It’s been a crazy day, and after hours of meetings (that really could have been emails), you’re finally home. Earlier in the week you had enough energy to go to the grocery store and have a slew of ingredients that are ready to become a meal.
But today, the thought of cooking just seems like one more thing on your already lengthy to-do list. So when little Johnny looks up at you with his big eyes and says “Pizza…please?” you pick up the phone and dial your local pizza joint.
Even the best-laid plans can fall apart sometimes, and that’s never more true than when you have plans to cut down your takeout spending and cook at home for the week. The problem is, keeping your finances in order without a plan can be nearly impossible.
You wouldn’t build a house without sketching out blueprints first, right? Well, the same logic applies to getting your spending under control. The first step is to create a household budget.
While sitting down with receipts, credit card statements, and spreadsheets might not sound like your idea of a good time, it can help you figure out how much you’re spending each month.
And that, in turn, can help you create a realistic budget. Sure, you might not want to spend your
Saturday budgeting after a grueling 50-hour work week.
But instead of ruminating on the fact that spreadsheets can be a little tedious, you could try focusing on how great it would feel to have a flourishing savings account. And creating a household budget could get you one step closer to your goals. So on that note, let’s get started.
Getting Your Budget Going
One way to start budgeting is to take a good, hard look at what you spend money on. And sometimes, it isn’t easy to get real with your financial decisions.
It might not be fun to total up the amount you spend on takeout sushi every month.
Whether your spending vice is high-end beauty products or vino from the chic artisanal wine shop on your block, it might be time to confront it.
Going through one month of expenses and dividing everything into categories can help you figure out exactly where your money goes every month. After going through your expenses each month, you could divide your spending into categories like these:
• Bills & Utilities
• Personal care
Of course, you may not have expenses that fall into all of these categories, but it could help inform your budget if you know definitively that you spend $60 a month on your electric bill, $90 on cable and internet, and $170 on household necessities like shampoo and paper towels.
Understanding Your Personal Cash Flow
Armed with information on your spending habits, now is the time to tally up how much money you have coming in every month. You could include things like your income and any earnings form side hustles, gifts, and bonuses. Ideally, you want to have more money coming in than you have going out every month.
If that’s not the case, it could be time to adjust your spending habits and create a new budget that will help you live within your means. Even if you are earning more than you’re spending, you could be interested in revamping your budget.
Cutting Back Where Necessary
Once you’ve figured out where your money is going, it’s time to consider how you actually feel about that. Hypothetically, if you’re spending $60 a month on your electric bill, do you think you could realistically cut that down?
As you’re going through this exercise, being honest with yourself is crucial. There are going to inevitably be some areas where you can’t cut back, and that’s okay. But you also might realize you’re paying too much for your phone plan or your haircuts.
For each of your spending categories, consider setting a realistic limit for yourself. And keep in mind that cutting back on some expenses might mean you have to increase your budget in other places.
For example, say you currently spend $400 on eating out every month and $400 on groceries, for a total food budget of $800. If you’d prefer to spend closer to $200 eating out each month, you may have to increase your grocery spending.
Do you think you could spend $200 on eating out and increase your grocery spending to $500? If so, your total food budget would come down to $700, saving you $100.
Differentiate Between Wants and Needs
Take the time to determine whether certain purchases are wants or needs. For example, is a class package at the boutique fitness studio a want or a need? Could you opt for a cheaper gym membership, try an at home fitness routine, or join a free running club to keep you motivated?
Determining needs and wants will be personal, but sometimes a harsh look at spending habits can be beneficial. Figuring out what is really a want can mean you’re able to cut back even further, and wants can be easier to eliminate or reduce than needs.
For example, you could switch to a less expensive cable option but may not have much wiggle room when it comes to health insurance. Creating a workable budget is all about balance—you still want to be able to live your life, so don’t feel like you need to cut out all your fun spend—just check in with your habits so you have an idea of where you can make changes and improve in the future.
If after making adjustments to your expenses you’re still looking for ways to boost your budget, you could look into increasing your income. Could you potentially ask for a raise at work? Are there any side hustle opportunities to pursue?
Factoring in Your Debt
If you have debt, unfortunately it’s an unavoidable part of your budget. Whether you’re paying down credit card debt or diligently chipping away at your student loans, it’s a part of your budget that can’t be ignored.
When you’re adding your debt payments to your budget, you may want to put the amount you actually pay each month, as opposed to your minimum required payment. This is because you might be paying more toward your debt so you can get out of debt sooner.
