One thing that we don’t generally learn in school is budgeting. If your parents or guardians didn’t help you with this life skill, chances are you’re now learning how to budget as an adult. There’s no doubt budgeting can be a challenging skill to acquire. It can be even harder if no one taught you how to do it from an early age.
But that’s no reason to throw in the towel. In essence, budgeting is just a way to plan your spending. It will tell you how much money you have, what you need to put it toward, and how much — if any — you have left over. You can absolutely master it with these three budgeting secrets your mom may have forgotten to teach you.
1. Stop Using Credit Cards to Pay for Things
The first secret to budgeting is to put away your credit card. These cards can be helpful, but if you want to take control of your finances, they can also be your downfall. Credit cards make it all too easy to overspend, leaving you with a big balance to pay at the end of the month. You always have the option of not paying your entire balance, of course, but then you’ll be socked with interest. Some credit cards also charge hefty annual fees.
Instead, use your debit card for all your in-person and online purchases. Since you’re simply spending your own funds, you won’t be hit with a big bill the next month. Debit cards rarely charge annual fees, and some even offer a round-up saving feature. Every time you swipe, the card will round up your purchase to the next dollar and squirrel away the difference in your savings account. That’s a thrifty bonus any mom can get behind!
Getting rid of credit cards cold turkey can be tricky. If you have a good sense of self-control, you may be able to just remove them from sight. Otherwise, you might want to ask a family member or friend to help you stay accountable. Also, remember to remove any saved or autofilled credit cards from devices such as your iPhone. They make it too easy for you to spend with them when you’re looking to make a purchase quickly.
2. Pick a Budgeting Method and Stick to It
Another secret to budgeting is to choose an established budgeting method and stick with it. It’s important to choose one that works for your lifestyle; the right method can even motivate you to begin budgeting in the first place! Among the different types of budgeting plans are the envelope system, zero-based budget, pay-yourself-first budget, and the 50/30/20 plan. If you’re just learning to budget, the 50/30/20 plan can be a good, easy way to start.
With the 50/30/20 plan, you allocate 50% of your monthly income toward necessities like rent, utilities, and groceries. You can devote the next 30% to lifestyle wants such as trips, dinners out, and subscription services. The remaining 20% goes toward financial goals including savings, investments, and debt payments. Take some time to determine what you bring in each month and divide your income into these three key buckets.
Allocating your money in this way will help you determine what is really important in your life. You’ll also get a better sense of how much you are spending on each category every month. Best of all, you’ll be more confident in your spending and saving decisions. That’s because you’ll know how much you need for necessities and what you can spend as you please. Your future self will also thank you for thinking about financial goals down the road.
3. Pay Yourself First
Speaking of future financial goals, the final secret is simple but often overlooked. It’s to “pay yourself first,” a savings tactic that’s regarded as a golden rule for many personal financial advisors. Remember how excited you were when your mom gave you an allowance as a kid? You can carry on this feeling of excitement as an adult by paying yourself first. This is key to staying motivated and continuing to stick with the budgeting plan you decided to pursue in the last tip.
Paying yourself first can be done in a few ways. You can literally take a portion of your monthly income out in cash and stow it away in an envelope. You can also automatically deposit a certain amount from each paycheck into a separate savings account. This will allow your dollars to grow over time.
With automated transfers, you likely won’t even notice that your paycheck is less and can look into upping your monthly allotment. Regular contributions are a great way to build up your nest egg, allowing you to afford a big-ticket item or put funds toward retirement. This recommended practice of the personal finance set is mom-approved, too.
Budgeting will take a bit of work, but it is achievable. Consider eliminating credit card usage, embracing a budgeting method, and paying yourself first. Your bank account will benefit in the long run when you adopt these simple but useful tactics.
In the end, budgeting amounts to knowing how much money you have and being responsible about your spending and saving habits. Once you see how much you can save for the future, you’ll find the end result of budgeting is totally worth it. Not to mention, it’ll make your mom proud, too!