How to Budget the Right Way – 8 Ways to Save Money
Raise your hands if you’re among the people who write their expenses and create a formal budget every month.
Unfortunately, not many hands would rise because most budgeting ends before the 1st week and we go back to our usual extravagant ways.
Saving money doesn’t have to be boring. It’s straightforward with the right methods that you’re going to learn below.
WHAT IS THE IDEA OF BUDGETING AND WHY IS IT SO IMPORTANT?
A survey released by ‘The Federal Reserve Board’ shows a surprising 53% of individuals covered an emergency expense of $400 without having to pawn their belongings or take a loan.
What does this grim situation really describe to us about the remaining 47% of respondents?
It tells us that people choose to spend their earnings rather than to save for a rainy day.
Budgeting helps improve our life by leaps and bounds. Budgeting is all about stashing away our money for life’s unexpected emergencies such as – debt, medical bills, retirement, economic collapse, etc.
Are those the only benefits of budgeting?
Not at all, budgeting offers plenty of other benefits that we list below.
Control Over Your Money
What does the word ‘Control’ mean to you?
It means that you’re in charge of every action that takes place. When you take control of money, it automatically means you’re in charge of your expenses and savings, without letting the money take control of you.
Budgeting gives you direction in the way you choose to invest your money throughout the year.
Let’s say you’d like to take a vacation off every year from your work. Budgeting helps you plan your vacation trip and cover all the expenses.
Here’s a budgeting sample – Your total vacation costs comes to $1500. It might put you off at first to save such a big amount but that’s where budgeting gets interesting.
When we divide $1500 into 12 months, it comes down to $125 worth of savings every month. Now we can see that vacation trip come to life. $125 isn’t a large amount to save every month. Now let’s break it even further to – ‘Save $5 a day and get yourself a trip to your favorite exotic vacation’.
You could even write it down on a sticky label and place it at a place of convenience. This will remind you every day to save $5 to get you that extravagant vacation.
Budgeting lets us identify the problem areas of our life.
When we write down every expense that we are going to have for the month, we know exactly how much money is required and how much you’re left with.
Let’s say you earn $4000 a month. Now let’s list down all your expenses on a monthly basis below
Rent – $1200
Power – $200
Food – $800
Travel – $400
These are your fixed costs. Fixed costs are bills that you absolutely must pay every month to live. In this case, your total costs come to $2600. That leaves you with $1400 of additional income every month.
Once you’ve eliminated your fixed costs, you can save about $1000 every month and utilize $400 for your own personal expenses.
This type of budgeting gives you an organized life with the complete financial freedom to choose the path of your life.
No More Late Fees
Budgeting allows you to track all your expenses in an effective way. This means you’ll never have to pay another late fee in your life.
Is your library membership not renewed yet?
No problem! Write down the date and the fee as a reminder in your budget book.
Are your credit card dues pending?
Again, simply write down your costs in your monthly budget book, so you track them as you go every month.
The idea of budgeting is to pay your bills before their due date approaches to keep you from paying a hefty penalty at the end of it.
Did you know successful and wealthy people also budget?
Hear us out, while the rich and mighty have access to a fortune and a budget might seem a little prehistoric to them, the truth couldn’t be far from this. Rich people have more financial awareness than regular folk.
This is because they understand that to create wealth, you need to use your money wisely.
Affluent personalities value time over money and sternly believe that money can be acquired with the best investment of time. When we budget, we value our time and in short, we access our own wealth creation channel.
Now that we’ve understood the various benefits of budgeting, let’s get down to some serious business and find out the distinct ways to budget effortlessly.
8 WAYS TO BUDGET EFFICIENTLY
Whether you’re a college student looking to save on monthly living expenses or a housewife looking to afford basic home products, a budget helps you break away from your usual spending habits.
Budgeting puts a resistance to your outflow of money allowing you to open a saving route.
Let’s have a look at efficient ways to budget the correct way.
1. The ‘Cash-Only’ Approach
What’s the first thing we all do when a long list of new arrivals pops up on our favorite shopping app?
We begin a ‘Wishlist’ and add unnecessary things that we don’t need. After which, we convince ourselves that it’s okay to splurge a little.
You buy the product, which is out of your monthly budget range, but you don’t have the money to pay for it.
