4+ Best Budget Tips you NEED to Know for 2020
New year new you? Nah, new year BETTER you! How do we help make you better? By helping you budget better!!! Duh 🙂
First of all, it’s so important to keep a budget. If you’ve never done it before, don’t worry. There’s no reason you can’t start one now. There’s always a reason not to. Some of the most common objections I hear are, “but Lizy…
- I don’t have the time to budget
- I don’t want to be restricted if I need something
- I don’t like to feel controlled!
I hear you. But I’m here to tell you that a budget is not meant to restrict you in any way! It’s simply a tool to show you where your money is going. If you know where your money is going, you can make better choices… (see how I brought us right back to that whole “better you” idea 😉 )
1. SET FINANCIAL GOALS
Setting financial goals for the year helps provide a road map for where you want to be 12 months from now. These goals are totally up to you! Maybe it’s saving for retirement, a wedding, a vacation, a car… whatever you want it to be. When setting these goals, you need to ask yourself two questions:
– How do you want your money to work for you?
– Where are you going to put it?
I think a good rule of thumb for most people is the 70 / 20 / 10 rule. That means that 70% of your income goes to life expenses. 20% goes to debt reduction, and 10% goes to savings (I’ve talked about this idea a lot, you can read more here)
One of the easiest and best tips I can give you is to sit down at the start of the year and assess your calendar. Think about things like vacations, birthdays, holidays, parties, etc. All these things cost money, and you can account for them as part of your lifestyle expenses if you know in advance when they are coming! One of the most common problems people run into when setting up a budget is that they include only their daily and monthly living expenses but forget about things like birthdays and holidays. So when those things happen, debt happens. But looking at a calendar and planning out for the entire year can help you avoid this problem!
While looking at you calendar and deciding what sort of fun things to add for the year, ask yourself: What kind of life am I going to live? This will help you know how to budget! Plan out your year when it comes to entertainment and lifestyle.
NOTE- you can also do this if you know you have any big medical expenses coming up! If it’s planned on your calendar, it should be accounted for in your budget!
3. GATHER 12 MONTHS OF SPENDING HISTORY
I absolutely realize that this third point may be scary, but I PROMISE you it’s worth it. You need to collect the last 12 months of spending. Then, average what you made, and what you spent. and then break into the following categories:
- Wasted money (subscriptions, frivolous shopping)
Then, rank each category on a 1–10 scale. Anything under an eight (8) needs to be eliminated! Brutal, I know. But the problem with anything under an eight is that it actually ends up stressing you out more in the long run, which often triggers more frivolous spending, rinse, repeat. It’s truly a vicious cycle.
4. REVIEW AND RECONCILE
Once you’ve done all of the above, it’s time to evaluate your budget and try to reduce spending to a more manageable number. The goal is to pay off debt and put that money towards wealth building.
Something to keep in mind: A budget is an estimated limitation on spending. Not something to create and never look at again. You didn’t do all that hard work just to let it go unused!
I recommend sitting down and reviewing your budget twice a month. This way it’s easier to keep track of where you’re at, and you can see if you’ve overspent in any one particular area. For example, if I see that I’ve overspent for this month already, I adjust and take that money out of my entertainment budget for the next month. Be mindful and see if you’re really working towards your goals. Small adjustments help make the big picture much more manageable!
An extra tip for those of you who have a fluctuating income (ie- you get bonuses, work on commission, are self-employed)
TIP: budget by percentages, not set dollar amounts. This will help you both in the months that you’re doing really well, and the months that are leaner. So make sure to save the same percentage, not the same dollar amount!
I have a budget guide for you! Just click the icon that says “FREE BUDGET GUIDE” on our lizyhoeffer.com homepage! lizyhoeffer.com
The information provided herein has been prepared by a third party company and has been distributed for education purposes only. The positions, strategies or opinions of the author do not necessarily represent the positions, strategies or opinions of Guild Mortgage Company or its affiliates. Each loan is subject to underwriter final approval. All information, loan programs, interest rates, terms and conditions are subject to change without notice. Always consult an accountant or tax advisor for full eligibility requirements on tax deduction.