Question from Reader, Krystle:
Hi! I’m a long-time reader of your blog and I love that you do little spotlight posts on things outside of deals to help us better other aspects of our lives.
I recently started a budget for my family and I’m quickly realizing some of the limits I set for each area isn’t probably going to be enough to get to the end of the month. I know the first month or two can be a lot of trial and error to find limits that work for you. I was hoping you could do a write up and see how other Hip2Savers stay in their budgets and what things have made them successful in their budgeting? Thank you!
Some of the most common New Year’s resolutions involve finances in one way or another. Christmas is over, we’re looking to get organized in many areas of our lives, and putting together a realistic budget is one way of organizing our finances. Let’s be honest here… changing spending habits is a HUGE shift that impacts many areas of your life. It’s also hard to know where to begin, and which method will work best for you.
Practical tips for successful budgeting…
1. First, look back at your previous months’ spending habits
Knowing your habits is the only way to recognize where you need to improve. Everything can be divided into two categories: Fixed Spending and Discretionary Spending.
Pull up account statements (I recommend at least 3 prior months) for all credit cards and bank accounts, and compile a list of where your money has been going. This part can be a harsh reality-check for many of us, BUT it’s the best way to help you be successful. If you’re good with Excel or Quicken, go ahead and use those, but a good old fashioned pen and paper works just fine, too.
When analyzing your fixed spending, give yourself a little wiggle room. For example, when looking back at your utilities, factor in the highest electric bill, not the lowest. This will save you the trouble of having to rearrange your budget on months that it’s higher.
Your discretionary spending should then be divided into sub-categories: eating out, clothing and shoes, travel, entertainment, gifts, hobbies, kids’ sports/activities, etc.
I know I’ve mentioned it before, but I’m a BIG fan of the Mint App, and I know many readers are, too. I also have several friends who love the You Need a Budget mobile app. You can try it free for 34 days HERE.
Tip: See if your bank or credit union has a mobile app. My credit union’s mobile app has a spending tracker that gives me a pretty little pie chart of my spending, so I see an actual visual picture of my spending habits every time I sign-in. I’ve also just started using the “Budgets” feature. It pulls my average spending in each category for the last 3 months and generates a budget, while also factoring in my income. Talk about a reality check… 😬
2. Set a goal with a deadline
Saving for a new home? Vacation? Or maybe you’re just trying to get out of debt (logically, excess cash should always go towards debt first!)? Whatever your reason for creating a new budget, having a goal can help you focus and remain disciplined. You’re less likely to stray if you can see the reward at the end. If it’s a ways out, set a few mile marker rewards.
Vacation next year? Stick to your budget for 6 months, and reward yourself with a new swimsuit. Hitting those small milestones can be super helpful in keeping you focused.
3. Pay off debt faster
When factoring in your payments toward debt each month, you should always be paying more than the minimum payment. You can also change the billing cycle dates on many credit cards if you need to stagger them. If payments are higher than you can manage and you can’t find extra money, a free credit counseling service, such as the National Foundation for Credit Counseling, can help. Be VERY wary of services that charge a fee and promise to reduce debt.
4. Switch to cash
Most budgeting experts agree – using cash, via an envelope system (like this one), makes you more mindful of your spending. Obviously this only works for purchases made in-person, but that still encompasses much of your discretionary spending.
5. Reassess each month
Looking ahead to the coming month makes it easier to reallocate funds as needed. Factoring in things like children’s sports fees, school clothes, birthdays, and other expenses that are not necessarily “fixed” monthly expenses, makes it easier to plan around them and trim other areas as necessary to accommodate them.
What tips and tools have helped YOU create and stick to a budget?
Written by Danielle for Hip2Save. Danielle is a proud mom to 5 amazing kids in Utah, who lives for coffee and baking. She’s dedicated to balancing her own interests and passions, while encouraging her children to follow their own paths in life.