgeting is using your salary (divided by 12 months) or your hourly wage (multiplied by hours worked) as your monthly income. Instead, take a couple of minutes to calculate your monthly take-home pay. This is your income after estimated taxes and other deductions have been taken into account (like health care, employment insurance premiums and retirement savings).
4. Savings is an expense, too
In many budgets, the savings category ends up getting whatever is left over after the “more urgent” (and sometimes not-so-urgent) expenses have been paid. The only way to take your savings seriously is to give it the same priority as your living expenses. If you contribute a set amount to your savings at the beginning of the month, your savings will grow much faster and you won’t be able to spend that money on something else.
5. Look to your budget instead of your balance
For many people, budgeting simply means checking your account balance before making a purchase, but this is an unreliable way of determining what you can and can’t afford. For example, your account balance can’t communicate how much money needs to be left untouched in order for you to pay your taxes this year or renew your gym membership next month. Get into the habit of referencing your budget instead of your account balance before spending your money.
6. Prepare for emergencies
Emergency funds are an important part of any budget and should be a separate category from general savings goals. In order to be effective, your emergency fund can only be accessed for real emergencies like sudden unemployment, a medical emergency, or a critical home or vehicle repair. Instead of looking at your emergency fund like another savings category, view it as a way to strengthen your entire budget. Not only will it cover tough situations, but it will also save you stress and give you peace of mind.