So you’re ready. You’ve decided to give it a go and commit, really commit this time to mastering your money.
You need a budget. Maybe you’ve mastered your fear of the word and come to terms with the idea of budgeting, if not check out “Why you hate budgeting and what you can do about it” For now, I’ll assume if you are here, you are ready to roll.
So how can we ensure we make changes that stick?
Find the budgeting system for you
Recognising that there isn’t a ‘one size fits all ‘approach to budgeting is one of the first ideas to get your head around.
The end goal is always the same – to ensure you make the most of the money you have, but the approaches and methodology are different, the feel is different. And if you are more comfortable with the system, you’re more likely to stick with it.
There are a load of different ways to budget, but I’ve picked 4 popular ones that we can take a quick peek at to get you started:
With zero-based budgeting, the goal is to take everything you earn and assign it a purpose. You allocate a use for every penny and come out with a balance of zero at the end of it. This isn’t to say you empty your bank account each month, just that you don’t have any spare money lying around without a designated function – put it in savings, use it to pay off debt, put it in a Christmas fund – just give it a purpose.
- Good for: This thorough budgeting system is good if you never seem to have enough to pay for the things that need paying for and you like a puzzle. Think of it as a fun strategy game and make the puzzle pieces fit – zero-based budgeting is surprisingly satisfying when you get it spot on!
- Not so good for: Those in a hurry. You need to keep a close eye on what you are spending and make sure everything is accounted for. Like many budgeting systems, this will get easier the further down the road you travel and the first few months are usually the hardest while you iron out the imperfections.
The idea with 50/30/20 budgeting is that you allocate 50% of your income to things you need, 30% to things you want, and 20% to savings.
- Good for: This is a great system if you have a decent income but struggle to manage it. Also good if you tend to think of budgets as too restrictive and/or time-consuming. Having clearly defined amounts you can spend but no categories beyond wants/needs/savings can feel like you have more financial freedom and can quickly produce a good amount of savings when followed.
- Not so good for: People who aren’t earning a lot. Half of your earnings on wants and savings? For a great many people, their entire months’ salary will need to go on the bare necessities. You could adapt the percentages to reflect a more realistic split for you, but obviously it will take you longer to save than if you are in a position to put aside 20% each month
Kakeibo is a Japanese budgeting system based on carefully recording everything you spend and regularly reflecting on your savings goals. Each month you will ask yourself 4 questions (How much do I have available? How much do I want to save? How much am I spending? How can I improve?) and consider how successful you were in meeting your goals.
- Good for: Mindful money management. You can really get a sense of how you spend and what your money mindset is with this approach. It is also great if you are a bullet journal type – traditionally handwritten, the kakeibo lends itself perfectly to bujo’s. (Although digital versions are available)
- Not so good for: A quick fix. Kakeibo is a reflective practice which requires that you spend time recording your expenses and reflecting on your spending habits in order to master your money mindfully.
Cash is king here! After you have worked out what you need to leave in your account to cover utilities/rent/direct debits, take out anything you have left over in cash and divide equally into envelopes for the weeks in the month.
- Good for: Those prone to overspending on cards. You always know exactly what you have with cash and when it’s gone it’s gone. This is an excellent method for those new to budgeting for this reason – nothing helps you understand the value of money like having cash in your hand.
- Not so good for: People who shop regularly online or are prone to misplacing things! You obviously need to be careful you don’t misplace your cash as it represents your entire months’ finances – there is no getting it back!
Paper or digital
Are you an app person or a pen and paper person? Decide before your adventure beings. Computer person? Set yourself up an expenses spreadsheet or download an app. Prefer paper? You might want to treat yourself to a budgeting notebook or printable to cement your commitment to better budgeting. Either way, I recommend picking a system and sticking with it for at least 3 months before switching.
If you are in a relationship, budget together. It is so hard to make your money work as a family if you aren’t on the same page. Set aside a weekly or monthly date to go over the figures and make sure you both know where you are at.
Work out what absolutely needs to be paid for each month and prioritise that. Always pay this first! This will usually be accommodation, utilities, food, transportation and debt. Until you have your basic needs covered, you absolutely shouldn’t be splurging on luxuries. If this leaves little over, try shopping around and see if you can reduce your bills or consider switching to cheaper own-brand groceries or stores.
Anything that you can arrange a direct debit for, do so. Then just set it up, siphon the money into the relevant account each month and forget about it.
Create a buffer
Pay a small amount more than you think you’ll need into your direct debit accounts to allow for fluctuations. This way you’ll probably also build up a spare pile of change for emergencies, which is a nice bonus.
Adopting a minimalist aesthetic may be a somewhat extreme approach for some, but many find it truly liberating and a great way to save money. It stands to reason that the less you need, the less you’ll spend, but it is also about appreciating quality over quantity. This is really helpful when you are trying to make the most of your money. When you do make a purchase, it will be intentional, something of good quality that you love and will bring you pleasure for a long time to come.
You might find it helpful to create a visual to remind you why you are budgeting to begin with. Collect images of whatever the good life looks like to you, either cut from magazines or saved digitally and look at them daily for inspiration. Reminding yourself of the bigger picture can be a powerful way to keep you on track.
Cut up the cards
Credit cards make it so easy to splurge don’t they? It kinda feels like free money… Except it isn’t. Say buh bye to plastic! Cut up those credit cards. Seriously. You’ll never feel freer. Stop spending money you don’t have (and make sure you pay back what you owe!)
It will likely take you a good 3 months of observation before are able to create a realistic budget. Be patient. Get to know your spending habits – work out what, if anything, has been tripping you up. Remember, it has taken you a lifetime to get to this point, it won’t be undone in a week. Keep at it, and if one system doesn’t suit, try another!
Play the game/make it fun
Don’t turn this into an act of drudgery! Budgeting can be a lot of fun (no really!) and it’s certainly rewarding when you get it right and start seeing those numbers go up instead of down. Be playful with it. Don’t turn it into a chore… and definitely don’t beat yourself up if it doesn’t go according to plan. Start fresh each month and see how you can improve.
A quick recap, incase you’re a scroller…
- Find the right system. Do some research to see which budgeting system you think would suit you best. They all have their pros and cons.
- Choose paper or digital. You are more likely to stick to budgeting if you don’t find it a hassle. Pick a recording method you enjoy.
- Couple up. Share the joy! You’ll have much more success if you work together.
- Prioritise. Always, always, always pay for the important stuff first!
- Get organised. Make it easier on yourself and get automated!
- Create a buffer. Allow your yourself some wriggle room by allocating just a fraction more that you think you’ll need.
- Be minimal. Own less? Spend less.
- Stay inspired. Remind yourself what you could have if you were master of your money and not the other way around.
- Cut up the cards. Stop relying on credit.
- Be patient. Budgeting can take time to set up and get the hang of, allow yourself some grace.
- Make it fun. The most important rule of all! You are doing this for you, it isn’t a chore, it’s a lifeline.
Budgeting can offer you more control over your cash and a much better relationship with your finances. It’s hard to be enthusiastic about all the good stuff money can bring when you are continually associating it with the bad.
So now you know how to create budgeting habits that stick, go forth and master your money!
Related reading: How to Develop a Positive Money Mindset