Budgeting can seem like an afterthought in today’s digital world. Thanks to mobile banking and the internet, there’s no need for most people to balance their checkbooks. However, knowing how to budget means you’re less likely to get stressed when a notification pings from your banking app!
No matter what your income is or what your financial situation looks like, budgeting is a key part of being financially healthy and empowered. Budgeting helps you live within your means and reach your financial goals. Of course,you can still leave room for splurges; budgeting is about planning, not being miserable. Making a budget isn’t as intimidating as it sounds, and there’s no better time to start than now!
Prosper’s got five tips for budgeting in 2022 to get you started and help you achieve financial empowerment!
In This Article
1: Know Yourself
There are many ways to create and stick to a budget, and the most important criteria are the ones you can stick to.
Put some thought into how you relate to and manage your money. Prosper’s got a helpful financial personality quiz you can take that might give you some insight! Then look at different types of budgeting methods and pick one that works for you. If you have trouble keeping up, you can always switch to a different method that fits you better. One size doesn’t fit all; everyone thinks and works differently. So, what’s best for others may not be best for you, or vice versa.
2: Get The Right Tools For Budgeting
Next, you’ll want to figure out your best option for creating and maintaining your budget.
A: The Old-Fashioned Way
One option is to do it on paper and estimate where needed, perhaps as part of a budget binder.
Technology makes it easier to do the math and keep track of things, but some people are more tactile and prefer budgeting with pen and paper, and that’s ok! One advantage many technological solutions have is that they do the math for you; if you use pen and paper, double-check your numbers thoroughly and find a consistent system that works best for you.
You can also build a spreadsheet with Google Sheets or Excel and keep your budget on your computer. Excel, in particular, has a ton of free budget templates that you can download and use. With a properly formatted spreadsheet, all you have to do is plug numbers in, and the computer will do all the work!
There are many mobile apps for budgeting and money management, and it’s very convenient to have your budgeting tools and information available on your smartphone anywhere you are!
Apps such as Mint, Pylon, or Honeydue offer convenience, useful tools, and many of them sync with your banking accounts, credit bureaus, or other financial services to better understand your financial picture. If you’re just learning how to budget, an app can be a great choice for ease of use and some apps are even designed to support specific types of budgets, such as zero-based budgeting. In many cases, you can even automate tasks such as allocating money to savings, bills, or investments.
3: List Your Monthly Income and Expenses
The next step is to list your monthly expenses and income (or if you’re using an app that does this for you, make sure the app’s figures are accurate.)
List your take-home pay each month from work, social security payments, investments, and other income sources. If your pay is variable (because of commissions, lump sums from investments, side hustles, etc.) average it out each month (and tuck some away in savings on big paydays to maintain that average income!)
B: Fixed Expenses
In this category, list your fixed bills each month. This should include all the expenses you have to pay each month no matter what, such as:
- Rent/mortgage payments
- Car loan
- Cell phone bill
- Minimum payments for credit cards and other loans
C: Variable Expenses
In this category, you’ll place all your monthly expenses that aren’t fixed. You’ll want to look over your last few statements and average how much you typically spend in each category.
- Gas/mass transit costs
- Regular car maintenance
- Dining out
D: Quarterly and Yearly Expenses
Not all bills are monthly. Many subscription services, like Amazon Prime, bill annually. For homeowners, there can be payments like real estate taxes and sewer bills. You’ll want to put aside money each month for bills that arrive quarterly or annually, or even for holidays and birthdays. It’s also a good idea to maintain savings for unexpected expenses such as car repairs.
4: Budget Three Months at a Time
Whether you use a spreadsheet, an app, or a paper notebook, setting a budget three months at a time will give you more visibility into your money situation and set realistic short-term and mid-term goals. And knowledge is power.
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.
5: Set Goals
Setting financial goals helps you stick to your budget and control your spending. These can be shorter-term goals like saving up for a vacation or long-term goals such as planning to retire early.
Having goals in mind makes it easier to forego instant gratification because you know what you’re working toward. Every dollar spent outside your normal, budgeted-for purchases means a dollar less toward that vacation, new laptop, early retirement, and other goals you’ve established.
Knowing How To Budget Is A Big Step Toward Financial Empowerment
We want our readers to prosper, and data shows that maintaining and sticking to a budget is one of the biggest steps people can take toward achieving financial empowerment. Whether you choose to use an app or sit down every month with pen and paper, creating a plan that works for you—and staying consistent— is the key to a better financial future. You can achieve your financial goals, and Prosper will be here to help every step of the way!