Most folks know that budgeting is the first important step towards financial success. When you decide to budget, you’re giving your finances the best head start.
According to Investopedia, “personal budgets are extremely useful in managing an individual’s or family’s finances over both the short and long term horizon.”
So, what top 10 critical budgeting tips and trick must you use?
First, meet our guest.
Jo Anna is a former high school educator and ex-homeschooler. As a personal finance blogger and creator of More Money Tips, she loves sharing practical money ideas that work so that you can make great savings and increase your income. The ideas she shares have enabled her family to save more than $40,000 in two years on a modest income. When you know more about personal finance, you can have better finances and a better life.
Table of Contents
#1 You Need a Proper Budget
Are you surprised? You’d think most folks would have a budget. After all, we all know how crucial it is.
Personally, I must confess that I didn’t have a budget until a couple of years ago! However, my frugal living lifestyle has been keeping me in check. But if you’re already frugal, it doesn’t mean you don’t need a budget.
At your leisure, you can check out our exciting post on the debate if budgeting is just a training wheel and we tackled some limitations of budgeting.
Having a budget has actually helped me to save even more money than I thought possible, despite my family’s low income.
Keeping a budget is similar to a financial health check. A budget lets you know how much money is flowing in and how much of your hard-earned money is flowing out.
The most important part of a budget is the money you get to keep. Read this related post and find out how you can budget well and become rich sooner than you think!
#2 Know your spending & start cutting down on expenses NOW
You need to know exactly how much money is needed to pay your bills every month. Tally the fixed and variable amounts of your spending. They’ll add up to your total expenses each month.
Fixed expenses include internet bills and mortgage payments. To a certain extent, these can be changed. For example, you can switch to a cheaper phone company or internet provider.
Variable expenses include costs such as eating out and buying snacks and drinks. These type of expenses are under your control.
Do you know the fixed and variable expenses you need to pay each month?
Decide which variable spending you can reduce without causing too much pain.
Start small. But make a start today. Procrastinating and not having a good budget makes you poorer by the day!
Decide to make one small change per month. Add on another small change when you’re comfortable with what you’re doing.
#3 Automate your bill payments
You must pay your bills on time. If you don’t, you’ll have to pay either a late fee or interest on them.
Make every effort to pay your bills on time.
Try your best to avoid penalties. You’re actually paying extra for nothing. It’s worse than overpaying for items. Automate your payments to make sure your bills are paid off on time.
#4 Track your spending
If you don’t track your spending, how are you going to know if you’ve extra money left at the end of the month?
For example, I make it a habit to jot down how much I spent each day in my diary, and what the money was spent on.
It has become a strong habit so much so that I’ll feel very uncomfortable if I don’t keep track of my daily spending.
You can download our budget template to get started.
#5 Co-operate for Budget Success
You and your partner (and other family members) must agree to start or improve your budget. You need to work together to have budget success.
5A.Co-operation depends on things like motivation. Find out WHY you want to budget. Do you want to:
–Pay off your student debt sooner?
–Pay off the mortgage sooner?
–Buy your own home?
-Renovate your bathroom?
-Buy a good used car to replace an unreliable vehicle?
-Save for a comfortable retirement?
-Save to help pay for the kids’ education?
-Save to help support elderly parents?
-Visit family in another state or country?
Talk about and agree on why you need to budget.
5B. How much do you need to reach your goal(s)? What time period are you setting?
Saving $5,000 may seem impossible at first, but it’s doable.
If you give yourself 2 years, you need to save just $48 each week. Or just $7 per day. Here’s a doable idea – Packing both your work lunches instead of having lunch out will save you more than $7 a day.
You have shared goals and the math works out. Therefore you (your partner and family) will have the needed motivation to start your budget and stick to it.
If you have kids who are old enough, involve them in the budget talks as well (Learning to budget when young gives kids a fantastic head start in their finances). More tips on the post on 5 pillars of money every parent need to teach their kid.
5C. Ask yourself, your partner and your kids for their ideas to save money, spend less or make money, and write these down. Treat one another’s suggestions with respect. Never reject ideas outright.
Be encouraging. Say things like:
-“That’s a great idea! I didn’t see it that way before”.
