How to Budget Better in 2021 and Why You Need to Start Now

Budgeting may seem like an archaic skill in a world of well-designed banking websites and smartphone apps with convenient notifications alerting you of new charges the moment you buy something. 

However, knowing how to budget will not only help you to live within your means today, but also give you a view into your long-term finances. 

Learning how to budget will show you the potential to grow your savings while giving you something to look forward to, like spending big on vacations and new tech. Here’s how to make a monthly budget:

Start Now

It’s never the wrong time to start learning how to budget or to budget better. Whether you’re living paycheck to paycheck or have a steady stream of discretionary income, there are budgeting tips that can help you spend your money more effectively, start saving (or save more) and pay off your debt to achieve financial well-being. 

List Your Monthly Income and Debt

The genesis of good budgeting is knowing and writing down your monthly take-home pay and your recurring outgoing payments. Take-home pay is the amount of money you receive from your work, Social Security payment, and any investment income that arrives in your bank account on a regular basis. Outgoing money usually involves more than just your housing, car, cell phone and utility bills. 

To budget as effectively as possible, you should also include monthly estimates for things like:

  • Grocery shopping
  • Haircuts
  • Gas/mass transit costs
  • Pizza nights
  • Takeout lunches
  • Credit card payments 
  • Other normal expenses you incur throughout the course of a month

Calculate Your Quarterly and Yearly Expenses

Not all bills are monthly. For homeowners, there can be things like real estate taxes and sewer bills. However, we all have expenses that crop up outside of our normal, month-to-month spending. 

Some examples of quarterly and yearly expenses include:

  • Holiday and birthday gifts
  • Car maintenance (regularly scheduled and the unexpected)
  • Vacations
  • Back-to-school shopping
  • Taxes
  • Utility bills

Spend time thinking about these types of bills as they relate to you, estimate and total them, and divide by 12. With that new figure, make an additional line item on your monthly budget to set money aside (in a separate savings account) for these non-monthly expenses so that you’re financially prepared when they come due. 

Budget Three Months at a Time

Whether you use a spreadsheet or a paper notebook, setting a budget three months at a time will give you more visibility into your money situation. And as they say, knowledge is power. 

Here’s why budgeting three months out can make an impact on your spending habits and, ultimately, your ability to save for the future: 

The Bigger the Picture, The More You Will See

Seeing the bigger picture of your financial life will help you determine whether you have the extra income next month to pay for that big ticket item you’d like to buy or to cover the monthly cost of that new streaming service you want to subscribe to.

Curb Your Spending to Supercharge Your Savings

Knowing you’ll have money to save each month will help to curb your spending. This is because every dollar spent outside your normal, budgeted-for purchases means a dollar less toward that vacation, new flat screen TV, charitable giving or whatever else it is you’re saving for. 

Look for Ways to Trim Spending

In addition to budgeting three months at a time, take a critical look at your budget and ask yourself:

  • Do I spend too much on takeout or delivery? If so, consider eating breakfast at home and packing lunch more often.
  • Am I using all the groceries I purchase? If not, which foods are being wasted and how much are they costing you every time you shop?
  • Are there opportunities to take advantage of coupons, repeat delivery discounts or other savings to reduce my monthly expenses? If so, you know what to do!

Control Your Inbox

Finally, to avoid unnecessary spending, consider stopping the temptation at the source. If you have an email address and if you’ve ever shopped online, you likely have a steady stream of promotional pitches landing in your inbox. There’s no problem treating yourself every once in a while or making thoughtful purchases when it makes sense for your budget, but sometimes these offers can be budget-busters. Consider unsubscribing to some of the store emails that could present unnecessary temptation.

Read more: Finding Balance Between Spending Money and Savings Time

COVID-19 Financial Health Calculator: Extending Your Quarantine Budget

You don’t need to enter data into a Financial Health Calculator to know that saying the COVID-19 crisis has been a challenge would be a significant understatement. Even if you’ve been fortunate enough to stay healthy, not lose your job, and didn’t have the virus take a loved one away from you, the emotional and economic impact has likely been severe. While it may seem strange to search for silver linings from Coronavirus quarantine life, there may be personal finance lessons learned that could, if we reflect upon them, help improve our financial future. 

It’s said that necessity breeds invention and as such, many Americans learned to occupy their time at home with puzzles instead of heading out for live concerts, enjoy streaming movie marathons while cinemas were shuttered, and baked bread and learned to cook at home because favorite restaurants and cafes had to be closed for public safety. The result, or silver lining, for many Americans is a more frugal life. Now, let’s look at how to use a financial health calculator to start extending your quarantine budget as we head into the ‘new normal’.