That’s quite the predicament you’re in. If only there was a way to pay without having money on you.
You reach for your credit card and type in the details, without knowing exactly how problematic your dues are at this current moment.
Once you’ve finished purchasing, you scream and jump with joy only to realize that you’ve been struck with – Buyer’s remorse.
The dreadful feeling starts to sink in, and you wonder if you made the right choice. Of course, you haven’t made the right choice but now you’re left with a mixed bag of feelings.
Ultimately, you begin a line of credit for which you don’t have the monthly budget to pay off and never enjoy the item you’d purchased due to the regret that fills you.
That’s where the ‘Cash-Only’ solution comes in. When you buy your items and pay by cash, you’ll buy less.
An article on Forbes demonstrates how people have no remorse when buying with plastic cards but when they remove a wad of cash, they immediately change their buying decision.
- Promise yourself for an entire month to go credit-card-free
- Pay everything with cash, this lets you gain upfront responsibility on every item you buy
- Choose ‘Pay on Delivery’ modes for your online purchases
Paying by cash creates a pain sensation in the brain that makes you think twice before you go ahead with the purchase. This sensation goes missing when someone loans you the amount like a bank or a best friend as the money doesn’t come out of your pocket.
People always think the future is a great time to pay back any outstanding dues, but it isn’t.
2. Eliminate Fast Food Deliveries
By destroying the need to order food from delivery services, you eradicate a chain of harmful eating habits. This is not only good for your health but also on your wallet.
The cost of fast food starts to build up when you order takeout every day.
Why exactly do people order fast food over buying their own groceries which are economical?
To save time but ironically, you end up paying for that time by increasing medical bills due to poor standards of health and nutrition.
Fast food also contains preservatives that keep you hungry all day long without satiating your appetite. In turn, you order more food throughout the day and thus, end up in a vicious chain of splurging money on an impulsive stomach.
- Pre-cook meals beforehand. Once you’re hungry reach for it and have it. This eliminates the need to order in fast food.
- Write down your daily grocery list and don’t add in any more unnecessary items to add to your overall expenses.
- A hungry mind is a devil’s playground. People overspend when they’re hungry, that’s why it’s important to follow a nutritional diet and gain health and savings with one sweet move.
3. Reward Yourself for Saving
Saving money is a boring process.
There’s nothing fun about cutting back on your finances.
However, that’s because you haven’t introduced any rewards for your saving schemes.
Rewarding yourself for saving money can be a fun and beneficial experience.
Here’s a saving game that brings out the inner desire to save money often.
- On your first month of saving, give yourself a $5 treat for every $50 that you saved. This is milestone 1.
- On your second month give yourself a $15 treat for every $100 saved. This is milestone 2.
- On your third month give yourself a $50 treat for every $200 saved. This is milestone 3.
- Stop the process and go back to the first month and repeat.
- The rules are simple, you can’t move to the next milestone if you haven’t reached the one from your previous month. If you fail, you don’t reward yourself anything.
This game will push you to save just to give yourself a little treat every time.
The aim is to get you to ‘Milestone 3’ which has a bigger payout and the best bang for every dollar saved. So, you’ll immediately want to save more on your 3rd month just to reward yourself.
4. Use a Shopping List & Time Your Outing
Are you one of the people that simply add items to their shopping cart for your monthly products?
Are you someone who spends a long time in the shopping mart browsing around different aisles?
A study conducted by Lauren G. Block & Vicki G. Morwitz showcases how effective shopping lists are to an individual. They serve as external memory to buy only the items that you require, and you won’t spend time adding items that you don’t require.
Let’s demonstrate the following with an example.
Clark and Stuart are two friends who do their shopping regularly. Clark utilizes a shopping list and writes down everything that he needs at the start of the week.
Stuart prefers to pick out his supplies by visiting the mart and seeing exactly what is on sale and makes his decision on a whim.
Since Clark knows what he wants, he visits the store, gets out with the items he wants for the week.
Stuart, however, spends time checking out all the different aisles and ends up buying items that have newly arrived or items that catch his attention that he has no use for.
Not only does Stuart end up with a larger monthly bill than Clark but he also has no real use for any of the items he bought at the supermarket because it was an impulsive buying decision.
This example shows exactly why shopping lists are money and time savers.
