The world of budgeting is as complicated as the world of diet and exercise. There is always a new method, app, or theory competing for our attention. But, as our good friend Pete the Planner reminds us, much like diet and exercise, budgeting requires attention and lifestyle changes. Your behavior must change to accomplish your financial goals. These changes will soon become your new normal and permanent budgeting habits.
When making a budget, there are a few basic principals and ideas to keep in mind:
- Keep It Simple. Your budget should start with a basic formula that includes your monthly income minus your bills and expenses. The difference is what you’re able to spend on anything else like clothes, entertainment, or savings.
- Make getting out of debt a priority. If you have racked up your credit card and have debt, don’t worry but stop now. Cut your credit cards in half, don’t open new ones, and pay the bills on time. If you can, pay more than the minimum amount. This is also a good rule of thumb for student loans.
- Take advantage of your 401(k). The earlier you save for retirement, the better! The longer you save money, the more your money can grow and compound. The golden rule is to contribute around 10 to 15% of your annual salary to your retirement account, and make sure if your employer has a match, you are getting that full amount! As your salary grows, you should take some of that increase and immediately put it in your 401(k).
As Pete the Planner describes in one of his blogs, budgeting isn’t necessarily about numbers. Budgeting really is about accountability, communication, and awareness. We often ignore these factors and hope for the best. Don’t be afraid to talk through your finances with your significant other or even your roommate! It can be stressful in the short-term, but proactive financial decisions ultimately relieve your financial stress.
Being financially aware is more than just checking your account balances often. Awareness has nothing to do with your phone apps or budgeting tools. It’s all about knowing your spending habits and how they impact you.
If you want better budget results, increase communication and awareness, and keep it simple!