Wish saving money was as easy as spending it? Yeah, us too. For 25 million Americans, living paycheck to paycheck is the norm, but it’s risky and can leave you vulnerable to relying on credit to survive. While setting a budget seems hard – sticking to it can seem even harder. But, fear not, readers — since many of us are in the same boat, we’ve joined with CSBK to give you five tips for creating and sticking with a budget.
1. Determine your goals, and know your take home pay and other sources of income.
Goals are tough to talk about in any context but they will help you define your budget and stick to it. Think about your long term and short term goals: backpacking through Europe, buying a new TV, paying off your student debt, purchasing a home. Setting one, five, and ten year goals will help you with step two below.
Your take home pay is your monthly salary after taxes, social security, health insurance, etc. Any additional sources of income, like bartending or Uber-ing on weekends, should also be included.
2. Understand your expenses and use the 50/20/30 rule.
You can get a good idea of your normal expenses by viewing your bank and credit card statements from the last three to four months. Determine how much of your income went to essentials {like food, rent, transportation}, how much went into savings or debt repayment, and how much you spent on wants {happy hour, gym memberships, shoe shopping}. This will help you get a good sense of how you spend your money.
The 50/20/30 rule is a great tool to use when setting up a budget. Form a realistic picture starting with your take home pay, and then calculate 50%, 20% and 30% of it. No more than half of your take home pay should go to living expenses. About 20% should go into financial goals {savings, retirement, emergency funds} and 30% should go towards discretionary spending {weekend getaways and Starbucks runs}. Keep those numbers handy when you get the urge to splurge.
3. Automate your expenses and your savings
Automating your monthly bill payments can save you time and money. Setting up auto bill pay with your bank is easy, convenient and puts you in control of the date the bill is paid. It also prevents you from missing payments and can save you money on postage, envelopes and checks.
Side note: Don’t completely forget about checking auto-bill payment! You should still monitor your bank account to make sure the bill is paid on time to avoid late fees and an increase in interest rate.
On the flip side, open up a savings account {or one for each of your goals} and then set up automatic transfers from your checking account. Best practice tip: arrange for the date of the transfer to be the day after you normally receive your pay — this way you won’t be tempted to spend before you save.
4. Track actual spending — even what you pay for with actual cash
Ever get to the end of the month and wonder how all of your money disappeared? If you are using cash frequently, that might be the culprit. Try tracking your cash spending by using a financial diary. Write down everything you spend money on and save receipts as backup. Alternatively, you can use a budget tracking app to help you become aware of your spending habits and to stay on top of your budget.
5. Make adjustments when needed
There is no single recipe for success. Everyone spends differently, but it’s important not to overspend. If you have higher than average debt, you may need to allocate more towards savings and debt repayment for a while.
And while you’re trying to save money, try not to completely cut out social activities like dining out and happy hour — it may cause you to overspend in other areas. Set a specific amount of your discretionary spending to your social life and stick to the budget. It may require you to cut back, but you shouldn’t have to cut it out of your life completely. No one said saving money would be fun {or easy} but it’s definitely worth it in the long run. And with so many tips, tools, and apps {paired with a positive mindset} you’ll reach your savings goals in no time.
Are you a savings pro? Share your best tips and trick with the HG team and spread the wealth {of knowledge}!
