Budgeting can be a daunting task. It takes time and effort, and it’s not necessarily fun. The keys to having a successful budget are to make it: (1) realistic, and (2) easy to maintain. Some people mistakenly assume that having a budget means cutting their expenses to the bone and hoarding their money for the future, but that’s simply not the case. Likewise, maintaining a budget doesn’t have to be an onerous task. The ideal budget helps you to stretch your dollars further without taking up a huge amount of your time.
Build a Realistic Plan for Your Budget
Cutting everything fun out of your budget does you no good. People who drastically deprive themselves almost always revert to their old habits. It’s just a matter of time before you lose your resolve. Instead, try these tips.
Track what you spent last month. Review your bank statements either online or on paper. See where your money went. If you want to make it easier to track your expenses, try a money management program.
I use Mint (it’s free!) to provide online snapshots of our accounts. It can show the data with a list of transactions and categories or, if you’re more visually inclined, there’s a tab that lets you examine the data in a pie chart.
Look closer at one or two expenses that you want to change. For us, our weakness was eating out for dinner. We looked at six months of data and noticed that we were eating out way more than we thought. To rectify this situation, we set a goal to cut back, but not eliminate, going out for dinner.
We also don’t try to tackle multiple goals at once. By focusing our efforts, we’ve been able to cut back on expenses and still enjoy a romantic night out.
Review your budget regularly. It’ll take time as well as some adjustments to develop a budget that works for your family. Once you find your rhythm, you can check it less often.
Automation Can Help You Stick to Your Budget
Automating your finances can help you “lock in” certain aspects of your budget and decrease the likelihood that you’ll go astray. Here are a few tips.
Have a portion of your paycheck transferred to a high interest savings account. Start small, on the order of 5-10%, and use automatic transfers to move that money into your saving account. You probably won’t even miss such a small amount.
I use ING Direct for my savings. The main reason for this is that I can easily create sub-accounts. This allows me to not just save, but to save for very specific goals.
For example, I have one account where I’m saving to eventually replace my car. I just started this account, so it’s small. Over time, however, the automatic transfers will build it up. These sorts of transfers work well with a budget, because I can set aside a defined amount on a regular basis rather than getting hit by a huge expense all at once. Anticipating your financial needs can save you lots of headaches.
Here are some possible saving account goals:
- Vacation fund
- New television/electronics
- Semi-annual expenses like renter’s insurance
Set up free online billpay with your bank. Most banks and credit unions offer free online billpay with your checking account. If you’re willing to set aside an hour or two to get your all bills entered, you can reduce your time spent paying bills to 15-20 minutes month. On top of this, you’ll save on postage.
It took me an hour to get our bills entered online. I just sat down with a stack of our bills and entered the accounts, address, and dates into bill pay. For “fixed” bills that are the same every month, I set them to be automatically paid one week before their due date. For bills that change form month to month, like the electric bill, I just login and type in the amount – it takes less than two minutes.
Take advantage of your company’s 401k program. It may be off in the distance, but eventually you’ll be retiring, so… Investing now makes good sense. If you’re just getting started, then try to invest at least a small amount on a regular basis — just like with your automated savings (above). You can always increase your contributions in the future. How much should you save? Try to set aside at least enough to receive your company’s full match — that’s free money, so don’t turn your back on it.
What About You?
Do you budget? How do you handle your bills? Have you automated your saving/investing? If you have any tips or tricks, please share them in the comments.