When you set intentions for a new year, fitness often comes to mind. But any time you’re goal-setting, it’s a great opportunity to assess your financial goals as well. So whether you’ve wanted an opportunity for a fresh start with your budget, or if you’ve been curious about budgeting but weren’t sure where to begin, we’re here to help!
Below, we’ve synced up with a few financial experts about how you can take action to improve your finances, so keep reading to conquer your money fears and continue into the year with fresh resolve!
How can I build an effective personal budget?
First and foremost, creating a budget is an essential way to get your finances on track and for achieving both those short-term financial goals (like paying for a much deserved vacation) and those longer-term ones (paying off a mortgage). Kimberly Hamilton, certified financial education instructor and founder of Beworth Finance where she helps women and millennials make money moves, points out that the purpose of building a budget isn’t to be restrictive or “pinch every penny,” rather it’s a system you put in place to make sure your money is allocated appropriately toward your financial targets which will vary from person to person.
Budgeting isn’t one-size-fits all, so we’ve rounded up different budgeting methods to help you find one that resonates with you.
Types of Budgeting Methods
50/30/20 budget: Hamilton shares that a 50/30/20 budget is great for those looking for a general guideline when it comes to their money. “In this system, you allocate roughly 50% of your budget toward needs, 30% toward wants and 20% toward savings and goals,” she explains, noting that it’s important to remember that these percentages are simply guidelines and may not fit your particular circumstances. She elaborates: “While the 50/30/20 budget is a useful benchmark, you may need to adjust these percentages depending on the goals you're trying to reach, for example, if you’re already in a good place with your savings, but trying to retire as soon as possible, you might keep 50% toward needs, decrease the 30% toward wants and put 30% towards investing for retirement.”
Zero-based budget
Bola Sokunbi, author and founder of Clever Girl Finance, tells Lively that a zero-based budget is where you assign all of your income to specific budgeting categories until there’s no money left over. “For instance, if your paycheck is $2,500 a month, you divide all $2,500 up among your expenses, debt payments and savings goals until you're left with $0,” she says.
Envelope-based budget
For those of you that prefer to work with cash, Hamilton shares that you might want to think about an envelope-based budget which involves first categorizing your expenses and then putting that amount of cash into an envelope to help monitor your spending. “You might have a transportation envelope with $100 for monthly gas, another with $300 for groceries, and so forth —this method works best for those who respond well to visual clues and are more confident they’ll stick to a budget if they can literally see where cash is left or going toward,” she says.
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What can I do if I fall off track with my budget?
If you fall off track with your budget, it’s important to remember that all progress is not lost, and Sokunbi recommends trying to assess why this may have happened so you can take action to correct it. “Try asking yourself questions like whether the budget may have been too difficult for you or if you overspent because of emotional reasons or perhaps being influenced by friends or family,” she says. Hamilton adds that if you fall off track, see how you can first adjust any variable expenses or “wants” to make up for a particular area. “If you’re consistently unable to stick to your budget, consider switching up your method and/or taking a look at your fixed expenses or needs — often the major expenses in an individual’s budget are housing, transportation and food, so reducing those will give you the biggest bang for your buck,” she says.
We also like this tip from Colleen McCreary, chief people officer and financial advocate at Credit Karma, who suggests allocating certain days — like perhaps every Monday or the odd days of the month — for spending (or not spending). “You may be surprised how many seemingly small purchases add up over the course of the month and how much you end up saving if you find certain days to avoid spending,” she points out. Another of her handy recommendations is to set a check-in date for yourself: “It acts as a mini deadline to take stock of your spending and allow you to readjust if needed. Make sure you’re regularly keeping track of spending, so that you’ll be able to record your progress and keep yourself accountable when the check-in rolls around — this can be anything from a notebook to a doc on your computer or phone.”
What about budgeting apps or trackers?
There are tons of apps and trackers out there when it comes to keeping tabs on budgets and expenses, so we turned to our experts for their top picks. Sokunbi highlights Mintas her favorite budgeting app, noting it offers assistance to help you manage your budget on the go. You may also wish to check out her company’s Free Budget Template by Clever Girl Finance! which can help you set up a budget and track it over time. Hamilton points us to Truebillwhich can not only track your expenses, but also negotiate bills and cancel subscription services to help you find new areas to save (yes please). Chris Browning, the founder and host of Popcorn Finance, says YNABis handy for zero-based budgeting and a newer app called CoPilot is great for tracking all your accounts and spending to ultimately help boost your savings.
Any recommendations for tackling debt?
When it comes to tackling debt, Browning notes the most important thing to do is to build a strategy. “You need to understand what you’re working toward, how long it will take and what adjustments you need to make to your current lifestyle,” he says, adding that for paying down debt, you need to understand all the terms of the money borrowed (including how much you owe, the interest rate, how long you have to repay this debt, as well as any terms such as fees or penalties). He also suggests using a debt repayment calculator (check out Mintor Nerdwallet) to help provide you with a clear picture of how long it will take to pay off your debt with the amount of money you have to put toward payments each month.
How can I approach saving for retirement?
It’s important to save now for retirement (think of it as creating the future you want for yourself). Olamide Majekodunmi, founder of All Things Money, shares that it's commonly recommended to try and allocate about 10-20% of your income into a separate savings pot. “However, don’t stress if you’re not able to save this level of income each month — try and start with a smaller amount to develop a savings habit and increase that amount as soon as you are able to do so.”
Browning adds that to get started, speak with your HR department about beginning contributions into your work sponsored retirement plan, such as a 401(k) if that’s an option. If your employer doesn’t offer one of those plans or you are self-employed, you may wish to open an IRA with a company such as Vanguard. “One quick trick to help you develop a general idea of how much money you’ll need in retirement is to use the 4% rule which suggests that a retiree living 30 years in retirement can safely take 4% out of their retirement account each year and not run out of money.”