For example, hypothetically, if your car loan payment is $200 a month, but you typically pay $400 a month, then you may want to put $400 as the line item in your budget.
That being said, it can still be helpful to note your minimum debt payments somewhere on your budget—perhaps in a separate tab if you’re using Excel or Google spreadsheets.
If you run into an unexpected financial problem, it might help to know the minimum you’re expected to pay on your debts, so you can still plan to meet it (even if you aren’t able to exceed it).
Striving for Simplicity
Making your home budget too intricate might encourage you to start ignoring it. If it’s a chore to even take a peek at your budget, are you really going to go through the trouble of implementing it? Perhaps not.
One possible way to start a simple-yet-effective budget is to give yourself a total spending limit for the month, which is called your spending target.
Understanding where your money is going is important, but the end goal of a budget is to make sure you are spending less than a certain amount so you can still save for your future. That’s where the spending target approach comes into play.
Working as a Team
As you determine your household budget, don’t work in a vacuum (unless you’re a household of one). If you’re setting up a budget for your family, consult your partner.
You’d be offended if your partner created a household budget planner without consulting you, so be open and honest about why you want to adjust the family budget and work together to decide where you plan to cut your spending and what costs are most important to each of you. You may have to compromise on some things, but that’s ok.
If you have kids, this could be a teaching opportunity. Get them involved so they can start to understand the importance of financial management.
Pay attention to the way you talk about family financial issues when you’re around your kids. To get them excited about money management, perhaps you could work an allowance into your budget. Then, the kids can be involved in managing their own money too—it’s a family affair!
Help them set financial goals—maybe it’s saving for a new toy, a new gadget, or tickets to visit a theme park with their friends. Depending on your child’s age, it could also be an opportunity to have a talk about the cost of college so they can start to save for that as well.
Encourage them and help them set some guidelines but let them have some autonomy over their money too.
Establishing Financial Goals
Instead of thinking of a budget as a series of rigid spending restrictions, change your perspective. What if instead, they were flexible guidelines that were designed to help you reach your financial goals. As you review your budget, it could be a good opportunity to set some new spending and saving intentions.
Check in with your savings. Do you want to work toward setting up an emergency fund? Or are you interested in boosting your retirement savings? Do you want to create an ambitious plan to repay your debt? Saving for an European adventure?
Think in both short- and long-term goals. Visualize what you want for yourself in a year from now. Are you debt free? Establish a plan now to help you get there. Perhaps your five year goal is saving for a down payment on a house. Work toward that goal as well.
Understanding how you want to spend your discretionary income can go a long way in informing your budget. Knowing what you want to accomplish with your money can give aid in giving you direction.
Setting Some Time to Check in with Your Progress
After outlining your cash flow and setting up your spending categories, set some time to check in with your budget and track your progress. A budget is only good if it gets used—and when it comes to building a habit, consistency is key. Getting into the budgeting groove can be a challenge, but you may find it easy to keep going once you’ve set up the basic structure.
If checking in every day is too much, check in once a week instead. Have you overspent on take-out? Are bills coming due next week? Taking the time to look at your budget regularly could help keep you keep your budget and finances on track.
Feeling Empowered to Make Changes
Sometimes, life happens. Even with the best intentions, plans change. When it comes to budgeting, remember, it’s a tool there to help you.
If you fall short on your savings goal one month, don’t lose hope—readjust next month. Your BFF just got engaged and is planning a wedding in Italy? Add it as a savings goal to your budget.
At the end of the day, your budget should ideally make your money work for you, so that you can spend it on the things (and people) you love. Make changes as you see fit.
Tracking Your Finances With SoFi Money
Tracking your budget regularly could help you see measurable progress as you work toward financial goals. If you find that tracking your budget manually is monotonous, try another method that might work better for you.
Technological advances have made it easier than ever to track expenses. One innovative option is a cash management account with SoFi Money®, which allows you to track your spending and saving in real-time. And the best part? Absolutely no spreadsheet is required.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
SoFi Money is a cash management account, which is a brokerage product, offered by SoFi Securities LLC, member FINRA / SIPC . Neither SoFi nor its affiliates is a bank. SoFi Money Debit Card issued by The Bancorp Bank. SoFi has partnered with Allpoint to provide consumers with ATM access at any of the 55,000+ ATMs within the Allpoint network. Consumers will not be charged a fee when using an in-network ATM, however, third party fees incurred when using out-of-network ATMs are not subject to reimbursement. SoFi’s ATM policies are subject to change at our discretion at any time.