Welcome To Day 2 Of Our Personal Finance 101 Series |
Welcome back, let’s dive in.
If you’ve gotten to the point in your life where you finally have a bit of extra money to spend, put into a retirement plan, or open a savings or investment account with, do yourself a favor and hit pause for a minute.
Do you have a budgeting strategy that works for you? Before you even think about opening any other kind of account, it’s important to take stock of what money you have, where it’s being spent, and how you can save even more. Like any other financial strategy in the modern age, there are a variety of different budgeting apps, hacks and workflows to choose from, and picking the right one for you might take some trial and error. But that time spent is 100% worth it in the long run.
In this newsletter we’ll tackle the reasons to start a budget, consider some of the different kinds of budgeting strategies, offer up tips from financial experts, and do a quick overview of some of the budgeting apps and websites out there that can make the process a whole lot easier. Let’s start this financial journey together. |
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| OK, But Do I Really Need A Budget? |
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A budget is an essential tool for both short- and long-term financial goals—from saving for birthday gifts or a new car to putting money aside for a down payment on a home. To save for these major expenses, you must first be able to visualize the money you are making, where it is being spent, and attempt to cut back on any frivolous expenditures that could be holding you back from more substantial objectives.
It’s understandable to be afraid of starting a budget. In a way, it’s like looking at yourself in the mirror. There are probably some things you’re spending money on that you know could be cut, but you’d rather not confront them. Budgeting can force us to change, and change is a scary but necessary aspect of analyzing our financial situations.
“Taking stock of where your money is going can be a very empowering process. Knowledge is power,” says Stefanie O’Connell Rodriguez, a financial expert and influencer. “Even just knowing you’re in a bad place is better, because you can then set up a path forward.” |
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| Different Approaches to Budgeting |
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| There are a variety of budgeting strategies to test, and in this newsletter we’re going to highlight three of the most common types: |
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 | 50/30/20 budget: This budget is all about percentages. It requires that you put 50% of your monthly income toward needs such as housing, utilities and groceries. The next 30% of your income should be spent on discretionary items like concert tickets or a night out with dinner and a movie. And finally, 20% of your money should be used to pay down debts and put into savings accounts. This final 20% is key to this strategy, as it allows for first-time budgeters to put a number on the amount they should save each month. However, it’s important to note that some financial experts find the 50/30/20 method to be unrealistic, especially in areas with a high cost of living where rent alone could amount to a full paycheck. |
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| Zero-based budget: Categories are the key to the zero-based budget, where every single dollar is put into a group—like groceries, dining out and each individual bill payment. List out every single category that you are spending money on, and then assign dollar amounts to put into those categories. If you have money left over, great! That means you can put that extra cash toward debt payments or savings goals. This kind of budgeting is one of the best ways to visualize how you are putting your money to work. |
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| Pay-yourself-first: If listing out all your spending categories sounds like a tedious chore, this budgeting strategy could be for you. Basically, you set aside a specific amount each month for savings and debt repayment. Work out how much you can reasonably put into these categories, making a concerted effort to make progress toward these goals. Then, use whatever is left over on your monthly spending. No need for categories—but it’s important to know how much you have to spend and not overindulge. |
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| Budgeting Tips From The Experts |
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Budgeting is not a set-it-and-forget-it activity—it’s something that takes practice, repetition and flexibility to achieve success.
Start by setting a schedule. Set aside a day and time that you and your spouse or roommate can get together and take a look at the numbers, writes Bernadette Joy, a Forbes contributor and financial coach. Once you have a budget set up, take just one hour a month to talk over your financial plans for the next 30 days, adjusting spending goals in different categories depending on your circumstances and changing financial goals.
Another key to sticking to your budget is acceptance. Know that you are going to make mistakes, overspend, or that your budget won’t go 100% according to plan each month. That. Is. OK. The reason that you return to the budget each month is to analyze what you spent money on and make adjustments to ensure that the next 30 days are more financially secure. When you make an “overspending mistake,” take time during your next budgeting session to put some extra money toward a major savings goal or retirement account—and stop beating yourself up over mistakes that everyone makes.
If you’re looking to cut back on discretionary spending and put more money into savings, take a look at your larger, recurring expenses first. Sure, you’ve heard talking heads advocate for dropping your Starbucks habit or refraining from ordering that plate of avocado toast to achieve financial success, but cutting 10% off a $1,000 monthly expense is going to make a bigger impact. O’Connell Rodriguez recommends examining expenses like car maintenance costs or rent to look for ways to save.
Know that as you continue to work with your budget, over time your financial goals are going to change. Ride with that change, and know that just because you might have to cut back on something now, it doesn’t have to be forever. |
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| The World of Budgeting Apps |
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If you’re not keen on creating and managing your own budgeting spreadsheet, it might be time to look into the variety of budgeting apps that are available.
One of the popular budgeting apps you may have heard of—Mint— shut down at the start of 2024, but that doesn’t mean your options are limited. There are plenty of websites that offer tools for different types of budgets. Here are three of the more popular options out there: |
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| YNAB (You Need A Budget): This is a great option for anyone interested in a zero-based budget. With an easy-to-follow display of your expenses and categories, plus plenty of helpful videos on the YNAB website to fully unlock all of the features offered on the platform—including automatic syncing with your bank accounts—there’s a reason this one is included on almost any “best budgeting app” list you will find. Cost: $14.99 a month/$109 annual |
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| Goodbudget: If you’re looking to get into budgeting but aren’t ready to pay for budgeting help, this might be for you. With a free option and a Plus version that’s more affordable than YNAB, Goodbudget follows the Envelope budgeting strategy (which is very similar to zero-based). The website includes lots of resources to get started on the platform—including a helpful YouTube series—but be aware that Goodbudget does not automatically sync to your bank accounts, so get ready for some manual input. Cost: $10 a month/$80 annual for Plus |
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PocketGuard: This app is all about simplifying your budget. It shows the big numbers of how much money you have in your accounts, the cost of your monthly bills, and what’s left over for you to spend or save. In fact, PocketGuard will calculate the amounts you have to save and spend each month, while supplying a pie chart that breaks down your monthly expenses. Plus, there’s a free option that you can take for a test run. Cost: $12.99 a month/$74.99 annual
And that’s just the tip of the iceberg. While these three budgeting apps are great options to get started with, they may not necessarily be “the best” for you. Like all aspects of budgeting that we’ve talked about in this newsletter, personal preference plays a big role in your choices.
What’s most important is that you make a plan to start now. I’ll see you back here tomorrow where we’ll talk about tackling that pesky credit card debt. |
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