Use A Financial Health Calculator to See Your Quarantine Savings

Your exact household budget, spending and potential savings will differ, but to get a big-picture snapshot of how much less you’ve been spending during quarantine life, use this clever financial health calculator. You’ll enter:

  • How many miles you typically drive to and from work,
  • The number of times you get take-out for dinner each week,
  • Nights spent at the local pub,
  • and the total number of kids who under normal circumstances would need childcare.

What you’ll get back is a dollar amount representing the approximate amount you have (or could have been) saving each month during quarantine life, while at home doing puzzles, binging TV shows, and baking (and eating) too many muffins. Sure, your online shopping habits may have increased, as probably did your home’s energy and water bills, but overall you likely have been spending far less money than before COVID-19 struck the U.S.

Three Easy Ways To Earn and Save Money

No one is saying to never go to the movie theater again or skip the concert of your favorite band once it is safe enough to hold and attend live events, but maybe we have been spreading ourselves and our budget too thin for too long. And maybe we’ve not been taking advantage of the various ways we can earn and save money.

More Shirts, Less Pants

Working from home, having meetings on Zoom and leaving the house less has meant more shirt-only sales and less pants being purchased, which literally cuts wardrobe costs in half. Pocket those savings, even if you aren’t wearing bottoms to work now!

Sell Your Clutter

You likely have extra stuff lying about — DVDs you haven’t watched in years, an old set of golf clubs, the dehumidifier that never did help clear up your stuffy nose, that trendy kitchen appliance you barely ever used. Now’s a great time to check the value of all that on eBay and Craigslist, then sell your clutter. You’ll clean up your space and pocket a few dollars in the process. 

Close Accounts That Are Charging You Fees

Now is the perfect opportunity to micromanage your financial life and keep more of the money you earn. Take a fine-tooth comb to your life and discover if you’re paying bank account monthly maintenance fees, credit card annual fees, ATM fees to use your debit card, and any miscellaneous wireless phone or home internet access fees. There are too many high quality online banks, no-fee credit cards, other home services with no fees to continue spending your money on accounts and services dinging you with fees each month. 

Extending Your Quarantine Budget

You’ve used the financial health calculator and you’ve seen, clear as day on the screen, how much excess money you’ve been spending instead of saving during pre-COVID times. Now, as businesses reopen, COVID-19 relief programs end, and some semblance of normal life returns, keep thinking critically about the ‘wants’ that you haven’t needed for much of this year. This could mean:

  • Extending that newfound passion for baking your own bread instead of paying up to $5 for a crusty loaf at the market,
  • Making more use of the crockpot for meals at your own in-home BYOB versus pricey dinners at restaurants,
  • Walking, hiking or running outside and doing pilates for free with an instructor on YouTube in front of your Smart TV instead of paying monthly gym membership fees,
  • Watching more sports at home on your big, flatscreen TV with fairly-priced food and drink in hand…and no exorbitant parking costs to pay,
  • Shopping less overall but when you do making it secondhand and/or local to save money and continue supporting your community,
  • And putting the money you save doing all of the above into a rainy day fund just in case there’s a second wave of COVID-19 or another unforeseen emergency.

There’s no telling what the future holds as we continue to battle public safety and the need to get back to work and normal life, but you have the opportunity to put some of the lessons learned and financial changes made out of necessity to work for you for the long haul, and be better prepared to handle whatever comes next.

Read more: Managing Finances During A Work Furlough

How to Make a Budget for the New Year

If one of your New Year’s resolutions is to figure out how to make a budget, you’re in the right place. Though you may have been putting it off, establishing an effective budget isn’t difficult. In fact, it’s quite easy. Follow our step-by-step guide below to kickstart your financial wellness and learn how to make a budget for the new year.

Step 1: Determine Your Gross and Net Income

When figuring out how to make a budget, you first need to determine how much money you have each month. To do that, you need to determine your gross and net income.

Gross income is how much you make before taxes and other deductions are taken out.

Net income is what you make after those things are taken out (meaning the money that actually gets deposited into your bank account).

Calculating Your Gross Monthly Income

To calculate your gross monthly income, take your annual salary and divide it by 12. To calculate your gross monthly income if you are paid hourly, first, multiply your hourly pay by the number of hours you work per week, then multiply that number by 52. Then divide by 12.

