Managing household finances can feel like staggering through a minefield sometimes. There’s so much conflicting information on how to budget properly — not to mention warnings that just one misstep could plunge you into debt. As a result, we often feel intimidated, confused, or defeated before even starting a budget in the first place.
If this scenario sounds all too familiar, these simple and practical hacks can take that unnecessary guesswork out of the process, which will allow you to focus on the more important aspects of a budget — controlling what you spend, maximizing what you save, and preparing for success in the future.
1. Categorize Your Expenses
Not knowing where your money goes is one of the biggest problems finance blogger Donna Freedman sees when working with personal finance clients. This can be stressful, as you may realize you’re going over-budget month after month.
When you know you have enough money to deal with all of your needs and some of your wants — plus those pesky emergencies — you can sleep very well at night.
Calculate in round figures how much you spend on items like rent or mortgage, insurance, gas and car maintenance, groceries, phone and internet, utilities and other living expenses. This will take a little time, as you look through debt and credit card purchases, and try to remember cash expenses; when you’re done, however, you’ll be able to easily see how you spend your money each month.
Keep this in a spreadsheet and update your expenses once a month or quarter. You can quickly calculate the percentage of income for each category with the third tool below, making it even easier to manage.
2. Simplify Your Tools
If you’re keeping a basic, cash-in, cash-out budget, you don’t need an extensive app with in-depth reporting and confusing features. Struggling to learn how to use or understand it will deter you from using it at all — rendering it useless as you put your budget on the backburner. Instead, use one of these simple tools:
Simple Budgeting Calculator: This basic calculator requires two simple pieces of information: Money in and money out. When entered, you’ll get a dollar amount that represents your total savings or debt, along with the percentage that you saved or spent. Set a goal and use this calculator to see if you hit it each month.
Monthly Budget Calculator: Use this budget to refresh your memory about monthly expenses—there are sections for every expense, from rent to car payments — and get advice on how to improve your budget. If you’re looking for one step up from the basic calculator above, this on a great option.
Monthly Budget Planner: Taking it just one step further is this online budget planner that shows what percentage of your income is used for each category of spending. You’ll also get a total for monthly expenses, monthly income, and income minus expenses. This data will help you dial in your budget and get a feel for where you could be saving more and spending less.
Wallet: This is another step up, but still a great tool for those who want to simplify their budgeting. Start by simply adding budget and spending categories and amounts. As you gain more confidence with the app, you can move on to setting financial goals, importing accounts, playing around with your budget forecast, and much more.
3. Reduce Your Number of Open Bank Accounts
Limiting your active accounts to a maximum of four will help keep you organized and more in control of where each dollar goes. Diversifying assets is important, but you don’t want to spread them out so much that you start to feel overwhelmed.
Make an effort to consolidate into these main accounts — checking, savings, emergency, and investment. The minimalist approach can lead to more efficient money management. If you simply have old accounts with a bank in your college or hometown, but use a different bank now, close them and stick with just one.
Transfer as many loans to your bank as possible as well (if the rates are good), to make paying those down easier to manage.
Note that organizing your accounts isn’t just a matter of easier management. Fewer accounts open leaves you less vulnerable to attacks that could damage your credit: “The fewer open accounts you have, the less risk you’ll encounter for identity theft and deposit, transfer or overdrawn fees,” says Marcie Geffner, financial reporter.
4. Manage Cash With the “Envelope System”
Purchasing in cash ensures that you don’t overspend — it’s way too easy to swipe that credit card, especially when you’re out with your significant other or friends, which causes a budget imbalance.
To go cold turkey with credit cards, give yourself a weekly spending allowance and take it out of the bank every Sunday evening. If you run out, you can’t get any more cash until the following Sunday. You’ll start thinking hard about every purchase you make if you can hold yourself to this.
If you don’t want to go all-cash, designate a few categories where you tend to overspend, and use cash for those. For example, this would be good for “play money,” like when going out with friends or on vacation. Put the allocated amount for each into separate envelopes that you can grab when you head out of the house.
Both methods help mitigate the chance for impulse buys while you’re out and about. Deposit any leftovers into savings or treat yourself to something fun. When budgeting rewards you, you’ll keep doing it.
5. Minimize Credit Cards
There are many benefits to owning a credit card, like earning travel miles and the convenience of having cash when you need it. However, having too many can quickly lead to overspending; as you max one, you move onto the next. Before you know it, you owe more than you make and get strapped with high-interest payments. That’s probably why the total credit card debt in the United States is over 800 billion!
Although the modern economy tends to operate on credit, ditching this practice will save you time, hassle, and money in the long-run. Scale back on how many credit cards you use, preferably keeping yourself to just one or two. Once you get your monthly payments and spending under control, you can consider adding more credit cards as necessary.
Taking charge of your finances can feel daunting, but once you start the habit of budgeting each month, you’ll gain the confidence to start setting goals and planning for investments and security in the future. Remember: it doesn’t have to be complicated. Knowing how much is coming in and how much is going out — along with where it’s going — will help set you up for budgeting success.
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