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Hate to Budget? Here’s the Easy Way to Plan and Save Money

Reading time: 3 Minutes

July 8th, 2020

Let's face it. The idea of creating a personal budget can seem like a complicated headache.

If you feel this way, you're not alone: nearly 60 percent of Americans who participated in a recent Certified Financial Planner Board of Standards survey reported that they don't track their spending. More than a third of people spend more money than they save, while two out of five people have never made a budget. Without a plan in place, it can be tough to save or pay off debt because, oftentimes, there may not be enough money left over at the end of each month. A budget helps prioritize where finances should go before it's all gone.

But budgeting doesn't have to be difficult or scary. A budget is simply a spending plan that lets you track income and expenses to help you reach your goals. Here are a few steps to create an easy budget for yourself:

Organizing Your Budget

An effective budget should include three categories: income, expenses and savings.

To begin, add up your income. This should include the salary or hourly wages from your regular job, as well as anything earned from a side job or freelancing. Be sure to include non-work sources of income, such as social security, child support or alimony.

Second, tally your expenses and debt payments. Most expenses can be considered:

  • fixed, meaning they don't change from month to month (rent or mortgage, student loans, insurance premiums, gym memberships, childcare, Netflix®)
  • variable, which fluctuate each month (groceries, gas, utility bills, home maintenance costs and credit card payments)
  • or “fun money," meaning money that gets set aside to spend however you wish⁠—for a night out, a guilt-free impulse buy, or something fun for yourself or your family.

Finally, determine an amount of money you'd like to save each month, either towards long-term savings, a 529 plan for your children's college education, to contribute to a brokerage account or for specific goals, such as travel or birthday gifts. At the very least, you should have enough saved in an emergency fund to cover a minimum of four to six months' worth of living expenses as a financial safety net in case of unexpected future circumstances.

Assessing and Looking Ahead

Once you've calculated your monthly budget by tallying up your income and your expenses, take a look at the numbers. What's the difference between your savings habits versus your spending habits? Are certain expenses⁠—like groceries or monthly memberships⁠—costing more than expected? Will you be able to meet your financial goals each month?

If you're unsure how much to allot in each category, from fixed expenses to luxuries, consider the 50/30/20 rule: Set aside 50 percent of income towards “needs," such as housing, insurance, groceries and utilities; 30 percent towards “wants," including shopping, hobbies and dining out; and 20 percent towards savings and paying off debt.

Other financial planners may recommend the 28/36 rule, where no more than 28 percent of gross monthly income goes towards housing expenses, and no more than 36 percent is spent on debt repayment, including your mortgage payment.

No matter how you divide the categories or rebalance your own personal numbers, the goal should be ensuring that expenses don't exceed your income, that you can reasonably chisel away at debt and can set aside some funds for the future.

Sticking to the Plan

Making a budget is the (relatively) easy part. Sticking with the plan, over the weeks and months ahead, is tougher. Luckily, there are some strategies that can help.

Consider strategizing payments on upcoming variable expenses. Look ahead on your calendar: Is your car insurance premium coming up? Do you have to pick up a gift for a wedding in two months? Are you planning for a family trip at the end of the year? Plan ahead for moderate expenses that you know will have a larger-than-usual impact on your budget.

Another helpful approach is to automate your payments online. This not only helps streamline the process of paying bills and transferring money, it also protects you from yourself in case you feel tempted to adjust the budget to make a spontaneous purchase, skip an IRA contribution, or forget to make a credit card or mortgage payment.

You may want to check out financial smartphone apps to help budget and monitor money while on the go. Apps like Mint® and Wally sync your bank accounts, credit cards, PayPal®, and other accounts to keep track of money coming in versus going out. And, once you've got the budget basics locked down, it might be good to eventually check in with a professional financial planner to help with bigger goals, such as portfolio management, and tax and estate planning.

Finally, don't be tough on yourself if your budget doesn't always go according to plan every month. Sometimes, things come up and mistakes can happen. What's important is that you have a financial framework in place. As long as, over time, your debt decreases, savings goes up and your spending habits aren't getting in the way of your goals, then you have a budget that's working for you.

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