Calculating Your Net Monthly Income

The simplest way to determine your net income, or your take-home pay, is to look at your paystubs. However, there are also a ton of free calculators online you can use to estimate your take-home pay, such as this one.

Step 2: Calculate Your Fixed Expenses

If you’ve Googled how to make a budget before, you’ll know that the next most important amount to calculate, is your monthly expenses. There are two types of expenses: essential and nonessential.

Bills you have no control over are what we call essential expenses, and they include things like:

  • Rent
  • Mortgage
  • Auto Loans
  • Health Insurance
  • Student Loans
  • Electricity
  • Water/Trash

Nonessential expenses are expenses you choose to have. They include things like:

  • Gym Memberships
  • Cable TV
  • Smartphone Data Plans
  • High-Speed Internet
  • Netflix
  • Music Lessons
  • Sports Fees

When it comes to your budget, you need to add up all your fixed expenses and subtract that amount from your net pay. The remaining amount is what you have to work with each month, and only a small portion of that amount should go to nonessentials. Obviously, the idea is to have as much money left over at the end of the month as you can—meaning anything you can cut out you should cut out.

With so many subscription-based services these days, you may need to think about dropping a few. To build wealth, you have to cut out the fat. Ask yourself: How much can you afford put toward nonessential expenses?

Step 3: Choose a Budget

There are all types of budget plans out there, but two really seem to have it down. They are the 60% Solution and the 50-20-30 Method.

60% Solution

Developed by Richard Jenkins, this budget model suggests you divvy up your income the following way:

  • 60% of your income goes toward your essential expenses.
  • 10% goes toward long-term savings goals, such as a down payment.
  • 10% goes toward short-term savings goals, such as Christmas, birthdays, and vacations.
  • 10% goes toward your retirement.
  • 10% goes toward fun expenses, such as restaurants, dates, and new gadgets.

It’s methodical yet simple, which is why so many people like it.

50/20/30

Developed by Elizabeth Warren, this budget puts 50% of your net income toward your essential expenses, 20% toward savings and paying off your debt, and 30% toward your wants and desires.

The great thing about this budget is that it takes a lot of the thinking out of budgeting. However, because 30% of your net income goes toward “wants,” you need to be mindful of how you’re spending breaks down. For example, if you buy something you want while grocery shopping, consider ringing it up as a separate purchase to help you keep track of your nonessential purchases.

Step 4: Automate Your Budget

To kick your savings practice into overdrive, you need to automate everything as much as you can. Set up any bill you can for automatic payment and do the same with your savings and retirement accounts. Take all thinking out of the equation. The less you have to think about, the more you’ll save. Many banks offer automatic services, but if yours doesn’t, there are an abundance of automatic billing apps available for smartphones.

The Most Important Thing You Can Do? Start.

You may want to keep reading blogs about how to make a budget, but there’s no need. The greatest secret to success is just starting. Stop planning, and jump in.

Read more: Too Much Credit Card Debt? Expert Tips for Paying It Off

Tips for Keeping Your Budget on Track This Holiday Season

This holiday season, give yourself the gift of better financial well-being by keeping your budget on track. Between presents, travel and celebratory gatherings, it can be easy to overspend—but sticking to your financial plan is well worth the extra effort. Check out our seven tips for staying on budget this holiday season:

1. Avoid spontaneous shopping. Make your gift list and check it twice—then be sure you stick to it. It’s easy to get carried away in the holiday spirit, so commit to shopping only when you have your detailed plan in hand. See our recent blog post for more tips on savvy holiday shopping.

2. Try to leave emotions out of the equation. Making decisions that impact your budget while you’re feeling strong emotions can be bad news. Whether you’re feeling exuberant about a holiday sale or stressed out and pressed for time, emotions can spell disaster for your budget. To steer clear of making purchases you may regret later, take a quick inventory of your emotions before clicking “buy” or handing over your credit card. A short breather may be all you need to get refocused on your budget.

3. Look for ways to save on everyday expenses. To free up a little extra cash to cover holiday expenses, identify ways to trim everyday expenses. For example, could you cut down your eating-out budget just for the month of December or take a homemade lunch to work for a few weeks? Or maybe you could freeze your gym membership for a month and try free at-home workouts instead. The extra cushion can go a long way in making sure your budget stays intact this season.

