Have you ever looked at your bank account at the end of the month or even the end of the week and wondered how you spent so much money? It's easy to get yourself into habits like spending too much at bars on the weekend or eating out multiple times a week. If you’re looking to save money, the first step is to create a budget for yourself.
In a society where we are encouraged to be constant consumers, it can be hard to figure out how to budget and save effectively. Let's break it down into a few simple steps:
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Calculate your monthly income
- Figure out your takeaway after taxes either by using your latest paycheck (if you work a set number of hours with a set rate per week) or by using a free online calculator
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Determine all your monthly expenses
- This includes rent, car insurance, health insurance, student loans, gym membership, Netflix subscription, groceries, gas, ect. An easy way to do this is by looking at credit or debit card statements from the previous month and writing down what you spend your cash on. Lastly, make a needs versus wants lists. These are different for every person, your needs might be on someone else’s wants section but that’s okay.
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Decide what to put into savings
- Once you have subtracted your monthly expenses from your income, it's time to decide what to do with your leftover money. Start by writing out specific saving goals and put those as a priority before spending any of the “fun money” you have left after your expenses. This could mean putting a certain amount into general savings every month or getting more specific and putting some into general savings and some into specific savings for things like travel or a new car. Also consider having a separate fund for unplanned expenses like new tires or doctor's fees.
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Divide up the rest!
- Create some categories for yourself such as date nights, weekend fund or whatever you want to spend it on.
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Optional: Multiple Budgets
- Now that you have a basic budget you want to stick to, consider creating a low, medium, and high spending budget. This is simply done by adjusting the amounts going into your savings for a specific month to allow for some extra spending. Then choose a budget to stick to at the beginning of each month. If you have a goal that you want to meet as fast as you can you’ll want to stick to the low spending high savings plan. If you are okay having it take a little longer to meet your goal and you have a couple of extra events you want to go to one month then choose to stick to your medium or high spending budget.
Where else can you save?
Now that you’ve created your budget, are you happy with how much you’re putting into savings and how much you have left to spend? If not then take a look at areas in your life where you may be able to save money. Here are just a few examples:
- Eat at home: This category is my biggest challenge. Food can really add up whether its eating out or spending too much on groceries. Take a look at how eating out for lunch daily is eating away at your cash. You might be surprised!
Let’s say it costs you $5 to make a bagged lunch to bring to work versus $12 to eat out that day. By switching to the bagged lunch for a month (twenty lunches), you’ve already saved $140.
- Memberships & Subscriptions: Are there any subscriptions or memberships that you don’t really need? Gym memberships that you rarely have time to use, streaming services for music and movies. If you’re using them, great, but they’re easy to forget about if you’re being charged automatically every month.
- Finding free activities: As fun as it is to go out on the weekends with friends, it can also be quite expensive. Maybe one night a weekend or every other weekend try out something less expensive but still fun like a BYOB board game night or free live music in your area. Invite friends over to have a pot luck dinner and share some drinks at home.
- Roommates? If you are currently living alone or thinking about moving into an apartment soon, considering roommates could save a substantial amount of money every month.
- Less “Treat Yourself”: Everyone likes to get something special after a hard day or week, but are you doing this too often? Daily trips to Starbucks or frequent shopping for things on your wants list can cost a lot. If you have something in your life that you use to treat yourself, think about if there is some way you could make it cheaper. Maybe buy the ingredients to your favorite Starbucks drink to make at home or have a girls night to do your nails. If you really don’t want to cut back because it is important to you, then that is completely fine. Just add it to your budget!
Instead of thinking of a budget as a chore, think of it as a great tool to help you reach your goals.
Tools & Apps
- Nerdwallet.com has a useful Monthly Budget Worksheet to help you get started:
https://www.nerdwallet.com/blog/finance/budget-worksheet/
- Hourly Paycheck Calculator After Deductions:
https://www.adp.com/resources/tools/calculators/hourly-paycheck-calculator.aspx
- Oxford Planning Group Lunch Cost Calculator:
https://www.oxfordplanning.com/resources/calculators?view=calculator&id=16
Some of the best budgeting apps:
- Mint
- Pocket Guard
- YNAB
The newest member of our office, Kirsten Eddy our Junior Portfolio Analyst, will be taking over this portion of the Blog. Stay tuned every Friday for new posts!