Budgeting Hacks: Ways to Start or Improve Your Budget

Budgeting 101
Key Takeaways:
  • A budget can help you manage your expenses and work toward your financial goals.
  • Popular ways to budget include the 50/20/30 rule, zero-based budgeting, and envelope budgeting.
  • Having an accountability partner might help you stick to your plan.

A budget is your plan for how to use your money. It’s a way to manage income and expenses, and improve your financial situation. You can select any budgeting method you like. The important thing is to follow it.

Why is budgeting so important?

Budgeting isn't about denying yourself. It’s about allocating money for different purposes. You can identify your priorities and decide where you want your money to go.  

Here are some of the benefits you’ll get by mastering your budget:

Achieve your goals

You may want to take a vacation, pay off debt, buy a house, or retire early. A budget lets you save and invest money to reach your goals. 

Develop good spending habits 

Spending less than you earn can help you avoid debt and reach your financial goals faster. 

With a budget, you can separate your needs and wants, set spending limits, and resist impulsive buying. 

Pay off debt

A budget can help you plan for your debt repayments. It's also one way to stay on top of your monthly payments. 

Cover unexpected expenses

Your budget can include setting aside money to cover unplanned expenses like a sudden medical bill or car repair.

Reduce stress

A budget tells you how much you have coming in, and where you want every dollar to go. Having and executing a plan that you’re happy with can relieve financial stress.  

Why is budgeting so hard?

Many people know budgeting is important, but making a budget and following it is challenging. Here’s why:

It’s hard to face the financial situation

To make a budget, you need to analyze your finances. This may not be appealing if you’re in debt or don’t feel financially secure. But making a budget can be a good starting point to improve your personal finances

Most of us are susceptible to impulse buying

Nowadays, we can buy something with a single click. Developing conscious spending habits so that your money is spent on your priorities takes some effort. 

Money management takes time

Your spending plan will require an investment of time. The most time will be in setting it up, but you’ll also spend time tracking and reviewing your plan daily, weekly, or monthly. The time commitment can seem large when you first start and tempt you to give up. 

We get complacent

Some people get comfortable when they’re earning enough to cover their monthly expenses, and a budget doesn’t seem necessary. But with a plan for your money, you can break the paycheck to paycheck cycle, save money for unexpected circumstances, and create wealth.  

There are several ways to create a budget. Select one that you’re comfortable with and will likely follow. 

1. 50/20/30 rule

In this method, you set aside different percentages of your income for your needs, wants, and savings. 

  • 50% for needs: expenses you must cover, like rent, utilities, groceries, and monthly debt repayments.

  • 20% for savings: you can also use this to pay down your debt.  

  • 30% for wants: non-essential items like entertainment or eating out. 

This is a baseline, but you can change these percentages to suit your situation. Some people may prefer to spend less on wants and increase their savings. 

2. Zero-based budget

With a zero-based budget, you allocate every dollar of your income toward an expense, including savings.

For example, if your monthly paycheck is $4,000 after taxes, you may set aside $2,000 for your living expenses, $1,000 for debt repayments, and $1,000 for savings. Your cash inflows and outflows are equal.

3. Envelope budget 

With envelope budgeting, you put cash into envelopes for different expenses. For instance, your grocery envelope will have your monthly grocery allowance. You can carry any excess cash into the next month or deposit it into your savings account. 

This method can be useful for managing variable expenses. It might also be a good way to limit your credit card usage. You can use digital envelopes by downloading a budgeting app that supports the envelope method.

5 steps to creating a budget

Once you select a budgeting method, it’s time to make your monthly budget. Here are the steps to follow:

1. Gather your income and expense data

Write down all of your income. If you don’t have a steady income, check your previous months’ income and come up with a monthly average. You need the after-tax number. 

Next, list your expenses. You’ll likely know your fixed expenses like rent or mortgage payments. Using previous bills, estimate your variable expenses, like electricity and grocery costs. Check your bank and credit card statements if you don’t remember the amounts. Be sure to check for any one-off expenses like annual subscriptions due in certain months.

Divide your outflows into categories like rent, utilities, groceries, debt repayments, savings, entertainment, and travel. Make up any categories that you want to track. Some people like to track how much they’re spending on cat food. Others want to track their Starbucks purchases. The categories are up to you! Just make sure they make sense to you because you’ll be using them every month.

2. Write down your goals

Set clear goals. For instance, if you want to take a summer vacation, you can plan to save for it by reducing other spending to create opportunities to save. 

3. Create your budget

You can create a simple budget template on a spreadsheet, use a budgeting app, or stick to pen and paper. 

You could start by saying you won’t spend more than X dollars in each category, but this only works well if you have a firm understanding of how much that thing costs. For instance, you might want to have a $500 grocery budget, but the reality is that your family of four eats $800 worth of food every month. So review how much you typically spend in each category and start there. Over time, you might find that you can lower your spending in some categories so that you can increase your spending in others. 

4. Keep track of your expenses

Now you’re ready to track expenses and compare your spending to the plan you’ve created. It’s helpful to review your spending daily or weekly, when the transactions are still fresh in your memory. You can use an app to do this easily.  

5. Adjust your budget if necessary

Sometimes, you may need to adjust your budget if your income, expenses, or goals change.

How to motivate yourself to stick to your budget

Sticking to a budget can be challenging - here’re a few tips to help: 

Remember your financial goals

Keeping your goals in mind can motivate you to follow your budget. You’ll likely feel empowered as your savings increase and you get closer to achieving your goals. 

Set aside money for activities you enjoy

You might get frustrated and give up if you cut back too much.

Think of ways to add some leisure activities you like at a lower cost. For example, if you like to eat out, maybe you can divide your meal in half and save the leftovers for the next day. 

Find an accountability partner

Your life partner or a friend can support you and help you stay motivated to keep working toward greater financial freedom. Consider having a weekly or monthly budget chat when you both review your progress. 

How budgeting can help you pay off debt

A good budget is a useful tool to achieve debt freedom.

Stay on top of your debt

If you have debt, include debt repayments in your budget. Timely payments can help you save money on fees and interest costs. 

Allocate extra money toward your debt

If you are able to reduce spending in another category, put the extra cash toward your debt. 

Avoid adding more debt

Your budget should help you understand your upcoming income vs. expenses. This might help you avoid adding new debt. 

If you are experiencing debt stress and you don’t think following a budget will help, consider talking to a professional debt counselor about your options.

Frequently Asked Questions

What are the three Rs of budgeting?

The three Rs of budgeting align with the three Rs for environmental responsibility:

Reduce: cut down your expenses, especially the non-essentials  

Reuse: reuse what you have to avoid spending on new things

Recycle: get creative and recycle items to cut costs.

Are there apps for budgeting?

Yes. Several apps like PocketGuard, Mint, You Need A Budget (YNAB), and the Achieve GOOD app (Get Out Of Debt) can help you set a budget, track transactions, and stay on top of your financial goals. Some apps also let you link bank accounts and creditor accounts.

What’s the #1 rule of budgeting?

Spend less than you earn.