Tips for Budgeting and Saving Money
Posted on January 10, 2018 by CHS
Many people make resolutions to start positive changes in their life in the month of January, as a new calendar year begins. A common resolution people make involves finances and saving money, especially for those who are getting back on track after all of the holiday spending. Do you have a large purchase that you need to plan for? Do you struggle with saving? This January, you too can resolve to learn how to budget and save.
Track Your Expenses and Create a Budget
If you are new to budgeting, the first thing to do is track your expenses. Record all your spending for this coming month, or you can use the previous month by looking at your credit card statement or bank statement (make note of expenses that differ from month to month such as vacations, birthdays, or holidays and keep these special occasions in mind when creating your budget). You can also use software like Microsoft Excel, which offers templates for budgeting to record your spending. Another option is signing up for a budgeting website that allows you to track your bills, and learn about different ways to save. You can identify a budget website that meets your needs by completing a web search for “budgeting websites.” If you’d rather not use technology to track your expenses, you can always jot them down in a notebook or journal.
Once you have all of your monthly expenses recorded, you can see where you may be able to cut spending. For example, if you spend a lot on eating out, buying coffee every morning, or paying for a subscription you don’t use regularly, you can make some small changes like cooking more at home, making your own coffee, and canceling unused subscriptions. These changes can help you save significantly in the long run. Compare your monthly expenses to your income and plan your budget so that you don’t spend more than what you earn.
A zero-based budget is a budgeting method where you can make sure that you control where all your income goes. This means that every dollar amount you earn is accounted for by designating your income to your monthly expenses. Once you have categorized all your money, you should have a “zero” income based budget. To begin, budget your estimated total monthly income with your fixed expenses (expenses that typically stay consistent) like a savings plan, rent/mortgage, loans, and auto payments before the month starts. Once fixed expenses are done, use the rest of your income to budget for variable expenses like groceries, dining, and entertainment. Once your budget is complete, every dollar from your income should now be assigned to something. This method is a great way for you to track where your money is going instead of wondering where it went at end of the month. Read more about zero-based budgeting at Everydollar.
Save Money and Automate Your Saving
Once your budget has been created, start saving! Aim to save 10-15 percent of each paycheck you receive; however, this percentage can be higher or lower based on your financial situation. For short-term saving, Better Monday Habits recommends using a savings account, or a Certificate of Deposit (CD), which has a set period of time (ranging from a few months to a few years) where your money will be “locked.” CDs do have a set interest which you can collect, in addition to your savings, once your account has reached maturity (end of term).
For long-term saving, you can use Individual Retirement Accounts (IRAs), which are insured by the Federal Deposit Insurance Corporation (FDIC). IRAs can be a good option since traditional IRAs allow you to deduct the money you contribute to the IRA from your taxes for the year. Keep in mind that IRAs are intended to help save for retirement and the money contributed to this kind of account is best left untouched until the time you retire. Another long term option includes stocks or mutual funds. One thing to note about stocks and mutual funds is that they are not FDIC insured and come with risks, including loss of initial investment. It is always a good idea to research any financial opportunity you find before deciding if you want to invest your money.
Many banks also offer the option of automatically transferring from your checking account to a savings account every time you receive a paycheck. To see if this is an option for you, check with your bank to see if they offer automatic transfers between checking and savings accounts and be sure to review all the terms and conditions of setting up this kind of account. Through automatic withdrawals, you can schedule the deposits to your savings account for the same day each month. For example, if you get paid every 15th and 30th of the month, then you can set up a transfer from your checking to savings for the same days. By making these deposits automatic, you won’t have to think about manually transferring to your savings account each time and you will be less likely to spend the money.
Take Care of Your Debt
Part of saving money for the future also includes taking care of debt. Once you have saved for an emergency fund (covering at least one month worth of living expenses), do your best to take care of your debt as soon as possible. Credit cards and loans can have a negative impact on your credit score if you are not careful about making timely payments and staying under your credit limit. You may need to adjust your budget and spending so that you can put more towards paying off your debt. It may take few months or even years, but stay patient throughout the process and keep tackling that debt to have better financial freedom for your future. You can read about different debt-free plans like the Snowball Plan and Dave Ramsey’s 7 Baby Steps. You can also read about improving your credit score by visiting our blog.
Learn more about tips for budgeting and saving money by clicking on the the links below.