Learn Budgeting 101 15 Budgeting Tips That Really Work

15 Budgeting Tips That Really Work

These budget tips are to help you outline and understand your finances – you need a budget to ensure you are spending responsibly and are prepared for unexpected expenses.

A budget is a comparison of your income against your expenses over a set period of time. It allows you to have a deeper understanding of your spending habits and how they influence your financial health.

Knowing how much money you bring in versus how much you spend over a period can be the difference between adding to your debt or going on your dream vacation. No matter your income or financial status, a budget can help you improve your spending habits and achieve your financial goals by keeping you organized and focused.

Tips for Successful Budgeting

Budgeting can be intimidating when you start. Don't be afraid to fail at first! Learning how to budget money is a skill that comes with practice. There is not necessarily a fool-proof plan that works for everyone. But with a few budgeting tips to get started, you can find out what works best for you and get started on your journey.

1. Budget the Month Before it Starts

Creating a monthly budget before the start of the month is a great way to plan ahead. A week or a few days before the first of the month, sit down and plan your activities and expenses. For example: one month, you may have an outing or vacation planned with family or friends, but not the next. You have to take this into account to ensure you set your budget accurately.

Besides activities that may only occur some months, you have to account for your necessary monthly expenses, such as housing and food - these recur every month, and should be the first categories you account for in your budget every month.

2. Pick a Budget Plan

Pick a plan that will help illustrate your budget and keep you on track. For instance, the 50/30/20 rule: in this example, 50% of your income is put towards essential expenses, 30% towards non-essentials, and 20% towards your savings. This budget plan is fairly easy to stick with and is a simple way to break your income down into such categories.

The 60/20/20 rule is another way to break down your budget categories. Here, 60% of your income is put towards necessary expenses, 20% goes towards your financial goals (debt repayment or emergency fund), and 20% goes towards wants such as entertainment.

The Cash Envelope system is another budgeting plan - in this system, you create envelopes designated for certain budget categories (groceries and transportation, for example) and fill them with the cash amount you plan to spend on those things. Once that cash runs out, your expenditures in that area have been reached. It helps to write out the details on the envelope too - breakdown which stores you plan to go to and how much you're allotting to those specific places for your own reference.

3. Budgeting to Zero

Budgeting to zero means taking every dollar you earn into account and giving it a place in your budget. The goal with budgeting to zero is to have a balance of zero after subtracting your monthly expenditures from your income. For example, you earn $3,500 per month. After considering your fixed expenses, contributions to your savings, any investments, or any other extra costs, you should have no money left over. Practicing budgeting to zero can illustrate exactly where your money is going and give every dollar a purpose.

4. Track all Expenses

Don't let a trip to the grocery store or a late-night online shopping session go unchecked – it's important to make sure every expense, no matter how small, is accounted for. Keeping bills and receipts organized is a great start. The best way is to keep these in a marked file or add them to a spreadsheet, so everything is in one place. This way, you will have a clear and accurate measurement of your spending habits and where to cut back if you need to.

Woman tracking all her expenses

5. Go Over Your Spending

Make sure you are reviewing your spending and expenses regularly to keep an accurate track. If you don't, you could miss an expense and throw your budget off. Mark your calendar or set a reminder on your phone to review your spending at a regular time every week, so you make it a routine and are familiar with the process.

6. Make Sure Your Budget Is Realistic

Base your budget on your monthly or weekly income and include all necessary and recurring expenses first. You need a budget to determine your financial health and understand how to improve it – if your budget is not realistic, you will not be able to follow it.

Factor in expenses such as housing, transportation, food, and other necessities first, and then move on to debt repayment and savings – make sure you're setting aside an amount that makes sense compared to your income and other expenses for these budget categories. From there, you can factor in expenses for non-essentials, such as self-care products and recreational activities.

You should also be specific with your goals – instead of saying you want to save more, decide on a particular amount and what it's for; for example, deciding you want to save $1,500 over a certain period to go towards emergency savings. This way, you have a clear and specific goal to work towards as your budget.

7. Adjust as You Go

Your budget is not set in stone – you'll need to adjust it as time goes on. Reassess your budget regularly, such as every month, so you can get an idea of how well you are sticking to it. If you notice you're consistently overspending in one category or underspending in another, you can adjust your budget accordingly to reflect this and make it more accurate.

