By Ryan Brady
So many aspects of our lives are currently defined by uncertainty—health, careers, politics, international affairs, the list goes on. By following a few simple tips, however, you can stop this unpredictability from invading every part of your life. You can secure your finances and obtain peace of mind, even when everything else may seem out of your control. In times when our personal circumstances can change so easily from month to month, having a solid financial plan and saving money for worst case scenarios is more important than ever.
In some people, the word “budgeting” might inspire dread. However, budgeting does not have to limit your financial freedom. When done right, budgeting can expand it. Check out our top budgeting tips to finish off 2020 with your best foot forward!
Budget to zero
A zero-based budget means that your income minus your expenditures equals zero. Budgeting to zero allows you to keep track of all of the money that you have, while ensuring that you don’t spend more than you can afford. To budget to zero, add up all your sources of income, and then subtract your fixed expenses (rent/mortgage, utilities, subscriptions, memberships, food, transportation, etc). With the money left, you can allocate it to your flexible expenses, like shopping, entertainment, dining out, etc.
You can also alter this budget based on your needs. For example, if you want to get in the habit of saving a certain amount of money each month, add that amount to your fixed expenses and reallocate the money in your flexible expenses.
Financial obligations can vary throughout the year, and depending on the month, your needs will change. In August, you might be buying school supplies, and in December you might need money for holiday gifts. Are you planning on moving? You might have more upfront costs as you get used to new budget-friendly options in that area. Keep in mind holidays, birthdays, vacations, and anniversaries.
Be adaptable in your budgeting by creating a miscellaneous category that can grow or shrink with your needs each month. Contribute to a cash savings fund each month to spend on gifts. Set aside some money each month for emergencies like repairs. Then, keep track of how much money you end up spending each month from these categories. Use this information to better plan out the money you need to set aside in the future.
By planning ahead and allowing yourself the freedom to alter your budget when necessary, you can save a lot of the stress that people associate with budgeting. You are allowed to be flexible—adjust your budget each month or when needed.
Save room for fun
If you remove funding for everything that you enjoy in order to save money, your budgeting will not last very long. Try to allocate some funds to finance activities that you enjoy, like going to see a movie or trying a new restaurant. Keep in mind that not all fun activities have to cost money! Fun, cheap/free activities include no-cost concerts, hiking or picnicking with friends, planning a movie marathon with DVDs from the library, or picking up low-cost hobbies like journaling, baking, gardening, knitting, volunteering, or geocaching.
Keep in mind that scheduling certain fun activities can inspire you to spend more money. Going to places like malls or farmers’ markets, for example, might be setting yourself up to exceed your budget if you have not already allocated money for those expenses.
Use cash to hold yourself accountable
If you are consistently overspending in certain categories, limit yourself with cash. By setting up an envelope system—filling one envelope with cash for each category in your budget—you cannot be swayed to overspend, unlike credit cards, with which you can spend more money than you might actually have.
Even if you aren’t likely to overspend, using envelopes or otherwise separating cash for different categories in your budget allow you to check at the end of the month how much money you have left, or didn’t have to spend. This is a simple way to track your spending without having to record every expenditure.
Keep things in perspective — cuts are temporary
Finally, don’t be too upset when you have to trim your budget. After all, you can always adjust it later when your situation improves. Some quick ways to trim your budget include: making meals at home, cancelling cable, using discount codes and coupons, shopping with a list (to ensure you only buy necessities), and using public transportation. Remember that by cutting your expenses now, you are setting yourself up for a financially sound future in which you will be able to reverse these cuts and have much more financial freedom.