Creating a budget sounds like it can be a pretty stressful task. But a budget doesn’t have to be full of complex documents, scary numbers & percentages, or even strict spending categories.
Understanding your income and what you spend on what is so much more helpful than agonizing about every dollar you spend, every coffee you buy, every item you consider.
There are simple and low-maintenance ways to learn how to budget… without actually making a budget.
We’re going to go over a few simple steps that will help you track your spending, keep your finances organized, and, yes, set up a budget without having to make strictly defined line items for every spending category.
1. Track and Evaluate Your Spending Regularly
“Don’t tell me where your priorities are. Show me where you spend your money and I’ll tell you what they are.” — James W. Frick
While making a full budget isn’t always necessary, it’s important to understand the amounts you spend and what you’re spending on.
Every week or two, we recommend looking over and tracking your various transactions. If you do this regularly about once per week, it shouldn’t take too long and it will give you some great insights on how much you’re spending and what you’re spending on.
You can do this on a spreadsheet, written down, on special tracking websites like NerdWallet or Mint.com… whatever works for you. Thrive’s financial planning software also includes a budgeting tool that will help you stay on track with your bigger financial goals.
Then, at the end of each month, take a look at the past four weeks of information. Don’t worry about looking for intense analytics or strange patterns. Simply try to see what you’re spending the most on, put things into general categories, and check out your average spending.
It’s helpful to compare your average spending on each category at the end of each month as well as over the past three months, six months, and annually.
What this does is give you a better idea of your overall spending instead of nickel and diming yourself with every purchase you make. The purpose with this exercise is to focus on the long-term and your average spending over time instead of hyperfocusing on every dollar you spend every day.
You don’t have to use this information to create a traditional “budget”, either. Think of it more as a bigger picture of your spending that can help you understand where your money is, or isn’t, being spent.
2. Preparing for “Unexpected” Expenses
“To expect the unexpected shows a thoroughly modern intellect.” – Oscar Wilde
The only thing you can truly expect in life is for unexpected things to pop up. Some of the biggest blows to peoples’ budgets are surprise expenses that drain your checking account without warning.
A broken bone, a car accident, your computer gets stolen, your house needs a new roof… we’ve all had these heart-to-your-stomach moments that have you thinking about how your bank account is about to have a few less digits.
While these events certainly come up when you don’t expect them, that doesn’t mean you need to be blindsided.
If you know these things will pop up eventually, prepare for them in advance. Treat these “unexpected” expenses like expected ones. Just like your monthly insurance bill or your car payment, have an expense set up to save money for these unexpected disasters.
This way, you know that you have money set aside specifically for these events… whenever they happen, that is.
3. Automate Your Savings
“Do not save what is left after spending, but spend what is left after saving.” – Warren Buffett
Besides saving money for those unexpected expenses like we just spoke about, it’s also important to be regularly saving your money for the future.
Improving one’s savings is one of the main reasons that many people feel the need to learn how to budget.
Besides that excellent quote from Warren Buffet (who happens to be one of the richest people in the world, so his financial advice does hold some clout), another principle we recommend keeping in mind is that the best time to save money is when you have money.
So, just like making “unexpected” expenses an expected part of your monthly spending, do the same with your general savings. You should be saving money and then spending the remainder of your income… not spending and then saving what’s left over.
We would recommend setting up automatic savings deposits that will either automatically take a certain amount from one account and put into a savings account. This makes saving money automatic and requires little to no effort on your part.
Keeping this consistent throughout months or years will guarantee savings growth. It also makes the money you spend a bit more free since you won’t have to worry about accidentally spending what you wanted to save.
4. Take the Time to Form New Habits
“Habits are like the atoms of our lives. Each one is a fundamental unit that contributes to your overall improvement.” – James Clear
Notice how consistency has popped up quite a few times in this article. Consistently saving money, creating a routine to track your spending, habitually looking over your average spending to evaluate, etc.
This was purposeful; creating habits is going to be the deciding factor on whether a budget is going to be helpful.
If your spending habits don’t align with your goals or you don’t take the time to make certain spending actions habitual, it won’t lead to any progress.
A budget means nothing without forming the habits needed to implement it.
Here are a few examples of habits that you can try to keep aligned with your spending goals:
- Go out to eat once instead of twice (or more) per week
- Turn heat down and lights off when you’re out of the house
- Try to negotiate bills lower, fight against incorrect charges
- Invest in a coffee maker to reduce buying from shops
- Look for yard sales or thrift stores instead of buying new
These habits will need some time to feel natural and become second nature. Breaking habits — not to mention forming new ones — can be hard. Allow yourself time to consider what habits would help you follow your budget along with how you can make these changes gradually and comfortably.
How to Budget: Find a Process That Works for You
These are just a few tips that we think can help anywhere learn how to budget. Budgets can feel complicated and scary, but even just taking these four simple steps can set you up to reach your financial goals.
If you’d like more information on creating a budget or want some help from an experienced financial advisor, don’t hesitate to contact us. We can help you create a budget and processes that work for you.
