Whether you’re a young professional just starting your first job or an experienced professional who has been on the job for years, chances are you probably haven’t had to think too much about your personal finances. How much do I need to save each month? What is the best way to invest my savings? With the rising cost of living and shifting economic trends, those questions have become all the more important for today’s working stiffs. Fortunately, budgeting doesn’t have to be complicated — and with a few small adjustments, it can even be fun! Here are five tips for effective budgeting.
Set yourself a goal
While budgeting is an essential part of financial planning, many people end up just running through the numbers without having a clear goal in mind. Otherwise, you might end up wasting a lot of time and effort on things that don’t matter. Selecting a specific short-term goal — like saving for vacation or paying off your student loan — will motivate you to get serious about your finances. It will also show you where you currently stand and what you need to do to move forward. When it comes to long-term goals, be specific. While it’s often helpful to select a broad theme, be careful not to get so broad that you lose sight of what you’re trying to accomplish. For example, if your long-term goal is to retire, don’t think you need to aim for a specific date. Instead, aim to get closer to that date each month until you reach it.
Ditch your old habits
One of the easiest ways to boost your savings is to end any spending habits that you’ve fallen into. If you’ve been putting money in savings at work, but then withdrawing it at the beginning of the month, you’re not actually saving anything. When you take money out of your savings account, you’re essentially reducing your net (pretax) income. This means that your monthly expenses are reduced as well. Your current expenses, however, are left unadjusted, so you have to make up the difference with a bigger future payment. If you’ve been regularly falling into the same spending traps, it might be time to take a close look at your lifestyle. For example, are you regularly over-or under-spending on transportation? This can particularly be an issue if you tend to drive to work every day. (If so, consider finding a cheaper way to get to and from work.) Or, are you regularly buying groceries that are too expensive? If so, it might be time to start cooking at home.
Think long term
While it’s important to have short-term goals, it’s also crucial to think long term. Otherwise, you might end up wasting a lot of time and effort on things that don’t really matter. For example, if you’re 28 and still living with your parents, it’s perfectly fine to think about getting your own place and starting a family. However, if this is all you think about, you’re not going to achieve much. It’s also important to remember that the financial journey is long. If you’re in your 20s and just starting your career, it might be tempting to think that it will be smooth sailing for years and years. However, this will rarely be the case. In fact, you might be shocked to learn that it can be hard to make ends meet as a professional in your 30s. Don’t wait until you’re in your late 30s to start thinking about retirement.
No matter how well you plan, you’re not going to be able to save much if you don’t first know where to put that money. A monthly spending plan can help you achieve this by showing you where all your money is going. Once you have a plan in place, you can use that information to stay on track. For example, if you have a monthly spending plan for groceries, you can make sure that you account for them in your monthly budget. Similarly, if you have a monthly spending plan for transportation, you can make sure that you include that cost in your monthly budget as well. Once you have a monthly spending plan in place, you’re also likely to see that some of your expenses are somewhat unnecessary. For example, if you have a monthly spending plan for entertainment, you might discover that you don’t really need to go to the movies every week. Or, you might find out that you don’t need to spend that much on lunch every day.
Track your spending
While a monthly spending plan can help you stay on track, it can also be helpful to track your spending. This can be done in a number of ways. For example, you can use a budget app to track where your money is going. This can also be helpful if you want to see how your spending compares to other people in your workplace. If you don’t have a budget app, you can also try a cash-only system. This means that you only keep a small amount of money on hand — typically $50–$100 — and use that to pay for everything (including groceries and other errands).
Budgeting is an essential part of financial planning. It helps you to understand where your money is going, which gives you a better chance of saving for the future. It can also help you to avoid overspending, which is especially important in today’s economy. The key is to start simply. Set up a budget with your expenses in mind. Next, take a close look at your current habits, and make any necessary adjustments. This will help you to stay on track and achieve your financial goals.