The next time you find yourself at the supermart ask yourself if you’d like to be the quick-thinking Clark who saves money or the thoughtless Stuart who buys based on compulsion.
5. Track Your Bank’s Balance Sheet Regularly
The most important piece of information to acquire is your bank statement that appears at the end of every month.
This invaluable sheet of paper is critical to know how much cash flow is going in and out the door. It helps in curbing your expenditure.
So, let’s find out how we can use your bank statement to help your budget.
- First, take the printout of your latest bank statement. This will have records of your previous month’s expenses.
- Take 2 different colored marker pens, preferably something bright. For this example, we’ll go with ‘Red’ and ‘Yellow’.
- Start to highlight expenditures that have been useless to you with the red pen.
- Highlight the expenditures that have been beneficial to you with the yellow pen.
- At the end of the sheet, tally both the markings down and get a count.
- For E.g. – if you’ve got 18 red highlights, these are all the red flags for wasteful expenses.
- Every month reduce your red flags to a minimum and increase your yellow markings.
- When you being to make positive changes with your money’s outflow. You’ll notice the white sheet become completely highlighted in yellow with little to no red markings.
When you’ve achieved a completely yellow bank sheet, pat yourself on the back for a job well done. Ensure this exercise is repeated at the end of every month even after achieving the desired results.
6. No After-Dark Purchases
Returning from work after a tiresome day is generally a common sight.
We usually tend to relax with our computer screens or smartphones and spend time leisurely browsing around. Unwinding with gadgets isn’t a negative factor.
Unfortunately, our desires from within begin to crawl out and once we see a shiny product in an online marketplace, we have no control over our spending habits.
We must simply have our hands on it!
That’s why it’s crucial to set a rule to yourself to never buy anything that isn’t necessary for survival after the sun goes down.
This allows you to establish ground rules to avoid shopping after dusk and in turn, a habit is formed.
So, when exactly do you shop if not after work?
When there’s sunlight there’s positive energy flowing through us to make the right decisions. When it’s nighttime we are drowsy and are unable to determine the things, we need and what we don’t.
Plan to keep your shopping time to a minimum during the daytime. Spend time browsing during a lunch break or during the weekend mornings.
Ensure you give yourself plenty of sunlight. You could also shop when you’re done getting ready for work in the morning.
This gives you less time to browse around the entire marketplace and helps you avoid the things that you don’t require.
7. The ‘Sell to Buy’ Rule
Ok! you’ve always wanted those stunning pair of sneakers that just made its way to the store.
Problem is, you don’t have the budget to buy them. Instead of upsetting your plans and not breaking your budget, there’s a way out that is simple, yet many people don’t think of it unless mentioned.
The little trick is called — Reselling your old items.
Yes! In this case, you sell your old pair of sneakers at the discount shop or on online auction sites like eBay. Remember the famous phrase – ‘One man’s trash is another man’s treasure’, well let’s just say in this case, you make money with something you don’t need and can still afford to buy yourself a new pair of sneakers.
The ‘Sell to Buy’ rule comes in handy whenever you’re looking to replace items that you absolutely need.
That noisy coffeemaker? Gone!
Your old laptop? Poof!
However, before you go with it, there are a few rules to follow.
- Don’t purchase before selling your old product.
- If your product doesn’t sell for a good while, you probably have had it for a long time and it’s alright to dispose of it.
- In such a case, rate the effect the new product has in your daily life on a scale of 1-10
- If it scores less than an 8, ignore purchasing it since you probably don’t need it.
- 8 and above is an item that you most definitely require.
8. Revoke Meaningless Subscriptions
Gym memberships, library access, Netflix, music, and video streaming sites, and other websites usually have a subscription model that sucks up your finances clean. Eliminate unnecessary subscriptions from your life and gain back the full power of your finances.
Tell yourself that you’ll afford subscription services only if you’ve got some sort of savings on you.
If you’ve got no savings whatsoever and you’re subscribed to multiple channels of monthly fees, you’ll need to immediately prioritize budgeting.
Here are some free alternatives to your subscriptions to consider.
- You don’t need a gym to stay fit, nature is free for everyone and exercising in the open with clean oxygen levels is healthy. There are plenty of free classes conducted by clubs and other health initiatives. Enroll yourself and save yourself a bulk of the membership money.
