- Morgan R.
- Wednesday, January 11, 2023
If you clicked on this post, chances are you are interested in growing your financial literacy knowledge and know creating and sticking to a budget is important, but maybe the thought of managing money is overwhelming and scary to think about. Not sure where to begin? You’ve come to the right place!
Budgeting isn’t always fun, but if you are serious about saving for retirement, a vacation, emergency fund, just need to make ends meet, or whatever the case may be, you need one. It’s a tough pill to swallow, but it’s okay, we are here to help you! So where do we begin?
ASSESS YOUR FINANCES
How much money is coming in each month? How much is going out? This might be obvious but is often an overlooked step- especially the going out part. Write down your monthly income, then make a list of every bill and the amount owed per month. What is left over? This tool from the Federal Trade Commission is a good place to start. Also, check out this blog about financial literacy resources through Richland Library.
DETERMINE YOUR GOALS
Maybe you work an entry level job and are just trying to make ends meet until you get that promotion or raise. Maybe your focus is to pay down debt. Maybe you want to start saving more and possibly begin investing. Whatever your financial goal or goals may be, figuring out an end goal that is realistic is key.
Every financial situation is unique, and the same budget strategy may not work for all. Here are some budgeting methods to explore:
- The 50/30/20 budget. With this strategy, 50% of your income goes to needs, what you absolutely have to pay and cannot live without, 30% goes to wants, the things that make living life enjoyable, and 20% goes to savings and debt repayment. Nerd Wallet has an excellent monthly budget worksheet to see how this may look for you.
- Pay-Yourself-First budget. This systems prioritizes paying off debts and putting savings as the star of the show. Set aside a certain amount each time you get paid to go towards debt payments and savings. Many budgeting methods focus of paying down high-interest debt first then moving on to other debts.
- The envelope system. This strategy has been popularized by Dave Ramsey and is cash-based. The idea is that you take your paycheck in cash and distribute funds into envelopes based on categories. For example, one envelope for rent/mortgage, one for groceries, one for fun, etc. This system may help with preventing impulse buys, overdraft fees, and credit card debt and is a visual way to see where your money goes. As we move ever-forward into a cashless society this method is losing popularity and takes quite a bit of self-control, but can be effective for some.
TREAT SAVINGS AS A BILL
It’s hard to put away money each month for savings when you are living paycheck to paycheck, but if you change your mindset and prioritize your savings account, this can help tremendously. If you don’t already have a savings account, talk to your bank or credit union and see what options they have. There are some banks that offer an option where each time you use your debit card, a dollar is automatically transferred from your checking to savings account. A sneaky and effective way to build up some savings! Most financial institutions also have an option for scheduled direct deposit into a savings account. Try starting with a specific amount per paycheck that feels comfortable for you, then increase as you are able.
FIND HIDDEN LINE ITEMS
-
Monthly subscriptions are sneaky and can be harmful to maintaining a budget that truly works for you. Maybe you signed up for an online service of one type or another that “only costs $10 a month!”. Fast forward 6 months later, you forget you signed up for the service and have wasted $60. Look for subscriptions you no longer use, or don’t use frequently enough to make the extra cost worth it. Also remember, the library offers lots of free services that you could use in place of something you are currently paying for. Want to stream some movies? Check out Kanopy! Listen to music? Try Hoopla! Read a magazine or listen to an audiobook? Explore Libby.
-
“You can spend your retirement on lunch” is something one of my former bosses used to say. What she meant was if you go out eat every day for lunch 5 times a week, 4 weeks a month, you’re looking at spending around $200 each month. Food for thought!
-
Little expenditures can really add up- I'm tempted to bring up the “Latte Factor” where hypothetically you buy a $5 latte each day and end up spending over $1300/year but hey if that latte truly brings you joy and makes life worth living, who’s to say cut it out completely? However, taking a look at your expenses over the course of a month or a year you can really start to see where small superfluous purchases add up.
-
Try deleting shopping apps from your phone- if you are prone to impulse buys, this may help cut spending on things you don’t really need. Take time to weigh the usefulness of the item, if you can find it elsewhere cheaper, and if you truly need it or if it will improve your quality of life. We live in a convenience-driven society that is not always conducive to saving money.
-
Experiment with the “30 wears” challenge/pledge started by climate activist Livia Firth in 2015. When it comes to purchasing clothing, shoes, bags, etc. ask yourself “will I wear this at least 30 times?” If not, it may be better to skip that purchase.
TALK ABOUT MONEY
If you live with a partner or loved ones, it’s important to talk to any stakeholders in your financial landscape about your income, budget and finances. It’s not always easy but remember your goals and the steps you’ve planned to take to get there. Use this time to make any adjustments and necessary compromises.
REEVALUATE AND ADJUST
Life is full of changes and challenges. It’s important to periodically make tweaks to your budget to reflect these changes. The budget you created in January may not work for what your life will look like come November. It’s okay to reevaluate and prioritize differently over time.
RESOURCES:
50/30/20 Rule
Budget Worksheet Form
Envelope System
Pay Yourself First Budget
Delete Shopping Apps
30 Wears Rule
30 Wears Instagram Tag
OTHER RESOURCES
Personal Finance Books
Financial tag on our website (filter by “Blog”)
Thomas M.'s #FinLit Blog Posts
[Disclaimer: I am not a professional in the realm of finance by any means. These recommendations come from frequently endorsed reading lists and exploring the library’s collection. They represent reading recommendations and not an endorsement of any specific investment strategy. While I have read the titles and websites mentioned in this blog post, you must do your own due diligence to determine your personal plan.]