There are several steps you can take to create a financial budget. Discover the benefits and different apps and methods for tracking your budget.
Whether you are living on your own or taking care of a family, managing a budget is one of the most important financial skills to develop. On paper, budgeting sounds easy. It is the process of controlling your spending by tracking your expenses and planning ahead to save money. The goal of budgeting is to get out of debt or avoid falling into debt again, make better financial decisions, prepare an emergency fund and plan ahead for your longer-term financial goals.
Figuring out how to budget is challenging. There are many tips you can follow to stick to a budget. Which methods you use largely depend on your financial situation and personal preferences. If you find yourself struggling to set a budget, there are several budget management apps available to keep you on track. Listed below is recommended advice for how to follow a budget, the benefits of budgeting and how you can achieve your goals using budget management apps.
Benefits of Budgeting
There are many benefits associated with budgeting. If you recklessly spend without any budget in mind, you are more likely to fall into debt or be unprepared for important expenses. Saving money also becomes much harder without a clear budget in mind. A common way to fall into debt is not through large expenses, but failing to keep track of smaller ones. These smaller expenses are easy to write off at the time because it seems like they can’t affect your budget. Over time, these expenses will add up, and you won’t realize how much you’ve actually been spending until it comes time to pay your bills. It becomes even riskier if you frequently use a credit card, as you end up being unable to pay the balance and keep accruing more interest.
Budgeting is also necessary to achieve your financial goals. If you want to save up for a new car, you need to know how much you make each month and compare this to your essential spending. By watching your spending and keeping track of your savings, you know how much progress you’re making. If you realize it will take too long to reach your goal, you can take another look at your finances and try to make changes to increase your savings.
Budgeting becomes even more important if you have any sort of debt. Many students graduate and become overwhelmed with student loans or other expenses. Creating a budget lets you stay on top of all your payments to reduce your financial stress. With the right budgeting, you can even pay your debt off faster, cutting down on how much you spend on interest.
General Budgeting Advice
A great way to start budgeting is to outline your goals. Without any goals, it is easier to justify reckless spending, since it feels like you aren’t hurting yourself. If you set a goal, like buying a new car or taking a vacation, you are more conscientious of your spending.
To get a better idea of your finances, make a list of all your necessary finances, like paying rent or minimum payment on loans. Compare this to your list of general expenses. This helps outline how much extra you are spending, and what you can achieve if you start saving money. Do not make the mistake of getting rid of your entire entertainment budget. It is okay to spend money on yourself. Set aside a reasonable amount you are comfortable with, then put the rest into saving for your goal.
Another important part of budgeting is leaving money for the unexpected. No budget is flawless. Something may break in your home, or you end up having to take several unpaid sick days from work. Set aside a portion of your budget specifically for emergency expenses. When this happens, do not be afraid to make changes to your budget. In some cases, you may need to lower your saving goals to account for emergencies. When this happens, remind yourself it is not your fault.
You Need a Budget (YNAB)
YNAB is a highly respected budgeting app. With YNAB, you can synch multiple bank accounts onto your account. This lets you directly import your financial information, with additional options to manually insert any transactions that don’t go through your bank. The app creators also provide a number of tutorials to help you with the app. There are even comprehensive budgeting guides and workshops available on their website. In addition to tracking your spending, the app encourages proactive budgeting.
You can set different categories for your finances as well, such as dividing your rent, utilities and car payments into separate groups. You also have the ability to set financial goals, using the app to track your progress. YNAB provides a free trial for 34 days, with an account costing either $14.99 per month or $98.99 annually.
Mint
Mint is one of the oldest budgeting apps. It was created by Intuit, the same company responsible for QuickBooks and TurboTax. The main appeal of Mint is the budgeting tracker, which can be linked to your bank, credit and debit cards, allowing you to actively track all your spending. You can also setup categories for paying off credit debt, brokerages and other lenders. This lets you list your minimum payment and how long it takes to pay off the debt. You can create simulations to see how much quicker you can pay off your debt by making changes to your budget.
There are also options to set up spending alerts so you don’t accidentally go over your spending limits. You also get access to a free credit score update from TransUnion. Best of all, Mint is completely free to use, but there are in-app advertisements.
PocketGuard
PocketGuard does not have as many options as some of the other budget apps, but it still allows you to connect to your bank accounts and set categories for your bills and other essential spending. You can also mark which categories are reoccurring, with the app automatically taking these expenses out of your budget. There are also options for other categories, such as streaming services and other online subscriptions. You can also track deposits made into your savings account.
PocketGuard has both a free option and paid subscription with additional options. The subscription costs $7.99 each month, $34.99 annually or you can pay a single fee of $79.99 to unlock a lifetime subscription.