First things first: Having a budget doesn’t mean creating a three-page spreadsheet and itemizing every single expense down to the last pack of gum. But it does mean having a realistic picture of how much money is coming in and going out on a monthly basis.
“Financial well-being is really unique. It’s almost like a thumbprint,” says Jacqui Kearns, who heads up financial education initiatives at Affinity Federal Credit Union. “If you’re thriving and managing the money, you don’t need a fancy program. If you’re living paycheck to paycheck, are a gig worker or have a life event, budgeting can come into play.”
BUDGETING IS AS UNIQUE AS THE PERSON DOING IT
The advice to “know thyself” is perhaps never more applicable than when it comes to budgeting. If you consider yourself to be “winging it,” yet you’re still earning more than you spend, have little in the way of debt, are saving plenty of money, and you aren’t losing sleep over the bills, then your approach is working… But if you’re one emergency away from financial disaster, don’t have consistent income or keep getting hit with overdraft fees, it’s probably time to consider a budget. The trick is finding one that works for you.
“If you are trying to restore your credit or pay down your debt, managing to the penny might be critical for you,” says Rod Griffin, director of public education at Experian, the credit scoring company. “My wife and I don’t have a formal budget, but when we are planning a vacation we’ll put together a budget for that.”
People’s budgeting strategies run the gambit from jotting things down on the back of an envelope to creating a detailed spreadsheet on a computer. Others prefer mobile apps and budgeting software to manage their finances. Budgets can cover everyday expenses, or be geared towards meeting a specific goal such as a wedding or a family vacation. “Everyone has their own individual way of tracking expenses that works best for them,” says April Schneider, head of consumer and small business products at Bank of America. ”There are options out there to experiment with to find what works for you – whether it’s more hands-on or hands-off.”
READ MORE: Best Budgeting Apps For 2020
The Charlotte-based bank recently surveyed customers who use the spending and budgeting tools in its mobile app and found one in three were able to grow their checking balance by 20% or more as a result. One in four increased their savings by the same rate, while one in seven were able to cut their credit card balance by 20%. In other words, keeping track of your finances can help you improve your overall financial picture, which is what budgeting is really all about.
BUDGET-BUSTING MOVES TO AVOID
Knowing you should have a budget and creating one (and sticking to it) are two completely different things. Budgeting requires effort and discipline, and it’s easy to make mistakes that could kill your determination. Schneider at Bank of America points to what she calls “analysis paralysis” as a big hindrance to success. This occurs when you’re so focused on creating the perfect system to budget your money you never even get started. You spend so much time obsessing over what should be included in your budget that you find yourself paralyzed by the next big step. “Even the simplest of budgets is better than no budget at all,” says Schneider.
Another budget killer: making it too complicated. Without a doubt, you want a clear picture of how much money you have to spend and how much needs to go towards paying your bills each month. But you don’t have to track it down to the penny. It’s ok if you make an occasional impulse buy and don’t account for it. The more complicated your budget, the easier it is to give up. Create a budget that works with your lifestyle and before you know it, it will become a habit.
READ MORE: Why You Need A Budget
Regardless of your budgeting approach, make sure to consider your future wants and the unexpected when figuring out how much money you’ll need today. Nothing derails a budget quicker than unexpected bills, but when you budget for those “unknowns,” you won’t be thrown off your game.
At first, budgeting may conjure up feelings of fear and dread, or it may seem like a chore and a hindrance in your pursuit of happiness… But it actually enables the opposite: financial freedom. “Budgets put you in control of your finances, instead of your finances being in control of you,” says Griffin.
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