By ADRIANA MORGA, Associated Press
NEW YORK (AP) — Whether you want to pay off debt, create a rainy day fund, or save for a family trip, budgeting is the first step toward achieving your financial goals.
Creating a budget is a bit like trying to eat better or exercise more — everyone tells you it’s good for you, but it’s hard to get into the habit, says Colleen McCreary, consumer finance advocate at Credit Karma.
“A lot of people think it’s too complicated and a hard thing to do,” McCreary said. out.”
Here are five important steps when you’re ready to create a budget:
It’s essential to write down all your expenses, said Elena Pelayo, an educator at How Money Works, a financial education organization.
She suggests recording every penny you spend rather than trying to guess, which can lead to errors.
Pelayo recommends using whatever method works best for you, whether that’s writing it down on paper, creating an Excel spreadsheet, or using a website.
Next, she recommends categorizing where your earnings should be spent. Always start by covering your basic needs.
A well-known budgeting system is the 50/30/20 rule, where 50% of your income is allocated for necessities like food and rent, 30% for things you want, and 20% for savings and repayment. debt.
Wiltrice Rogers of Allen Park, Michigan has used this system for over 30 years.
“It helped me see how beneficial it is and that we have more discretionary funds when I follow this method,” said Rogers, admissions coordinator for a nonprofit organization.
Websites such as NerdWallet or Money Fit offer 50/30/20 calculators to help you.
This method works for many people, but it might not work for you if necessities consume more than 50%, in which case you’ll have to allocate less for savings or things you want to do or buy.
Writing down your after-tax salary and then adding your expenses in a blank notebook or spreadsheet can be enough to make a plan. But if you need help visualizing what’s coming in and going out, resources are available.
“There are many templates online that will help you review spending categories and spending categories for personal finance. And they’re really helpful,” Pelayo said.
The Federal Trade Commission offers a printable PDF budget template, and Microsoft offers Excel templates for special occasions such as saving for a wedding or building a house. If apps are your thing, Mint, PocketGuard, and EveryDollar are among Bankrate’s top five budgeting apps.
If 50/30/20 isn’t realistic for you, there are always ways to save and reduce your debt. Start setting aside small amounts of money each month or set small goals, like choosing a restaurant where you won’t spend more than $40, McCreary said.
“Small steps lead to progress,” she said. “It’s really about progress, not perfection.”
McCreary recommends starting with a goal each week, whether it’s saving a certain amount or reducing the amount you spend on unnecessary things.
“Don’t complicate it too much, don’t make it too difficult for yourself,” she said.
Rogers, for example, generally tries to save as much money as possible when buying groceries.
“I collect the sales documents and mark what we need and if it’s on sale. I try to make a triangle of stores to save time and gas,” she said. She also buys in bulk, sticks to her grocery list, and shops alone to avoid unless her son and her husband convince her to buy additional items.
Websites such as Flipp, which displays digital flyers from major retailers around you, and Groupon, where you can find coupons for products and services, can help you save more easily. But keep in mind that this only works when you use coupons for items you really need or plan to buy anyway.
If your income barely covers your needs, it can be difficult to reduce your credit card debt. Pelayo recommends that even if you live paycheck to paycheck, you might want to add at least $10 on top of your credit card’s minimum payment with the highest interest rate. And if you can afford it, she recommends paying 10% more than the minimum payment per month.
To achieve your financial goals through a budget, you need to change your mindset, Pelayo says.
“You have to look deep inside yourself and say to yourself, am I ready to change my ways?” she says.
Once you are mentally ready, you can start setting goals.
Building new habits can be difficult, and it’s even more daunting to think about having to maintain them for the rest of your life.
McCreary recommends that your first goal be to budget for two weeks. After reaching that, you can set a longer time frame, such as 30 days or six months, until it becomes part of your routine.
If you’re still struggling, McCreary recommends gamifying your budget and making it a challenge.
“Maybe there is an outcome involved. Like, “Hey, if we save enough money, we can buy a new TV or go on vacation,” she said.
Examples of gamification include giving you a small reward after a certain amount of time or money you’ve saved.
Apps such as Mint, which rewards the number of times you check your budget, and Acorns, which allows users to invest with their spare change, can help. Yotta and Save to Win allow users to create savings bank accounts that reward them for the amount they save.
For accountant Tiffona Stewart, gamifying her savings meant using the envelope system, where you put money in envelopes for specific expenses.
“It’s tailored to your life and what you want to save for, so that’s what I like,” Stewart said.
Stewart also started a business selling budget envelopes and binders on Etsy to encourage and promote financial literacy. She sells “one-month challenge” packages meant to help save $1,000 in cash.
“You play these games and you make these things your own. You try something new, there’s nothing right or wrong, you could be wrong one month and better the next,” she said.
5. INVOLVE YOUR FAMILY OR FRIENDS
As with any lifestyle change, having people around you to support your decisions and encourage healthy habits is crucial, McCreary said. This could include talking with your partner about your finances, telling your friends you’re going to start budgeting, or explaining to your children how the family now spends money.
Rogers’ 11-year-old son now knows that if there’s no coupon for the item, he won’t get it.
In Stewart’s case, using cash to hang out with friends helped. If you only take $100 with you to the bar and you don’t bring your credit card, and you want to pay for another round but you only have $20 left, you just can’t spend, she said.
“You need everyone involved in these decisions to engage with you to support them,” McCreary said.
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