Manage Your Spending Habits: 5 Practical Tips for Budgeting
Unsatisfied with your current spending habits? Boost your personal finance skills by practicing these tips for budgeting.
If you are in dire need of a financial overhaul, don’t panic. There are practical changes you can start making today that will make a huge difference in your financial state. Changing your spending habits is one of the easiest ways to see real changes to your bank account.
Whether you have no idea how to budget or you’re a shopaholic who needs to curb your spending, read on to learn a few easy budgeting tips that you can start implementing today.
Review Your Spending Habits
The first step to making big financial changes is to review your spending habits. If you don’t know where your money is going, you won’t know how to change it. The easiest way to do this is by taking a look at your debit or credit card statements as well as your bank account.
Many times your bank’s website will have a feature that breaks down what categories your spending on. You may see 50% of your disposable income is going to eating out or 30% is going to online retailers or car services.
Once you see where every dollar is going, this can help you determine what you can cut back on, what you really need, and where you can save money. If you’re always using car-sharing services for example but you live right next to public transportation, maybe switching can save you a lot of money.
If you’ve taken stock of your spending and are retired, unemployed, or in school. Know that in addition to budgeting, there are loans for unemployed people as well that can help you reach your financial goals. Whether you’re a gainfully employed over-spender, unemployed, or someone just looking to make better financial decisions, it’s extremely crucial to know what you’re spending your money on.
Lay Out Your Personal Finance Goals
The next step is to lay out why you’re hoping to make these financial changes. Maybe you’re saving for retirement, investing your money, saving to buy a home, or are working towards financial independence. Whatever your goals are, write them out.
Writing out your personal finance goals will better help you lay out a plan. You should know what you’re saving for and how much you’ll need to achieve your goal. In addition to your bigger picture goal, make some room for lower hanging fruit as well.
Small goals like paying off a credit card or cutting a cable streaming service will help you see results faster. This will keep you motivated and help you reach your bigger goal in the long run.
Track Your Expenses
Once you’ve laid out some goals and take stock of where you’re spending your money, you’ll next want to look at your expenses. These are things like your rent, cable bill, water bill, and student loan payments.
While some expenses may be a fixed cost, there are others that are completely optional or those that can be reduced. By writing them all out, you’ll be able to see what you can cut or what you can get down to a lower payment.
Taking your income and subtracting your expenses will show you what’s left. This disposable income can be used for food, entertainment, travel, and most importantly your financial goals. You can use a budgeting app or a spreadsheet to help you do this.
With your new-found self-awareness, you can now tackle a budget. Before you jump right in and reduce yourself to living on crackers and water, take a week or two to practice what it will be like on a set budget.
Let’s say you have a family of seven and you want to live off of $100 worth of groceries per month. Practice going to the grocery store that month and seeing if you can realistically buy everything your family needs for that amount.
You’ll be easily discouraged and derailed if you don’t set a budget you can stick to. Practicing is a good way of figuring out what will work for the long haul.
Budget Every Month
Just because you want to make these adjustments last a lifetime, you really aren’t likely to have the same financial goals at 25 as you will at 55. This is where setting a new budget every month can come in handy.
Let’s say in October you know you have your sister’s destination wedding. When you start budgeting monthly in January, you can plan for this. You can estimate your flights, estimate your hotel room, your attire, and so on. Knowing that you also receive a bonus at work in April, you’ll know what to save and when to account for a month of higher spending.
Budgeting monthly will also help you stay focused. If you have a work convention one week, you can assume your meals are paid for. Take those extra savings and put it towards a goal or put it into savings for another week when your kids need back to school clothes, for example.
Even though expenses can come out of nowhere, chances are a lot of expenses can be planned for. You know when you have trips coming up when bills are due, and when your teenager is starting college.
Stay on top of as much as you can so the unexpected won’t derail you.
Set Realistic Goals
Setting a realistic budget is like setting realistic expectations on yourself. Changing your spending habits too quickly or too aggressively will cause you to fall off the wagon. Huge, drastic change isn’t sustainable.
You’re better off sticking to a small, stable budget plan, than remaining in the dark about your finances.
Make Adjustments When Needed
There are always going to need to be adjustments made. When it comes to budgeting, stay flexible. Remember that life plans and goals change.
As a single person you may have had one goal and as a parent of three, you may have a whole new set of goals. Maybe saving for retirement wasn’t a goal ten years ago but it is now. This is all part of life and knowing your finances inside and out will make changing a goal a lot less stressful.
Celebrate Your Wins
Changing your spending habits for the better will have a huge impact on your financial stability. Every time you meet a goal, no matter how big or small, celebrate the victories. With your goals written down as well as your spending and expenses, you’ll be able to see real results on paper or on your screen.
Seeing everything in writing means you can also check those items off. It may seem silly but checking off a victory from your goals list will give you the motivation to stay on track. If you’re looking for more great finance tips, visit our blog.