Awesome tips for effective and stress-free budgeting
We’ve hit the half-year mark and this is a good time to stop for a moment and reflect on your spending habits. Is your budgeting still on track? This article by Rob Berger shares five tips to keep that budget effective and stress-free. We’ve highlighted the key points.
Spending less than we make is often cited as the most important personal finance goal. It helps us get out of debt, save for emergencies and stash money away for retirement. It’s the primary habit that enables us to achieve some level of financial freedom. It can also be really difficult to accomplish.
In some cases, it’s lack of income that creates the financial strain. In many cases, however, the problem is overspending. With those who overspend in mind, here are some tips for more effective and stress-free budgeting:
- Understand the goal
The goal of a budget is to help us control our spending, so we can spend less than we make and focus our spending on what matters most to us.
- Save first
Rather than saving what is left over at the end of the month, save first and spend the rest. This strategy takes advantage of behavioural finance. By getting money out of your check account and into savings first, you are less likely to spend your savings during the month.
- Track spending for a week
This will show you how spending even small amounts of money adds up over time. It will also reveal areas of spending that otherwise go unnoticed. Ideally, you should track your spending for a full month, but even tracking for a week can provide valuable information about your spending patterns.
- Use the 3-category budget
Most people overspend in just a few categories. Common examples include eating out, buying clothes, buying gadgets and entertainment. Using the data accumulated from tracking your spending, pick the three budget categories you’d like to bring under control, and monitor your spending in just these areas. The 3-category budget is easy to implement and can have a significant effect on your finances.
- Try the 50/20/30 plan
With this plan, 50% of your income goes to necessities, 20% to long-term savings, and 30% to lifestyle choices. This plan can be a good starting point if you struggle to decide just how much you should spend on individual budget categories.
June 29, 2016
Grant van Zyl