Budgeting is a rite of passage into adulthood. It’s not “sexy,” like buying a home or car, but it has to be done to achieve these things. Not only should you budget for major life purchases, but you should also maintain a budget in order to have adequate savings for emergencies and retirement.
However, budgeting is a lot easier said than done. Going out to dinner every night with friends, buying that new jacket you’ve had your eye on, going to the expensive gym—these are expenses you can easily find yourself paying too much for, which can put a dent in your finances.
Today, we’re going to cover how to maintain your budget without giving up too much of your freedom and hobbies with five useful tips.
1. Put Money in Your Savings
When your paycheck gets deposited, the first place it should go is your savings. Each pay period, make a solid effort to put your money in your savings account, which can be used for large payments like a deposit on a home, financing a new car, or paying for expensive home repairs.
Your savings shouldn’t be touched, so it’s best to place your money in a high-yield savings account that allows your money to grow over time. Think of it as free money! Most high-yield savings accounts only allow you to withdraw money a certain number of times each money, which can limit the amount of times you touch your savings account.
Don’t worry—your entire paycheck doesn’t have to go directly to your savings. One common budgeting rule is the 50/30/20 budgeting rule. To follow this rule:
- 50 percent of each paycheck toward necessary bills and like loans, insurance, rent, utilities, and groceries
- 30 percent of each paycheck should go toward wants, such as hobbies, going out to dinner, and shopping
- 20 percent of each paycheck should go directly to your savings account
2. Place Your Money in Investment Accounts
If you have money sitting around in a traditional savings account that only earns 0.01 percent interest each year, it may be time to consider placing your money in an investment account. Investing your money is a great way to diversify your portfolio and make your money grow. You don’t have to be a professional investor, either. You can get help from a certified broker dealer who can help you make sound financial decisions when it comes to stocks, bonds, and other forms of investment vehicles.
3. Weigh Your Income and Expenses
To create a budget, you need to weigh your income and expenses. If you’re spending more money than you’re earning, such as through retail therapy or dining out excessively, you can quickly find yourself in mounds of debt. This is not a scenario you’d like to find yourself, because it can be difficult to climb back out.
To weigh your income and expenses, make sure to keep all of your receipts from the past six months. Calculate each receipt and place expenses into categories such as subscriptions, dining out, groceries, gas, rent, utilities, etc. Once you have your expenses categorized, you’ll be able to see where most of your money is going.
Then, calculate your income. This means your salary or wages, along with any other sources of income such as child or spousal support payments, side gigs, gifts, and additional means of income.
Once you have both your income and expenses calculated, place them side by side to determine if you’re saving money. If not, it may be time to make some lifestyle changes and reevaluate where you put your money.
4. Reduce Expensive Habits
Are you spending too much money? If so, it may be time to reduce expensive habits and switch to budget-friendly hobbies. Do you have any vices, such as drinking, smoking, or gambling, that take a majority of your income? Consider going to a professional counselor or therapy to help you cut back on these vices that are not only hurting your budget, but your body too. You can go to smokefree.gov to calculate how much you will save if you quit smoking.
Other common expenses that you may be able to cut out of your lifestyle include:
- Magazine subscriptions
- Expensive gym memberships
- Streaming subscriptions, such as HBO, Netflix, Hulu, and Disney+
- Ordering food delivery service
- Going out to bars and clubs
5. Use a Personal Finance App
Lastly, there are plenty of personal finance apps, such as Mint and Chime, that track your expenses and income for you, and help you analyze your finances. Budgeting apps like these are great to use because they give you a clear overview of your spending habits, along with insights on areas to improve with helpful tips.
Wrapping up
Sticking to a budget is hard, especially when you have friends and family who are constantly nagging you to join them on expensive endeavors like bar hopping and going to the movies every week. However, taking control of your finances and maintaining your budget can help you take control of your future so you can live comfortably within your means. With these five tips, you’ll be one step closer to creating a budget you’re proud of.
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