Knowing how to properly budget your money will allow you to reach your financial goals and alleviate stress. Unfortunately, many people both young and old don’t even bother. They spend their money however they want and whenever they want. It ends up creating a damaging financial cycle. One that typically results in living paycheck to paycheck and getting buried in debt.
This article goes over the skills and habits that will help improve just about any financial situation. Keep reading to find out how you can budget like a boss!
Define the reason why you want to make a budget
Why are you interested in starting a budget? Below is a list of reasons why most people choose to create a budget.
- Build an emergency savings
- Stop living paycheck to paycheck
- Save for retirement or long-term financial goals
- Save for big expenses like a home purchase or new vehicle
- To get out of debt
- Get rid of the stress
- To stop guessing if you can afford the lifestyle your living
- Reduce overspending
- Financial peace of mind
Be specific about your financial goals
Once you know the reason why you’re starting a budget it’s time to make some specific achievable goals. For instance, let’s say you want to budget so you can save more for retirement. Set a goal and use exact numbers.
Example: I want to save an extra $500 a month to put towards my IRA. That’s a specific goal and plan. Just saying I want to save more isn’t enough. Again, define a target and use exact numbers. When your specific and have a plan in place you are far more likely to achieve your goals.
Know exactly how much money you’re making
Go over your pay stubs or W2’s to find out what your average monthly income is. Include every cent that you make, side gigs, investments, child support, etc. You can find wage calculators online that will let you input this information and tell you what your average monthly income is.
Another option is to add up how much you made last year and divide by 12. If you have a variable income, like from sales or commission work, its best to base it off your average from a poor month. That will allow you more room to breathe and create a bigger savings cushion.
Keep track of your expenses
In order to budget like a boss, you have to know where your money is going. Keeping track of your expenses will show you exactly what your spending habits are and where you can make improvements. There are many ways you can track your spending, from writing it down in a notebook to using an app.
The app we like and recommend is HoneyMoney (affiliate link), to read our review on it click here. Use whatever app or method works best for you, just be sure to keep track of every cent.
Keeping track of your spending and income is a basic money management fundamental. When you know your spending habits you’re able to weed out any problem areas like overspending and living outside of your means.
Set a monthly spending limit
Once you’ve determined the reason for your budget, your average monthly income, and understand your expenses, it’s time to set an amount you can spend each month. Do you have a large surplus after your monthly expenses? Or are you in the negative? This information can help you figure out your monthly spending limit.
If you’re throwing away food that went bad every month, cut back on your grocery budget. Do you have so many shoes you can’t close your closet door? Maybe sale a few pairs and or cut up your credit card.
If your goal is to pay off debt, then utilize any extra income and start paying it down. Paying off debt should be just as important as building up your savings. List for each category how much you want to spend each month. Ex: $300 for groceries, $200 extra towards debt, $500 in savings, $200 for eating out, etc. I recommend putting all your bills on autopay, that way you never have to worry about late payments and extra fees.
Go over your plans with your significant other
Of course, if you are single you can just skip to the next step. But for those that are in a relationship, it’s important that you’re both on-board and that you discuss your financial goals.
Even if you keep your finances separate it is important to talk about your budget plans. Money can be a huge stressor and is the source of many relationship problems. Get rid of the stress money causes by budgeting and knowing where you stand financially.
Review your budget every month
Around the 1st of each month, set a reminder to go over your budget and make any updates. At the beginning of a new month, you can look back at the previous month and see how you did. If you notice any areas you can make improvements, start to implement them over the next month.
It’s really important to keep in the habit of reviewing your budget to catch any necessary adjustments that are needed. It can help keep you motivated and relieve some stress once you start seeing yourself make progress.
Hold yourself accountable
Budgeting like a boss means you’re going to stick with the budget you made. Be consistent with tracking your expenses and reviewing your budget every month. Keep your bills on autopay, be responsible, and use your head.
After a while, budgeting will become a habit and you won’t have to fight yourself. It is all about discipline.
It takes discipline to keep yourself from buying unnecessary items, eating out too much or buying a vehicle you can’t afford. Learn to be happy with what you have. Once you develop a good budget and stay consistent you will soon see the rewards that it can bring.
Here’s a summary of the steps to budget like a boss
- Determine the reason for your budget
- Be specific about your financial goals
- Know your average monthly income
- Keep track of your expenses
- Set a monthly spending limit
- Discuss your plans with your spouse or household
- Review your budget every month
- Hold yourself accountable