8. Separate Your Accounts

Setting up multiple bank accounts for budgeting can be a helpful and well-organized resource: have one account for your income and daily expenses, another for regular bills, one for savings, and one for occasional expenditures such as car maintenance, vet trips, or gifts. This way, you can always know that you have the money to cover your bills. That being said, try to find a bank that charges little or no monthly fee; many allow you to have multiple accounts without paying extra.

9. Automate Finances

When you automate your finances, it ensures that your money will go to the appropriate account or bill before you get a chance to spend it. This is particularly easy if you have multiple bank accounts! Every month, tally your bills and set up an automated bank transfer for that total – ideally, this would be right after payday.

Transfer your money to your bills account from your daily account, so you have the means to pay for bills when you get the notice that they are due. You can also automate the bill payments to make sure you never risk missing a payment!

Also, you can automate transfers into your savings, and occasional expenses account every month. This way, you don't have to worry about transferring money every month – you know it will be there for you when you need it.

10. Account for Seasonal, Annual, and Semi-Annual Expenses

Some expenses occur seasonally, such as holidays, or every year, like birthdays or anniversaries. There are also regular expenditures that occur every six months, like car insurance payments. It's important to acknowledge and plan for these, so they are included in your budget, and you aren't surprised or dipping into your savings to cover them.

For things such as holidays or birthdays, you can write out a gift list with prices beforehand, so you know how much you are going to spend or, if your estimate is too high, you can scale back and not be in for an unpleasant surprise when you get that credit card bill. Planning for these things in advance assures that you can pay for them and, therefore, enjoy them more without worrying about the financial impact.

11. Plan for Recreational Activities

Things such as eating out, traveling, or entertainment should be included in your budget! This way, you are prepared for them and assured that you have the money to cover them. If you plan these expenses, you cut your risk of splurging on them; it's common to underestimate how much you spend per month when it comes to entertainment.

Factoring these events into your budget is often the difference between a successful and unsuccessful budget – you can't overindulge if you've set aside a realistic amount for leisure activities.

Mom and daughter having fun within a budget

12. Know Your Needs vs. Wants

Knowing the difference between needs and wants is another major factor in whether or not a budget is successful. "Needs" are things that are critical for a basic living – budget categories such as food, rent, and debt repayment. These need to be the first factors you include in your budget, as they are unavoidable.

"Wants" are everything that is not crucial to your daily life. While you should budget for your needs first, you also need to budget for your wants – it's impossible to cut 100% of unnecessary spending, so account for it! This way, you will be able to compare what you're spending on needs and wants and reevaluate your habits if you need to.

13. Utilize Budgeting Tools

There are plenty of tools available to help you manage your money through sites and apps, which allow you to track your spending through pay periods digitally. Many of these tools are often designed for specific situations. Are you looking to buy a home? Do you want to figure out exactly how much money you owe? There are free financial calculators for all these instances.

Budgeting apps are also great tools for tracking your budget - and a lot of them are free! There are also specific apps geared towards your chosen budget plan. Budget templates can also be useful - you can find various templates to use for your budget online, and many are designed for specific lifestyles.

Utilizing something as simple as a spreadsheet can also help you track your finances efficiently. Entering receipts and bills into a document regularly will help you stay organized and understand your spending patterns.

14. Shop Smart

Utilizing websites that offer coupons or deals, such as Groupon, will help you save on various things – from travel to entertainment to shopping, they often offer great discounts. Shopping for goods second-hand at garage sales or thrift shops will also help you to save money, especially when it comes to large purchases, like furniture.

Comparing prices online before you buy is also a great way to save money and avoid overpaying. Getting multiple quotes on insurance or utilities can help you make the best choices for your finances.

15. Prepare for the Unexpected

You should always have money set aside for unexpected events or emergencies. Things such as car repairs or trips to the vet are unpredictable. Decide on a reasonable amount and put it aside for emergencies. You could be following a strict budget to the dollar, but without an emergency fund set up, one unexpected event could wreck your whole plan.

Key Takeaways: Budgeting Tips

Budgeting is a necessary way to keep up with and improve your finances. These budgeting tips will help you improve or get started wherever you are on your budgeting journey. You may not get your budget perfect on the first try – that's okay! Don't be too hard on yourself. Eventually, you'll find a budgeting plan that works for you, and your financial health will be better for it!

Living life on a budget is hard, and sometimes you may feel like you'll never have enough for emergencies. Online cash loans from iCASH can help you pay for unexpected expenses while you wait for your next paycheck. We help thousands of Canadians get the funds they need in a simple and fast way.