Last year, 67% of Americans kept a budget for their household. And thanks to technology, it's never been easier to keep track of your finances. You can check your bank account, pay bills, and track your spending with your phone or online.
But you still need to know how to budget and what to look for. Once you understand your budget, it's easier to hit your goals.
We’ll show you how to make a budget – even if you're a beginner.
What's a Good Budget Guideline to Follow?
One of the most recommended budgeting strategies is the 50/30/20 budget. Once you add up your monthly income, this method has you divide it into three categories:
From there, you divide each category into percentages.
According to this strategy, 50% of your income goes to your needs. That includes expenses like rent, utilities, health insurance premiums, car loans, and groceries – anything you have to pay each month that covers basic necessities.
Then 30% of your income goes towards the things you want. Things like dining out, tickets to concerts and sports games, streaming services, and other splurges. Your wants are things you could live without, but they add fun to your life, or you enjoy them. This category is actually really important because you should be able to enjoy your life and the money you bring in.
Finally, put 20% of your budget toward your savings. That includes a savings account for emergencies, adding to your retirement funds, and extra payments to pay down debt.
Set Financial Goals and Budget to Match
Do you want to pay down your student loans, buy a car, or put a down payment on a house? You've probably turned to budgeting to make those plans a reality.
If you want to see where your money is going, a 50/30/20 budget will work great. If you're trying to save money for something specific, you might adjust your percentages to accommodate a higher savings rate.
For example, if you're trying to pay off student loans in the next year, you might choose to put 50% toward needs, 20% to wants, and use 30% of your budget to pay them off. Or if you're saving for a down payment, you might set a higher percentage for savings, too.
As you're making your budget, set milestones along the way so you can track your progress and stay motivated. This is very important. Say you want to add $500 to your emergency fund in the next six months. When you make it to $250 after three months, reward yourself for the accomplishment with a little splurge or something you’ve been wanting for a while.
Look at Your Past Spending Habits
To make a budget, look at your spending habits. Track your income and expenses for a few months to see how you usually spend your money. If you have recurring bills that are different each month, like water or electricity, calculate the average.
Once you've tracked your expenses, you'll notice where you can cut back. Are you eating out too much? Has your cable or phone bill increased over the last year?
When you know what your past finances look like, you can make a better plan for the future. That’s where Thinkflow comes in. We’ll use your past expenses to forecast your future spending so you can see where you’ll have extra money to save, or when to make an extra payment toward your debts. We help you look forward so you can make a plan for your income and spot trouble before it happens.
Use a Budgeting Tool That Works for You
Whether you use pen and paper, an Excel spreadsheet, or a site like Thinkflow, it's important to choose a tool that works for you.
If you're always on the go and pay your bills online, an app or website might be best. If you prefer to write things out by hand, you can't go wrong with lined paper and a pen. If you've got spreadsheet skills and like to create formulas, a spreadsheet could work.
It doesn't matter which type of tool you use to create and track your budget. It just needs to work with your lifestyle. The easier it is to use and update, the more likely you'll be to use it.
Update Your Budget as Needs Change
A budget isn't a plan that's set in stone. It's an ever-changing tool that helps you stay on top of your finances.
That also means that you can change it up as your priorities change. For example, the budget that worked in your 20s won't always work in your 30's.
If you're a recent college grad, you're probably focused on making enough money to pay rent and your loans. You might also want to spend your leftover budget on concert tickets and vacations rather than retirement savings.
If you’ve been working for a while, your priorities might include paying for your wedding, buying a house, and saving for retirement. You might be willing to cut back on extra expenses to make up the difference.
And if you adjusted your 50/30/20 percentages to save for a goal, you can switch it up again when you reach it – or keep it and apply it toward a new goal. We recommend checking in with your budget once or twice a year to make sure it still matches your plans and spending.
Learn How to Budget to Reach Your Financial Goals
Once you know how to budget, you'll see how you're spending money. Financial wellness isn't about depriving yourself, but about making smart decisions that puts your money to work for you.
To manage your cashflow, search for side gigs, or find a better-paying job, Thinkflow can help. Sign up today and own your financial future.