Many of us have faced the struggles of saving money at some point in our lives. Outdated and mismanaged budgets can drag you down and make it feel like you aren't reaching your financial targets. The good news is that it doesn't need to be difficult. Here are some steps you can take help you to cut the bulk out of your budget.
The first thing you need to do is to have a good idea about where your money is going. You can't budget away the bulk if you don't know where it is.
Personally I have always maintained by own spreadsheets, but there are many apps out there that you can use and even link to your bank account. Most banks also help you automatically track and categorize your spending activities when you use your credit or debit card.
Before you plan out how much you want to spend, first set a goal on how much you want to save instead! And don't be afraid to set a more aggressive savings target (you can always amend this later). A "side effect" of setting a goal for your savings first is that it allows you to really think about what you can cut out as you plan out your spending.
An emergency fund is money set aside in case of loss of income (job loss) or an unexpected emergency expense (medical emergency). You should have an emergency fund set aside to cover between 3 and 6 months of your spending needs. This should be very liquid money such as an easily accessible savings account. Find out where your emergency fund ranks in terms of your liquidity tier list.
All good savings plans requires some sort of investing for the long term. This is money that you are deciding to set aside and will not be using at all for your every day needs. This does not mean you shouldn't be touching your money at all because you do want to be able to take advantage of investment opportunities that come your way. You do want to manage within your investment portfolio, but that will be a topic for another day. For now, set a goal to how much of your income you want to put into your long term investment portfolio.
Outside of your emergency fund and your long term investments, you may have some sizable expenditures you saving up to within the medium term. These are savings that are expected to be depleted within 3 months to 1 year. Some examples are savings towards an upcoming vacation or towards a new car purchase. Although this is money not going into your investment portfolio, it is important to understand that it should also be money set aside on top of your emergency fund.
Once you have accounted for where all your money has been going, the next thing you can do is identify what you don't need or can live without.
Are you subscribed to a magazine that you never read? Or have you been buying up too much novelty items that only served to clutter up your living space? These are expenditures that can easily bulk up your budget, which you can just as easily cut.
If you are subscribed to 3 different streaming services and only watching one or two movies a month, take the first step to cancel two of them. Once you do, you will start feeling much better as you are already making progress and the next cuts will start feeling easier!
Project what each necessary item is going to cost you. How much will you be spending on rent, food and transportation? How much are your monthly phone, internet and utility bills? What are you spending on cleaning, maintenance and health products?
Once you have your necessities down, then you can determine how it compares to your savings goals and where you can cut down. Remember that even with your necessities, sometimes you might find room for cost cutting? I recently changed internet providers because I noticed that people are getting much better prices for their service elsewhere.
Don't be afraid to challenge yourself to beat your savings targets by cutting out unnecessary miscellaneous expenses.
Finally, make sure to reflect on the efforts you have made. Recognize where you were successful and ask yourself the following questions:
Make sure to reassess your approach at regular intervals. Perhaps in a year's time, you were able to increase your income and want to allow for some quality of life improvements into your budget. Or maybe you have a new goal to save up to buy a house and need to increase the amount of savings put away each month.
It is important to recognize that there is no universal standard for budgeting. Over time, it is not uncommon to lose track of our spending and see our budget starts to bulk up again. That is why it is important to keep consistent and follow these steps, and over time budgeting discipline will turn into budgeting habits.