-“Thanks for bringing this issue up; it’ll help us spend less”
5D. Ask for ideas on how to support one another. For example, Mr. MMT gave support when he talked me out of making impulse buys during a Boxing Day mega sale. We avoided the mistake of spending about $200 on unneeded home appliances.
Read this post and get my proven tips on how you can resist impulse buying.
5E. Write down all the budgeting ideas on a large piece of paper. Highlight the best and most practical ideas, and display the ideas in a prominent place to remind you of what to do to save more money.
5F. Since sticking to a good budget takes work, reward yourself and family members for putting in the effort to save extra money.
Allocate a portion of your savings as fun money. It can be used for an activity the whole family enjoys.
Working together and rewarding budget progress is the key to budget success.
#6 Always Pay Off Your Credit Card Debt First
Make it your TOP priority to pay off credit card debt as fast as you can.
Letting credit card debt accumulate is a fatal mistake. Credit card interest rates are cripplingly high. Yes, as much as 23 percent!
Any amount not paid off is charged high interest and compound interest.
Urgh…it’s not good at all.
A great way to save a lot of money on high-interest payments is to minimize the amount owed on your credit card. You owe it to your future self!
Once you’ve paid off your credit card debt, focus on saving for an emergency fund.
#7 Build Your Emergency Fund
Unforeseen expenses can and DO happen. The only way for you to protect yourself financially is to have a money ‘cushion’.
You might suddenly have a toothache that needs dental work. The car might need fixing. Your trusty oven might break down.
Everyone needs to have at least 3 to 6 months of savings socked away for the ‘just-in-case’ expenses.
You need to make your emergency fund a top priority. Start saving for it now!
You’ll have peace of mind and less stress when you know you can pay for unexpected expenses without borrowing or going into costly debt.
Read this related post and find out all you need to know about setting up an Emergency Fund.
Check out our 12 toddler steps to financial freedom to see what we recommend and what we do.
#8 Have Sensible Needs and Wants
You must be very clear what you truly need and what you want.
Savvy advertising has blurred the lines between what we see as needs and wants. With the daily barrage of adverts, you must be on your guard at all times.
Adverts are a huge threat to your wallet.
Don’t be fooled by adverts on the latest fashion wear or gadgets like iPhones.
Sadly, I personally know many folks – young and old, who fall for the Apple hype. Most of them used debt to purchase and end up with high-interest debt, just to buy the latest iPhone (which won’t be the latest in a few short months!). A colleague even bought a cheap phone just as a temporary substitute, until she has saved up her money to buy a new iPhone.
#9 Limit Fun Money
We need to put a limit on our fun money. Most folks get carried away and forget to limit their ‘fun’ money.
Sure, what’s life if you can’t enjoy it. But remember it’s not fun when there’s a debt to be paid, and when debt is growing.
What to do?
Always aim for a balance. Anything that’s extreme spells trouble.
Fun money makes life rewarding, but we also need to remember that keeping to the amount set aside for fun money will help us achieve our financial goals sooner.
Decide on a reasonable amount for your fun money and keep within it.
#10 Know How Much Money is Spent for Each Budget Category
You need to know the amount of money you spend on each category.
But why?
Having an idea of how much you spend in each budget category will help you decide how to reduce spending in that category.
For example, if you know you spend $300 on eating out each month, you can decide to save $100 a month.
How? You can cut down on the number of times you dine out. Or you can skip the entrees, desserts, and drinks.
My family has never ordered drinks. We just ask for plain water, which is often free and always healthier than other drinks. We only have dessert when it’s complimentary.
When I started eating out less, I thought I would not survive!
But over time, I’ve actually gotten used to it.
Whenever I dine out, I appreciate the experience so much more.
And the strange thing is when I had the occasion to eat out thrice recently in a month, I felt uncomfortable. Talk about having a new budget-friendly habit!
Wrap Up
If you’re just starting out on your budgeting journey, I highly recommend that you start with these top 10 budgeting tips.
Using these 10 tips will give you that success to boost your budgeting and savings.
You’ll definitely become richer and happier.
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Jo Anna
Guest
Jo Anna is a former high school educator and ex-homeschooler. As a personal finance blogger and creator of More Money Tips, she loves sharing practical money ideas that work so that you can make great savings and increase your income. The ideas she shares have enabled her family to save more than $40,000 in two years on a modest income. When you know more about personal finance, you can have better finances and a better life.