4. Think carefully about seasonal income. For many, the holidays come along with a seasonal job or annual bonus check. The extra funds are always welcome, but if you aren’t sure exactly how much you’ll receive, use a conservative estimate in your budget. That way, you won’t be making plans to spend income that doesn’t end up materializing. Better yet, create a budget where you can transfer all or most of the seasonal earnings into a savings or emergency fund.

5. Keep your long-term goals top of mind. What are your long-term financial goals? Whether it’s saving for a house, buying a new car or paying off a high-interest rate credit card balance, find ways to keep your goals front and center. Remind yourself how sticking to your budget is essential to achieving better financial health and ultimately more freedom. Try taping a note on the fridge or setting a pop-up reminder in your calendar to help you avoid shortsighted holiday decisions and stay focused on the longer term.

6. Get the family involved. Many people find their budget works best when everyone in the household is on board with it. If your children are buying gifts for their siblings and friends, help them understand their spending limits and choose appropriate items. Keeping partners, spouses and roommates in the budget loop can also help you stay on track and not feel guilty about having to say “no” on occasion. You might even be able to get the group to opt for a new, lower-cost tradition, such as touring holiday decorations or volunteering instead of going out for a fancy restaurant dinner.

7. Track your dollars and cents with apps. Chances are, you’ll have more expenditures than normal this time of year as your hard-earned dollars are spent on gifts, decorations and other festivities. If your current method of tracking income and expenses can’t manage the increased workload, this could be a great opportunity to try out an innovative tech solution.

If you’re considering borrowing money to pay down existing high-interest rate credit card balances or otherwise improve your financial well-being during the holiday season, a personal loan could be a good fit for your financial situation. With a fixed-rate, fixed-term personal loan through Prosper, you could potentially consolidate your credit card debt with a budget-friendly, single monthly payment.

5 Simple Budgeting Tools for People Who Hate Math

If you’re not a fan of numbers or math, the word “budget” likely makes you squirm. Yet, if you’re trying to get on top of your finances—and who isn’t? —you need to make peace with budgeting. These simple budgeting tools can help.

Thanks to digital tools, setting up and maintaining a budget doesn’t have to be as painful as long division or mental math. There are easy solutions for managing every part of the budgeting process and they make the life of every math-hating budgeter easier.

Get your budget on track, sans the math, with these simple tools.

1. Budget Calculator

It doesn’t get much simpler than this. With this basic budget calculator you need just two numbers: money in and money out, and you immediately get a total for how much you’ve saved or over-spent that month. If you’re new to budgeting, this is your baseline. The total can be used on its own, to benchmark progress over the course of six months or a year, or to help you set financial goals specific to your current financial situation.

Simply put the total amount spent or saved in a Google Sheet, along with the date or month. Don’t forget to include a goal for reducing or increasing that number next month. In just a few months, you’ll have a clear snapshot of how much you spend and save each month, which can be used to set long-term goals like, buying a house or leasing a new car.

2. Debt Payoff Calculator

Tracking debt is stressful for people who hate math thanks to interest rates, percentages and pay-off dates, all of which can be confusing and hard to understand. Take the stress out of managing your debt with the Credit Karma Debt Payoff Calculator. Once you’ve loaded your information —including total balance owed, interest rate, monthly payment and preferred payoff timeframe—you’ll get all the important numbers, including total amount of interest you’ll pay over the life of the loan.

The best part is you don’t have to do any math! Do this for each separate debt you have, then prioritize and start paying them down accordingly.

3. “Vague Budget List”

Vicki Zhou, financial advisor and PennyHoarder contributing writer, suggests creating a vague budget list, which is a list of things you want to spend money on; not bills. “Try to limit your spending to the stuff on your vague budget list, the things you care about. If you find you’re spending money on items that don’t make you happy—or at least give you substantial convenience—consider sliding that cash to your retirement account or your other investments.”

This is perfect for a newbie budgeter who wants to get a handle on spending without sacrificing morning coffee stops or Friday night dinners with friends. When the spending is built into your budget, you’re less likely to go over. The best part: you won’t need to do quick math at the register to decide if you can afford a large coffee or not.

4. Google Sheets

If you’re comfortable using Excel or Google Sheets is a great tool to create and maintain a budget. Google Sheets allows you to customize your budget and then it takes care of calculating how much you’re spending and what you have left over each month. Start with a free budget template, like one of these from WalletHub, which makes it easier to organize your finances from scratch.

If the idea of using a spreadsheet to manage your budget is still a little intimidating, there are several step-by-step tutorials to help you get started.

