Chances are, you understand the importance of setting up a budget. But does that mean you make â€” and maintain â€” one?
Like too many of us, there’s a good chance the answer is no.
The reasons? Inaction, poor goal setting and, possibly, not knowing what keeping a budget entails. It doesn’t have to be that way. Simply by taking a look at your income, organizing your finances, double checking your math, and using technology to your advantage, you’ll be following a budget in as little as 24 hours.
Allocate Your Income
A good budget allocates the appropriate amount of your monthly income to different buckets, says Jeff Rose, CEO and founder of Alliance Wealth Management and blogger at Good Financial Cents. While these monthly expenses may vary by where you live, your commute and any debts you have, Rose says you should expect to allot the following to these categories:
Transportation (Including Car Loan): 10%
Insurance/Personal Expenses: 20%
Loan Repayment/Savings: 20%
Double Check, Line-By-Line
Don’t rely on guesstimates when allocating your income to your budget. Get out a pen and paper (or open up a blank Excel spreadsheet) and calculate how much you typically spend each month on necessities like groceries, transportation, insurance, doctor visits and prescriptions, and rent or mortgage. Then look at what you spend on extras like dining out, movies, travel and clothing.1 Is there a certain amount of money you wish to save each month, in addition to your retirement plan or plans? Plug that into the equation, then adjust your percentages as needed.
Automate Where You Can
You may think that once you’ve created your budget that the hard part is over. Wrong. The hard part is sticking to it. One way to make sure this happens is by automatically deducting as much money as you can so it goes to the right place before you have a chance to spend it. This includes having an automatic transfer from your checking to your savings account, setting up automatic bill pay for your credit cards and automatic deductions for your employer’s 401K.2
Use An App to Stay on Track
Depending on the way you’ve budgeted your money, and your level of discipline, there are a handful of apps that can help you keep within the spending parameters you’ve set for yourself. Perhaps the most logical is your bank’s mobile app, which, depending on the bank, will allow you to see how much you’ve spent by day, week and month; filter by spending category; and transfer funds.3 Other apps, like Mint, link your financial accounts like credit, checking and loans to create a snapshot of your financial status in one place, and allow you to create budgets. These apps can even alert you to how you’re progressing. An app called Wally lets you save receipts then plug them into your pre-set buckets4, while GoodBudget5 lets you create envelopes to spend from, so you don’t overspend on groceries and have to skip a bill.