When it comes to budgeting, there are certain budgeting myths you should ignore and certain steps you should take. But what shouldn’t you do? These five budgeting tips can help you avoid missteps and manage your money smarter, not harder.
1. Don’t Plan on Covering Today’s Purchases with Future Money
It’s dangerous to count on future tax returns or bonuses to pay off the purchases you make today. Your company could have a down year and skip bonuses, or the tax code might change and shrink your return. Even worse, you might make a big purchase on credit, then spend your return or bonus on something else when it arrives. Your best bet is to hold off on making a purchase until you have the money.
2. Don’t Create Detailed Budget Categories
Do you have a latte column in your budget or one reserved solely for movie ticket purchases? Getting so specific can do more harm than good. Having many categories might make you feel organized, but they can make it harder to track spending. There is a smarter way to simplify budgeting and manage any overspending. Aim for five to seven budget categories. A latte can fall under a general “food and drink” category, and movie tickets can go under “entertainment.” Household expenses like your mortgage and water bill can fall under a “home” category. With a leaner approach, you’ll be able to better monitor your expenses.
3. Don’t Expect a Budget to Magically Solve Your Money Problems
Creating a budget is a good thing. It can help you find places to cut spending, and identify areas where you can start saving money (either to pay down debt or to put away for your future). But if you don’t follow it, you’ll be in the same boat you were in before you made it.
4. Don’t Rely on Your Primary Account to Support You in a Crisis
In the case of a layoff, a serious illness or another unexpected situation, you’ll want to have a fully stocked emergency fund to support you and your family. Ideally, this fund should be bigger than just one paycheck. Exactly how big? Enough that you can live off of it for up to six months. Keep this money in its own account, and add to it whenever you receive windfalls like a bonus. You never know when it will be needed down the road.
5. Don’t Worry if You Hate Spreadsheets
If even the word “spreadsheets” is enough to make your eyes glaze over, no problem. Apps make creating and sticking to a budget much easier. Consider these three options.
- Mint keeps track of your budget and credit score. This free app sends alerts when you go over budget, and it syncs with your checking, bank accounts and even 401(k) and IRAs to give you the big picture on your budget.
- GoodBudget makes it easy to create a budget based on cash flow. You put cash into virtual envelopes, making it easy to allocate what you’ll spend and when.
- Expensify scans receipts with your phone and categorizes them by the type and frequency of expense. You can also sync your bank account, giving you a real time view of what’s flowing in and out.
Budgeting Tips from the Pros
Need help creating a budget that fits your lifestyle and goals? Contact your local Farm Bureau agent, who will be happy to find the perfect plan for you.