There’s more to budgets than just crunching numbers.
It’s a lot of thought, planning and preparing. Just like scheduling or general career goal-setting, keeping your personal finances on target with a budget can require a little bit of creative thinking.
If you’re struggling to keep your finances from feeling overwhelming, you’re certainly not alone. There’s a lot to keep an eye on. There’s also a lot of forward thinking that’s hard to prepare for.
When creating a budget, start by thinking about the things that are in front of you: like living costs, entertainment costs, and savings. Next, think about what’s left over after those up-front costs are taken out of your bank account: How you can manage that money, save more of it, or even invest it? Those big-picture, future-predicting questions are important elements of your budget.
Alright, now that you’ve got the bigger picture on the brain, let’s get down to business with some tips for big-thinking budgets.
Create an emergency fund
You might not have this in your budget yet, but you probably should.
Saving is not easy to do, but it will pay off when you need it most. Emergencies happen, and when they do, you’ll be glad to have had a little money stashed away for it. Whether that emergency be a car repair, medical bill, a month of living expenses, or even something smaller like replacing your laptop, it can be crucial to having a little financial cushioning.
Most financial experts will say that creating an emergency fund will take time, so keep that in mind. Investopedia recommends the average American household having a $4,775.92 cash reserve for each month you’re saving for. So, for a two month reserve that’d be $9,551.83, and for a sixth month reserve you would need $28,655.52.
If that seems like an unattainable goal, know that it’s always good to start somewhere. Following the 2008 recession, Bloomberg found that nearly half of Americans would have trouble covering a $400 emergency expense without selling something or borrowing money.
Start by setting aside $50 each month. (That’s the equivalent of eating out a few meals.) In a year, you’ll have $600 that could cover a small emergency expense. Emphasizing an emergency fund can easily be worked into a budget and help keep your finances prioritized.
An easy way to keep track of an emergency fund is to set up monthly automatic payments into a separate savings account. Make sure this is an account you are prepared to resist dipping into very often. If you set that rule for yourself, it’ll be easy to follow.
Write down your financial goals
Okay, really start thinking big.
What’s your next financial goal? Paying off a big debt, like a loan, or meeting a specific mark in your savings account? How about finally starting a 401k or investing your money? Put pen to paper. You’ll be more likely to accomplish it if you write it down.
Financial goals can almost seem abstract sometimes because they rely on so many variables, like your employment, changing expenses and the economy. But just like any other career or personal goal, it’s important to take a detailed look at how to make that achievement attainable.
A few things to consider:
- Why you want to achieve this goal. Is it a short term goal or are you doing this for the long haul?
- How your daily habits will change. Small savings can really add up.
- What achievement looks like. If you want to cut monthly spending, you might have a more concrete goal, but if the goal is to get into investing, then your success might be a moving target.
There is a complete science to writing down goals and thinking them through. Bestselling author Mark Murphy writes that, “Vividly describing your goals in written form is strongly associated with goal success, and people who very vividly describe or picture their goals are anywhere from 1.2 to 1.4 times more likely to successfully accomplish their goals than people who don’t.”
Getting to know why you’re committing to a goal and what it takes to get there really sets forth a process in your mind, and makes you more likely to achieve it. So while it may seem easy to think about how you could decrease spending in your monthly budget, writing down a plan will make it more likely to happen.
Keep a financial calendar
We’ve all had that moment. Just before dozing off to sleep the crashing thought of whether you forgot a credit card payment jolts you out of bed. It is one of the worst feelings, especially knowing that innocent memory lapse can cause damage to your credit score.
As your financial life becomes more complicated — a mortgage, renters insurance, a car payment, student loans, etc. — the fear of missing or forgetting a payment becomes increasingly stressful. It seems like every payment comes with a different due date, and staying on top of payments can be a major chore.
The easiest solution? Write it down. Incorporate those payment days into your daily/weekly/monthly schedule. Take a moment once or twice each month to review the bills you receive and make a note in your planner when they’re due, how much is due, and how they’ll be paid.
Not only will writing the dates down somewhere you regularly check keep you from losing sleep, it’ll help you better plan for the future. If you can look ahead at your month and visualize when you’ll be paying bills, you’ll start thinking about the best way to spend — and save — your money and when.
Commit to a day of no spending
This is easier than it sounds. Pick one day each week (or month) and really focus on not spending any money that day. No cards, no cash. It’s like a fast for your wallet. Afterward you’ll feel refreshed and re-centered about your spending habits.
It might turn out that the office coffee isn’t that bad, packing your lunch does feel kind of rewarding, and you didn’t really need that afternoon trip to the vending machine. You might even find you want to shed some of your spending habits when you go without for a day.
A day of no spending also helps you to realize what your minor spending looks like. Expenses like a pack of gum or a drink at dinner are really put into perspective when you opt out for a day, and you have the chance to think about whether it’s worth spending the money at all for that item or service.
Instead of looking at a day of no spending as being restrictive, look at it as a budget analysis. You’re taking a step back to reassess the little things. Just like cutting out sugar or caffeine for a period of time, a zero-spending day will reset your perspective and make you a bit more conscious of how much you are expending daily.