5 Bank Fees That Are Draining Your Savings
- Monthly maintenance fees
- Minimum balance fees
- ATM fees
In many ways, budgeting comes with the same pitfalls as dieting and healthy living. Most of us try to make positive choices, yet it’s far too easy to fail. Donuts, late night snacks and fried anything can be pretty tempting. So too can the desire to have free rein over our expendable cash. Unfortunately, this mindset tends to leave us strapped, over-burdened and full of regret: one of the many reasons why you need a budget.
But, if you want budgeting (or any other goal or resolution, for that matter) to work, you must keep trying. Practice really does make perfect, after all. That means understanding the basics of budgeting and learning how to get back on the budgeting horse when you’ve failed in the past.
To create a budget (you can go pen and paper, computer and spreadsheet or app and tech), you must first figure out the main pieces of the puzzle—the budgeting basics—which are your cash inflow and outflow. Erin Lowry, personal finance expert and author of a website and book entitled “Broke Millennial,” says this first step is essential. You cannot plan what you do not understand.
“You must know how much is coming in and exactly how much is going out each month,” Lowry says. “Once you have those numbers, it becomes easier to make an action plan.”
With your budgeting method of choice, list your weekly income in one column and your monthly expenses in another.
“Subtract the outflow (expenses) from the inflow to see how much remaining money you really have to work with per month,” Lowry says.
To understand the basics of budgeting, consider this example:
Let’s say you’re bringing home approximately $3,600 per month ($1,800 in bi-weekly paychecks) after deductions such as income taxes and health insurance. Out of that money, you need to pay rent, insurance, your cell phone and various other bills.
Here’s what your monthly budget might look like if you’re single and sans children:
|Weekly Income||Monthly Expenses|
|$900 weekly||Rent: $1,100|
|$900 weekly||Car Payment: $300|
|$900 weekly||Car Insurance: $150|
|$900 weekly||Cell Phone: $100|
|Total: $3,600||Credit Card Bills: $400|
|Gym Membership: $100|
|Total Bills: $2,750|
If your income is much higher than your total monthly bills, that’s a good thing. In the scenario above, you would have $850 per month to save or use toward debt repayment or other needs. Being able to uncover ‘leftover’ money is one of the many reasons why you need a budget.
If you consistently find yourself short on cash each month (the difference between your monthly income and monthly expenses is shrinking smaller and smaller), you need to determine where that money goes to nail down your budgeting basics. Beyond your regular bills, you likely have discretionary or miscellaneous expenses every month. Maybe you’re dining out more often than you think or buying more clothing than you realized. Perhaps you have an expensive hobby that’s eating away at your savings each month. Whatever the spending drain is, it’s your job to find it. Keep in mind, finding out where your cash is going is one of the reasons why you need a budget in the first place.
Lowry suggests kicking off your quest to learn budgeting basics by keeping track of every penny you spend for a full month.
“Track each purchase by writing down how much was spent and what it was spent on. Then, at the end of the week you can look back and see if there are any recurring mindless purchases that you don’t particularly value or need.”
From there, you can work on cutting those out and whittling your discretionary spending down.
Time for the elephant in the room: There could be a chance your expenses are greater than your income—that you’re still earning that $3,600 per month, but your expenses equal more than that.
“In that case, then it’s time to start making some tough choices about what to slash in your routine spending,” Lowry says, “or figuring out how to earn more each month.”
In other words, you need to reduce your spending and cut out extra purchases to make the numbers work. This part isn’t always so fun.
If this entire process has you down, don’t despair; it takes time, patience and resilience to create a budget that will work for you in the long term. Fortunately, a handful of tips about the basics of budgeting and reasons why you need a budget can help make things go more smoothly. Here are five to get you started:
North Dakota-based financial advisor Benjamin Brandt, who founded the financial planning firm Capital City Wealth Management, notes that your success or failure may hinge on a mindset switch. In other words, stop thinking of your budget as a drag, and perhaps it won’t be one.
“A common false narrative about budgeting is that a budget is confining and restrictive, or that your budget is telling you ‘no,'” Brandt says. “In reality, a properly constructed budget will be liberating, mostly because it allows you to spend without fear of sabotaging your future goals.”
“You must know how much is coming in and exactly how much is going out each month. Once you have those numbers, it becomes easier to make an action plan.”
While budgeting can be daunting, it helps if you can find ways to motivate yourself.
“Build reward systems into your monthly budget,” Brandt says. “For example, if you stick to your budget for three months, budget dinner and a movie with your spouse. Six months of budget success? Take a small vacation.”
“Gamifying your budget”—making budgeting into a game where you’re rewarded for good financial behavior—is a fun way to get back to the basics of budgeting.
“Know yourself and your bad habits, then figure out how to set up barriers against those bad habits,” Lowry says. “For example, if you know you’re likely to skim a little out of savings to fund non-essentials mid-month, then reduce the temptation by moving the bulk of your savings to a different bank than checking so it’s out of sight and out of mind.”
If you tend to blow money at the mall, avoid it completely. If you’re always tempted into dining out, buy groceries so you’re more likely to cook at home. Knowing yourself and your weaknesses can help you stay on track with budgeting basics.
While you may not have a lot of extra cash when you first start budgeting, creating a proper emergency fund can help you achieve your budgeting goals down the line.
“Scrape together $1,000 any way you can for an emergency fund,” Brandt says. “Sell things, pick up an extra shift and save $1,000 as quickly as possible. This $1,000 will serve as an emergency financial buffer to protect you from the financial things that go bump in the night.”
While $1,000 may not be enough to cover most full-fledged emergencies, it’s a good place to start. Over time, you can work toward building a more robust emergency fund with three to six months’ worth of expenses saved.
Having an emergency fund makes it easier to stick to your budget if you face a surprise expense like a home repair or an unexpected medical bill. Rather than blowing your budget to cover these costs, you’ll have a separate stash of money on hand dedicated to this purpose.
The final key to mastering the basics of budgeting, Lowry says, is tweaking the process until it works. Don’t give up if your first budget doesn’t help you save more money or reduce your spending. Instead, figure out what went wrong and try, try again. If you fail this month, next month can be a clean slate.
Also, don’t allow yourself to keep putting off the basics of budgeting. There are numerous reasons why you need a budget, and that won’t change anytime soon.
“Jump in with both feet,” Brandt says.
The longer you wait to get your finances together, the harder it may be.
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