- Libraries are expensive and knowledge is available for free on the internet. Plenty of free information is shared on popular media services like YouTube. Make use of it.
- Music is a much-needed aspect of human life to relax and to drive your inner force. Widely shared music is available for free on websites like SoundCloud without a subscription fee.
- If you have no savings, avoid subscribing to video-streaming services like Netflix that add a blackhole to your wallet.
While subscriptions aren’t necessarily harmful, it’s thoughtless to choose entertainment over a stable investment plan that generates wealth overtime for you.
FREQUENTLY ASKED QUESTIONS ABOUT BUDGETING
People who aren’t used to budgeting are a doubtful lot. They wonder how helpful budgeting can be to their personal lives.
The mind is full of questions regarding how to get into the habit of saving money. If you’d like to be a part of the budgeting club, you most certainly have a few questions of your own.
Frequently asked questions by individuals who are new to budgeting are as follows.
Q.1 How hard is it to get into budgeting? Does it require money to start?
The answer to the second part of this question is – No, it absolutely takes no money to begin budgeting.
That’s the point of budgeting, everyone on the planet has access to it regardless of their lifestyle.
And yes, even rich people budget even more than regular folks.
Now the first part of the question is tricky. Budgeting is hard if you’re new to savings but then again what isn’t hard?
Driving a car for the first time is hard. Playing a musical instrument for the first time is strenuous.
With time you form a habit that becomes part of your daily routine. Saving money should come naturally to us, unfortunately, the pursuit of life’s pleasures has made it a thing of second nature.
Q.2 Does budgeting help with retirement?
The whole point of budgeting is that you have enough insurance to keep up with your aging body.
You’ve got the medical insurance to support you from ailments and diseases.
You’ve got the financial investments to support you for expenses when you’re no longer earning. You’ve got the assets in the form of a car and a house to ensure well-being.
The life insurance helps maintain the future of your family and those that depend on you.
Budgeting helps you save money to invest in all these different categories that help you lead a stress-free life.
Budgeting ensures a safe future for your older self and you’ll be thanking your younger self in a few years for starting such a healthy habit.
Q.3 Do goals need to be set before I begin budgeting?
While budgeting can be done without any goals to simply save money, having goals adds value to your budgeting.
Goals come in numerous shapes and sizes catered to each individual.
Here are examples of various goals that you can set.
- Having a house before your turn 50
- A trip around the world
- Education fund for your kids
- Purchasing a luxury vehicle
- A retirement plan
- Clearing mortgages or loans
- Medical emergencies
Budgeting helps you adjust your life according to your desires and relieves you from facing a difficult financial situation by planning in the present to look after your future.
Budgeting isn’t just for the future but also for the present.
Saving allows you to understand the value of your money and allows you to explore different instruments where your money can work for you – Stocks, Foreign Exchange, Bonds, Mutual Funds, etc.
Q.4 What if my expenses don’t meet my budget?
Budgeting is for everyone but not everyone may be able to fit a budget due to their current lifestyle.
This is when re-evaluating your expenses is crucial to successful budgeting.
Every expense must be written down and compared with your overall income.
A good budget demonstrates where you can save money and what you should do with that money.
If your monthly necessities are breaking even with your overall income, you live a generous lifestyle.
This is when you’re required to downgrade your living expenses.
- Choose a smaller home and pay lesser rent
- Avoid eating outside and limit yourself to cooking home food
- Ensure you don’t use heavy electronics to cut down on your power bill
- Sell your car if you have one and select an economical way to commute like public transport or cycling to work
- Avoid any unnecessary fees or subscriptions
You’d be surprised how many outflow elements you’d find if you spent time to eliminate them individually.
Once you’ve downgraded your lifestyle, you’ll open a small cashflow which becomes your main savings.
All this saved money can be invested to grow your money.
A good budget always re-evaluates your older budget to save money. A budget plan that doesn’t save money isn’t budgeting at all.
A budget only works if you review it every month and not every year.
Budgeting works by giving the user an understanding of how their money flows.
Every time the money leaves your person, it reaches somewhere, and budgeting helps you know if that decision was the right or wrong one.
Letting your money flow without a budget in mind is like flying an aircraft on autopilot.
With no pilot onboard to land, the flight is heading for a crash eventually.
“Without a coach, people will never reach their maximum capabilities.” – Bob Nardelli The above …