How to Set a Budget for 2019 and Stick to It
Budgeting is important to make sure you're using money in a way that makes sense for your life. If you mindlessly spend your cash as it comes in, chances are good you aren't getting the most value from it. But, if you give your dollars a job, your money can work hard for you and help you to accomplish important financial goals.
Unfortunately, making a budget is the easy part -- living on it is much harder. To help you out with the process, check out these tips for setting a budgeting in 2019 that you can stick to.
1. Start by tracking spending
Budgets only work if they're somewhat realistic -- and you can't make a budget that works with your lifestyle until you understand your spending habits. By tracking your spending, you can identify what you need to allocate money to and where you need to make cuts because you're overspending.
Ideally, you'll track spending for around 30 days. This can be done using apps such as Mint or by manually entering transactions on a spreadsheet. Then, look back at a few months of credit card statements to try to catch irregular expenses.
Once you have a full picture of where your money is going, you can make necessary tweaks without creating a budget that's completely unrealistic to live on.
2. Collaborate with others in your household
If anyone else in your family spends money besides you, you'll need to make sure you have everyone on board to avoid blowing your budget. It does you little good to clip coupons to cut grocery costs, for example, if your spouse is stopping on the way home to buy filet mignon every night.
You should definitely make sure to have buy-in from your partner, even if you don't have joint accounts, because your partner's spending likely impacts your own behavior. If you have older kids, you may want to let them in on the budgeting process too so they'll understand that choices might have to be made to stay on track financially.
3. Choose the right kind of budget for you
After you've tracked your spending and committed to making a budget, you need to choose the right type of budget for your needs.
Some people chafe under the strict confines of a detailed budget and end up overspending out of frustration. If this sounds like you, you may be better off with a 50-30-20 budget. With this budget, you simply save 20% of your income (ideally by automating transfers of money on payday before you get a chance to spend it). You keep your spending on needs capped at 50% of income and can do whatever you want with the remaining 30%.
If you make sure to meet your savings goals and avoid going into debt with a 50-30-20 budget, this approach gives you a lot more flexibility and your budget may be easier to live on. But, if you find yourself consistently spending too much, you may need a more detailed budget that accounts for every dollar.
With this kind of budget, you'd allocate a set amount of money to all different kinds of spending, as well as to saving for financial goals. You might budget $200 a month for transportation, $400 monthly for groceries, $1,000 monthly for rent, $50 monthly for clothing, $300 monthly transferred into a savings account, and so on. The key is to account for every dollar so your outflows -- with spending and saving -- exactly match your income.
Being very specific about what you're spending on could help you stay on track if you tend to be careless about where your money goes. If you want to take things one step further, you could take out an appropriate amount of cash for each category of spending and put it into an envelope. Spend only from that envelope and when the money's gone, you're done spending for the month.
4. Leave yourself a little leeway
One big mistake people make when they create a budget is to forget that unexpected expenses crop up. You're probably going to have at least some surprises over the course of the month and if you haven't budgeted for this, your efforts to stay on budget could be derailed.
To avoid blowing your budget when an unexpected expense hits your household, budget in a little bit of extra money each month for "surprises." This could be $50 or $100, or more or less depending on household income. If it's not spent, transfer it to savings or keep it in reserve in case a bigger surprise expense comes along.
5. Track your progress
Finally, it's important to make sure you're actually living by your budget. This means tracking where your money is going.
You could do this monthly, using an app or entering transactions into a spreadsheet to see if you're keeping spending within the limits you set for yourself. Or, you could simply look at the big picture and make sure you're hitting your savings goals without going into debt. If you're accomplishing that, your budget is likely working pretty well.
Budgeting doesn't have to be hard
Living on a budget doesn't have to be impossible if your budget is realistic with your lifestyle and if you have the support of others in your household. Just make sure you leave yourself a little wiggle room and that your budget prioritizes the things that matter most to you.
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