How to Budget Without Sacrificing Everything You Love
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Money is the second most common source of stress for Americans. 62% of us experience anxiety when we think about money (or the lack of it.) In this context, building a budget seems like the wisest thing to do, to stay away from credit card debt and high interests.
You’d feel tempted to think that budgeting is all about quitting on things you love. In fact, this is what makes most people postpone it. No one wants to give up on the coffee to go and the brunch at the restaurant down the street.
Yet, spending without tracking expenses can bring in additional problems. Without a clear idea of your monthly expenses, you’ll end up with wondering how to rebuild your credit instead of looking for an app to help you budgeting.
The truth is you can save money and still maintain your lifestyle. All you have to do is prioritize. With the right tools and some motivation, you can make a clever budget and stick to it with little effort.
Calculate Your Income
An effective budget starts with knowing how much you can afford to spend. Calculate your gross income per month by dividing your annual salary by 12. If you’re paid by the hour, you need to multiply your hourly pay per the number of hours you work each week. Then multiply the result per 52 (weeks in a year) and divide by 12. If you’re doing extra hours or have additional sources of income, make sure you add everything to the table.
If you find this difficult, you can use a salary calculator or a financial app to do all the work for you. The answer you get is your gross income, so you still need to do some math before knowing what you can actually spend.
Take your gross monthly salary minus taxes and retirement contribution (401k). Don’t feel tempted to skip on any of these two. Otherwise, you’ll have to quit on more stuff in the future, to cover the gaps.
See Where Your Money Goes
According to statistics, Americans spend 62% of their income on three things only: transportation (car insurances and gas,) housing (rent or mortgage) and food (both eating outside and inside.)
Financial experts believe that if you manage to keep these three major expenses under control, you’ll be able to stick to your budget and even save some money at the end of the month. Ideally, you need to bring these three to 50% of your income or less. Is this possible without quitting on dinner at your favorite Chinese restaurant?
Tips and Tricks to Cut Housing Costs
Housing shouldn’t cost you more than 25-28% of your income. If you pay more, it’s time to look for smart solutions to cut costs:
- Find a roommate-if you pay too much for rent, you can try to share the expense with another person. See if you find someone interested in moving in with you.
- Relocate to a less expensive zone–houses downtown costs a lot; in the suburbs, you can find bigger houses for less money.
- Refinance mortgage-if you own a house, but you can’t afford to pay your debts anymore, you can try to discuss new terms of your contract.
- Move in with a friend or with your parents–leave your old and expensive house to live with a friend in a similar situation. If it’s still too expensive for you, consider going back to your parent’s house until you rebuild a solid financial situation.
How to Cut Costs with Food
Most people forget to set a sum for groceries, making it a less fixed expense. But, if you plan to stay within your budget, you need to allocate a realistic amount each month for groceries and eating.
Americans spend about 12% of their income on food. Almost half of this money goes to restaurants. By quitting on daily lunches out, you could save important money that you can use on things you love.
See it as a good occasion to improve your eating habits. So, you’ll be healthier and happier in the long run, besides having some extra cash in your accounts.
Here are some easy solutions to reduce food expenses:
- Pack your lunch, instead of eating at restaurants
- Cook dinner as often as you can
- Buy raw fresh ingredients instead of pre-cut or prepared foods
- Make your own coffee at home
- Use coupons and rewards
- Shop in bulk
- Skip processed food
It doesn’t mean you don’t go to restaurants anymore. You can still order Chinese food or have brunch at Starbucks once or twice a week, depending on your budget.
Transportation Budget Tricks
Commuting to work can be expensive if you use your car every day. You can try to use public transportation or a bike instead. In both cases, you reduce the time spent in traffic, plus cut back on transportation costs.
You can also try carpooling or car sharing, as two less expensive alternatives. Don’t be tempted to go without insurance, though. Lower rates are a great deal at first sight, but coverage in case of accidents is what matters the most.
Don’t Forget About Other Fixed Expenses
Besides these three major expenses, you still have to add other fixed costs to your budget:
- Heating/Electricity bills
Utilities take away about 10-11% of your money–look into ways to save money on your next bill. If you manage to stick to that, you’ll still have some cash left to spoil yourself. On the other hand, childcare is one of those expenses you never get to keep under the set limit. So, when you calculate your monthly expenses, make sure you leave a high amount to cover school, babysitters, private classes, and any other unexpected cost that can show up.
You Can Still Have Fun
Just because you are trying to budget your money, doesn’t mean you can’t spend some on things you like. If you have a hobby that you really love but it’s expensive, set some money aside so you can still do it once a month or every other month.
The same goes for vacation. Everyone thinks vacationing is so expensive, but this isn’t completely true. Before you book your next trip, shop around for the best deals. You’re likely to find a price by booking with an adults-only or family-friendly resort. These prices include food, drinks, plus extra activities. The only money you really need to bring with you is spending and tip money.
Set A Spending Allowance
What’s left of your income is what you can call your spending allowance. It’s wiser than setting rigid amounts for each category. Once you know how much you afford to spend, you’ll decide whether to buy new clothes or two tickets to your favorite concert.
In the ideal scenario, you should be able to spend around 30% of your income on things you like. Yet, it’s wise to save some of this money into an emergency account. Depending on how much you earn and how you spend, you could save up to 10% each month. This makes sure you have a safety net for unexpected situations. For example, if you’re hurt on the job, you may find yourself paying for a lawyer to fight for social security disability. Not everyone has money lying around to pay for a lawyer, so make this emergency fund a top priority.
To make this budget work, you need to automate your finances. Make sure payments go automatically from your accounts to cover rent, utilities, and contributions. This way, you don’t forget about deadlines. This way, you don’t risk spending more than what you can afford, and you stay within your monthly budget.
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