The b word—b*dget—is an instant turn-off for many people. It’s one of those things that you know you’re “supposed” to do but never get around to, and then occasionally feel bad about. Or, maybe you’ve tried in the past but then gave up with frustration.
No surprise. Budgeting comes naturally for a few people, but many struggle to find and stick with a system for more than a few weeks. However, those who do, may find that tracking their income and expenses can lead to a feeling of control over their finances.
How can you overcome the resistance and get the ball rolling? Two important first steps could be to define your goals and redefine what we mean by budget.
If you’re going to be successful, you need to have a reason for why you want to take more control of your money. Tracking your spending money time and can be frustrating, and you’ll want to be able to recenter yourself by focusing on why you’re going through this process.
Perhaps you want to:
You may have several goals, your goals could change over time, or you might still be working on defining your goals. That’s all okay, as long as you continue to think about the “why” behind your decision throughout the process.
For some, budgeting is synonymous with limiting spending and opportunities. The sense of restriction can keep you from starting, or wanting to continue. It may even leave you feeling judged if you sign up for budgeting software that pesters you with notifications or emails whenever you spend money.
Instead of trying to start with a complete budget, focus on tracking your money. The goal isn’t to spend less or save more—it’s simply to know when and where you’re spending money. Keep this up for a few weeks, or even a few months, until you feel like you have a grasp of your spending habits. Then you can create a more robust budget.
There’s no right way to track your spending, although some methods are certainly easier than others. If you want to stay involved with every day-to-day purchase, consider using a notepad to write down your purchases. Or, keep your receipts and type up everything in a spreadsheet at the end of the day.
If you’d prefer some automated help, there are many free and paid (but often with a free trial) apps that you can use to record your purchases. Many apps can also connect to your bank accounts and credit cards to automatically pull in and categorize each transaction.
In the beginning, you’ll be focused on tracking your spending and can ignore the rest of the features in the budgeting app (if you chose to use one). Once you have a good idea of when and where your money goes, it’s time to complete your budget.
There are two pieces missing, your income and defining your spending categories. Your income determines how much money you have available each month and the categories will define how you want to spend that money each month.
It can be useful to create specific categories, such as groceries, dining out, clothing, entertainment, debt payments, transportation, and housing. You’ll want to personalize the categories in your budget based on your spending habits and lifestyle.
If you were surprised to learn how much you usually spend at certain places, you might want to use even more specific categories, such as work lunches or happy hour drinks. Then, you can more easily track your spending in those categories moving forward.
The budget part comes in when you set a specific spending goal (i.e., limit) to each category. You can set your goals based on the spending you tracked, or make adjustments to better align the goals with your values. Overall, your spending goals should add up to be less than your monthly income.
Three important budgeting categories sometimes get overlooked but may be vital to helping you stick with your budget: cheating, saving, and annual purchases.
Your cheat fund is a small pool of money that doesn’t have a defined purpose. At the end of a long day when you need a pick-me-up, you can turn to your cheat fund even if your snack or dining out categories are maxed out.
The saving category is where you’ll set aside money for your future self. You can transfer this money into a savings account to keep it separate from your spending money.
The annual purchases category will keep you from getting thrown off-course by major expenses. For example, if you pay $120 for your car’s registration every year, put $10 into that category each month. Do this with all your major, but infrequent, purchases. You know they’re going to come up anyway—now you’ll be prepared.
Once you’ve been budgeting for a few months you may find that your budget isn’t working. Perhaps you’re overspending on dining out every month or categorizing your purchases has become such a chore. You may be feeling frustrated and ready to give up. That’s where you don’t want to end up.
Instead, you should expect to adjust your budget, especially during the first few months.
If you find you’re consistently overspending on dining, and eating out is important to you, perhaps you can move money from a different less-important category to cover the expense. Or, you could find a way to earn extra money and put it toward dining out. If you’re overspending on dining out and would prefer to save the money, start preparing food at home ahead of time.
When budget upkeep is too stressful, perhaps it’s time to try out a different app. By this point, you probably also have a good idea of how much you’re spending each week and could set aside a half hour each week to update your budget instead of tracking everything daily.
In the end, creating a system that works well for you and adjusting it to your needs can give you insight and control over your finances.
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Louis DeNicola is a freelance personal finance writer and credit enthusiast. You can find him on Twitter @is_lou.
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