5. Personal Loans

Taking on new debt, like a personal loan, when you’re already in debt can be tricky, but it can be a great option for managing and reducing your high-interest debt quickly. The benefit of personal loans is that you can get it from a wide range of institutions, including online platforms like Prosper. Personal loans are fixed term and fixed rate and usually charge lower interest rates than a credit card, for example, which some people use to pay off debts and large expenses.

With a new, hopefully smaller or more manageable monthly payment, you can start making financial decisions that set you up for success.

Start Budgeting, Stop Doing Math

Use these tools to take the math work out of budgeting, without sacrificing a financial plan. Get started with financing tracking, debt management and goal-setting to create a budget that’s both beneficial and reasonable.

This article was contributed by Jessica Thiefels, a full-time writer, consultant and business owner. Jessica and her husband recently paid off $20K in debt in just one year, and her work as been featured in financial publications like Market Watch . Follow her on Twitter @Jlsander07 and connect LinkedIn.

How to Avoid Overpaying for Your Big Event

There are many reasons to host a truly special event: to celebrate a wedding, engagement, retirement, graduation — or even a milestone anniversary. After all, who doesn’t like a big party? But what’s your party planning budget?

Whatever special event you may be planning, budgeting is essential to ensure costs don’t spiral out of control and put you in debt. Even professional party planners will tell you that when there are multiple vendors and fees it can be easy to lose track of expenses. So, before calling the caterer or DJ, make sure you have a good idea of what you can reasonably afford and set a budget.

The first step to budgeting is to outline the key expenses. Here are some of the essentials you’ll need to factor into your party budget:

Venue

Every great party needs a great venue. Costs can fall into a pretty wide range depending on how many people you are expecting, how formal you’d like the event to be, and of course, location.

In addition to the location rental fee, there are also additional charges for tables, chairs, ambient lighting — the list of extras could go on and on depending on your specific needs.

One important consideration when planning for venue costs is to consider the time of year. There are peak wedding seasons, so expect to pay more for rentals during the high-demand season.

Catering

A party really isn’t a party without good food! Whether you’re planning a formal, catered meal, or something more casual, it’s important to be clear about how much you are willing to spend on catering and watch out for hidden costs in catering contracts. Some venues will offer all-in-one packages that include catering service, or you can get quotes from a few third-party caterers.

The Knot, which fields an annual survey to uncover wedding cost trends, reports that the national average catering cost for weddings is $71 per head, with an average of 141 guests — for a grand total of more than $10,000. In major metro areas, the costs could be even higher.

Bar/Drinks

Alcohol at any event can be a big item in your budget. There are a variety of options depending on your budget — anything from a cash bar to an open bar. The latter, of course, will cost you.

EventPlanning.com has a helpful guide for how much you can expect guests to drink, and how much it will cost. In general, they estimate that 20 percent of the event budget will be spent on alcohol — plus another 20 percent of that in gratuity for bartenders.

Entertainment

Live music or DJs are a popular (and excellent) choice for almost any special event. Unfortunately, all that excellent dancing comes at a high price. The average American marrying couple spent $1,245 on a DJ for their reception in 2016, according to The Knot.

Travel and accommodations

Destination events are becoming increasingly popular – especially for weddings!

It’s no surprise that if you’re planning to go somewhere exotic for your event, you can expect significantly higher expenses around your event. The Knot found that destination weddings cost an average of more than $300 per person — slightly less for a domestic event, and slightly more for an international destination wedding.

Along similar lines, a destination bachelor party or anniversary celebration will generally cost more than staying close to home. So if you’re planning a far-off celebration, it might pay to keep the invite list small!

Contingency

Sometimes things just don’t go to plan and costs overrun your expectations. That’s why it’s essential to have a contingency budget set aside to cover anything unexpected that might pop up. The Balance recommends that party planners set aside up to 20 percent of the total event budget to cover unexpected items that can throw an event budget off-track.

The perfect event

The bottom line is: hosting a memorable party doesn’t need to cost a fortune. Ultimately, the invite list is what’s most important. Sharing important moments with friends and family will always be the real pay-off.

While paying for things with a credit card may seem tempting, watch out for high interest rates — especially if you do not expect to pay the balance in full each month. If you’re looking for a little extra time to pay off some of the cost of your big event, you may want to consider a personal loan through Prosper.

Whatever you’re celebrating, we hope you and your guests have an event to remember!

– Best wishes from Prosper