Taking control of your finances is possible only if you have a spending plan. It doesn't have to hurt.
Creating a budget — one that will get you out of debt so you can save money — is a great goal for 2016. Taking control of your finances is possible only if you have a spending plan.
But don’t budgets hurt? Not if you do them right.
A successful budget includes goals. You need a reason to follow a regimen. That goal should be:
- Specific. “I want to handle money better” could mean anything. Paying only two overdraft fees a month is technically better than your usual five.
- Important. Maybe you’ve always wanted to self-publish a science fiction novel. That’s an intriguing goal, but it shouldn’t come at the expense of, say, an emergency fund or regular contributions to a retirement account.
- Achievable. Sure, it’d be great to pay off your mortgage within two years while also clearing $30,000 in student loans. Don’t set yourself up to fail with unrealistic objectives. Do resolve to set reasonable objectives and use the momentum of each success to keep moving toward bigger goals.
Holding yourself accountable
Some goals are short-term, such as paying off a credit card or setting money aside for new winter boots. Others, such as buying a home or saving for retirement, won’t happen overnight.
Personal finance author Liz Weston is a fan of the 50/30/20 budget: No more than half of after-tax income going toward “must-haves,” 30 percent for “wants,” and 20 percent for savings and debt repayment.
Thus you would put basics like rent and utilities under “must-haves” and that new-boots fund under “wants” (unless your current pair lets slush in at every step).
These categories are somewhat flexible. If paying down consumer debt faster or putting more in retirement is a priority for you, then shoot some of your “wants” dollars toward those goals.
Look for ways to add more cash to the categories that matter most. Here’s where frugal hacks come in handy. Every dollar you don’t spend is a dollar that can be sent toward the future. See these Money Talks News articles for money-saving tactics:
- How to Find Thousands of Freebies
- 9 ‘Convenience’ Foods That Are Incredibly Cheap and Easy
- How to Save At Least 10 Percent on Everything You Buy
- 4 Ways to Go to the Movies For Free
- Get Millions of Books and Magazines for Free
Don’t try them all at once, any more than you would try running a marathon before getting into shape. Incorporate money-saving ideas gradually into your lifestyle.
Caring for the future you
Retirement planning should take priority over debt repayment. Not contributing means you’re giving up potential company matches if you have a plan at work.
Even if your employer doesn’t match, every dollar you don’t put toward retirement is a dollar that won’t help you later on.
Weston suggests setting aside 10 percent of your salary for those post-work years. Yes, it will be tough. But this is the optimal time to start.
“Ask any of your older co-workers if it gets any easier to save for retirement,” Weston says.
Track those dollars
If you need help budgeting, ask for it. Groups like the National Foundation for Credit Counseling and the Association of Independent Consumer Credit Counseling Agencies offer help with getting your finances in line. Often that advice is free.
Just remember to check any credit counseling organization through the Better Business Bureau and your state attorney general’s office.
Before revamping your spending, figure out where the money is going right now. Some people write down what they spend and create spreadsheets of their expenditures.
However, there’s a much easier way — online budgeting sites/apps such as Mint.com or PowerWallet, which will track your cash and measure your progress.
Setting limits doesn’t mean nixing future fun, but you need to be aware of how money leaves your hands. Snacks, lapsed promotional offers and banking fees are all examples of small expenses that can wreck your finances.
Monitor your progress
Go over your spending plan regularly to compare it with your actual spending. If you find that you’re busting your budget regularly, it is time to re-motivate yourself.
Think about why having control over your finances is so important. Remember that both current and future needs will be met only if you get smarter about money practices.
Deciding not to spend is not deprivation. It’s security. And it will feel great.
Do you have tips for building a budget that works? Share them in our Forums. It’s a place where you can swap questions and answers on money-related matters, life hacks and ingenious ways to save.