Virtually every financial expert will tell you creating a budget is your first step to financial stability.
A budget, in the simplest terms, is a plan for how you will spend and save your money to ensure you can pay your bills, live comfortably, prepare for emergency expenses, and save for the future. Budgets also call your attention to areas where you might be spending more money than you should — like your daily venti latte, perhaps.
Those who embrace budgeting find comfort in knowing exactly where their money is going and how much money they will have in the future. However, there are others who simply refuse to budget for a variety of reasons. Some think sitting down to log all their sources of income and every little expense is simply too tedious. Others believe it will limit their preferred lifestyle or make them feel bad about their spending decisions. Still others equate budgeting with having money problems.
Budgeting doesn’t have to be bad
None of these are great excuses for not budgeting. For the budget-averse, though, these are the very reasons they’ll probably never create a detailed money management plan. There’s good news, though. A budget doesn’t have to be complicated, constricting, or a psychological burden.
Although every financial guru believes knowing how much money you’re earning and where it’s going is important, they don’t all agree that creating a spreadsheet and devoting a few hours a month to filling it in is the best way to do that. We’ve gathered some easy ways you can get a better handle on your money without having to say that dreaded word: “budget.”
Change your terminology
You can’t deny the impact of words and the way we use them. The word “budget” can make some people cringe with fear and dread as they imagine themselves hunched over a desk crunching numbers.
Reshaping your approach to money management could be the answer to overcoming budget aversion. When you think about watching your income and expenses, call it “a spending plan,” “keeping an eye on my assets,” or “staying on top of my finances.”
It seems ridiculously simple. However, it actually works. Would you rather be on a “diet” (think: counting calories, restricting foods, etc.) or “living healthy” (think: feeling better, making better choices, etc.)? Sometimes success lies in your terminology — and your mindset.
Automate your allocations and tracking
When it comes to budgeting, technology truly can be your best friend. There are a lot of software programs like Quicken and apps like Mint, YNAB (You Need a Budget), and EveryDollar that connect to your financial accounts to simplify tracking your income and expenses. All you have to do is set up an initial spending plan (even a simple one will do) and let the program or app do the rest. Most of these options will send you gentle notifications if your spending is getting out of line so you can make adjustments on the fly.
Another automation option is to allocate your income into separate accounts, like savings, checking, or a money market. Most employers will allow you to designate more than one account to deposit portions of your net payroll. Since most experts recommend a 50/20/30 rule (50% of your net income to living expenses, 20% to savings, and 30% to lifestyle), you might elect to deposit 20% of your paycheck into a money market or savings account right off the top to ensure it doesn’t end up in an account where it might be spent.
A similar idea is to open multiple checking accounts for different purposes. For example, you might have one checking account for household necessities and another for discretionary expenses. Figuring out how much you need in the first account and making sure that amount is secured there when you get paid is an easy way to make sure you can pay your bills each month.
If your employer will only deposit into one account, or if you have a different type of income, like freelancing or gig work, you can still set up automated transfers to different accounts with your credit union or bank. MAX Online Banking, for example, allows you to schedule recurring transfers to other MAX accounts or accounts at other financial institutions.
Raise awareness
If all else fails in establishing a budget or money management plan, you can still stay aware of what you’re spending and find smarter ways to spend and save. When you’re shopping, watch for sales, match prices, or shop in bulk to be sure you’re always getting the biggest bang for your buck. Consider shopping for your brand-name clothes at online consignment shops like ThredUp or finding deals on home furnishings or decor on an auction site like eBay or overstock stores like TJMaxx or HomeGoods.
It’s also smart to take advantage of easy savings programs, like MAX’s Round Up. With Round Up, MAX automatically rounds up the amount of your debit card purchase and deposits the difference in a savings, checking, or money market account. And don’t forget to watch your credit card accounts for hidden fees and keep an eye on recurring payments being deducted out of your checking account. Apps like Trim and Truebill help to identify and eliminate those unnecessary expenses.
One thing the COVID-19 pandemic has done is help us better understand the difference between necessities and luxuries. Now might be a great time to rethink and evaluate your spending and plan for your future savings. (Pssstt...that’s actually “budgeting,” but we don’t have to call it that!).
MAX Credit Union is a full-service financial institution serving Central and East Alabama, including Montgomery, AL; Auburn, AL; Opelika, AL; Prattville, AL; Wetumpka, AL; and Troy, AL.