9 Simple Ways to Transform Your Money Mindset

money mindset

Money Mindset

Your money mindset is your beliefs and attitudes about money. Unfortunately, many people have a negative money mindset. Many believe they have to have debt to survive in today’s society. Or they believe that they will always live paycheck to paycheck and will never be able to get ahead financially.They feel that l will never be wealthy, or that it’s not really even possible to be wealthy anymore. 

But no matter your current beliefs about and feelings toward money, you can create a healthy, positive money mindset that will move you toward financial security and, ultimately, financial freedom.

 

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9 Critical Tips to Transform Your Money Mindset

A major reason that many people struggle with their finances for years and years—and sometimes for their whole life—is because of their money mindset. Many people learn their money mindset from their family life as they grow up. Sometimes they carry on the same beliefs as their parents. And sometimes, because of financial difficulties or problems in their young lives, they take an opposite view of finances than their parents.

Often we have money mindsets that limit our potential. In other words, our beliefs about money often limit what we are able to accomplish with our finances.  

In this article I am going to discuss 9 crucial things you must do to transform your money mindset. You can shift from a scarcity mindset to an abundance mindset—from a belief system of just wanting to get by to a mindset of building wealth and being able to thrive—by following these simple principles.

 

1. Let go of your limiting or harmful beliefs from the past.

Maybe you believe (or have believed) that you will always live paycheck to paycheck, and that that is normal and OK. Maybe you have even believed that you will always be broke. Maybe you have believed that you will always be in debt. Maybe you have believed that debt is a good and necessary tool to get by in today’s society.

Maybe you believe that if you don’t save or invest or prepare financially for the future that some fairy godmother will magically appear and take care of you in your golden years. (Unfortunately, what will happen if you don’t prepare is that you will end up being broke and scrimping by for potentially decades of your later life.)

But none of those things have to be your reality—unless you make them your reality by the choices you make.

You can stop living paycheck to paycheck starting today.

You can get out of debt and (finally!) start to save.

You can start to invest and build your own awesome financial future (no fairy godmother required!). 🙂

Millions of people have already done and are already doing it the good old-fashioned way, and so can you!

 

2. Focus on the future as you work to change your money mindset.

Once you let go of the beliefs you have had and step away from your past, start planning for an amazing financial future!

One of the first steps to help you create the financial future of your dreams is to start to budget. Because like it or not, you probably have limited resources, so you need to tell those dollars how to best work for you.

When you create your budget, make it a zero-based budget. In other words, allocate your monthly income down to nothing on paper. You may think that this seems odd; that it would be better to leave a little money as a buffer. And that is great, if you designate that money to be put into a particular savings account or something, like your emergency fund. But don’t just leave the money unaccounted for. The reason? It’s almost certain to get spent.

No budget? No problem! Sign up below to receive a free spending tracker and starter budget forms!

 

 

3. Focus on your why to help you have the motivation to change your money mindset.

One of the best things that you can do to change your money mindset and your current financial situation is to identify and then focus on your financial why.

Think carefully about the answers to these questions (you may want to write them down or talk about them with your spouse): Why do you want your financial situation to change? Why do you feel you need to pay off debt or start saving more money or investing for retirement? Why would you like to earn more money? What are your ultimate financial goals and dreams?

Your why is of utmost importance because it will give you the motivation to set crucial financial goals that will help you change not only your money mindset (especially as you are able to make progress toward achieving them) but also the trajectory of your life. With simple and realistic but amazing and far-reaching financial goals, you will be able to accomplish incredible things with your money that most people never will. That is sad, but it’s true.

Many people go through life half awake, never having the ambition or the discipline or dedication to really accomplish awesome things. But you are not that person! Or if you were, you are not anymore! 🙂

You are going to accomplish incredible things in your life by setting and steadily working toward simple but incredible financial goals like building up savings for emergencies and saving for large purchases and expenses, getting out of debt (including paying off that mortgage!), investing for retirement. helping to pay for your children’s college educations so that they will not be saddled with debt, and building wealth so that you can achieve ultimate financial freedom.

Check out this related article on how to save more money by identifying your financial why.

 

4. Realize that you can get out of debt and build wealth (and it’s not that hard to do; promise!).

Another one of the most important things you can do to change your money mindset and to build wealth is to change your views on debt. Rather than viewing debt as a tool or thinking that there is good debt and bad debt, consider debt as the thief of your financial freedom and your future wealth.

One of the healthiest things you can do for your money is to first get out of debt and then stay out of debt. That is because when you get out of debt—as one of my favorite personal finance gurus, Dave Ramsey, says—you free up your biggest wealth-building tool: your income.

By paying off all of your debt—including paying off your mortgage (as soon as possible! :))—and then staying out of debt you will have all of your income to use to meet your needs and build your wealth, instead of the bank’s. And ultimately, you will be able to achieve financial freedom.

Learn how to get and stay out of debt.

Start by making one small goal that you can work toward. For example, if you have a credit card with a $200 balance or an installment loan with a $350 balance, work toward paying that off. Start by throwing just $20 extra dollars a month at it, if that is all that you can do right now. But then watch that balance go down. Celebrate each small success that changes your financial trajectory. This will help you realize that you are in control of your financial life and that you can change your financial situation.

Once you are headed in the right direction, see what you can do to kick things up a notch. There are so many things that you can do to cut your expenses in order to work toward getting out of debt and building your emergency fund! And you can also find ways to increase your income, to work on the other side of that equation.

It will take some time and dedicated effort, but once you have gotten out of debt and created your full emergency fund, you will be able to easily find money in your income to be able to invest for an incredible future. Realize and accept (and embrace!) the fact that you really can be wealthy! In fact, you can set yourself up to become a millionaire with as little as $200 a month! This is not just a pipe dream; building wealth is a very realistic goal, given enough time and a little bit of discipline and dedication.

 

5. Be content with what you have.

Another mindset shift that will really help you to build wealth is to learn to be content with what you have. This will help ensure that you have a mindset of abundance rather than a mindset of scarcity.

I truly believe that one of the main secrets to building wealth and being financially successful is to learn how to be content with what you already have. Of course there are other important factors, but if you can’t be content with what you have and you always feel a driving need for more gadgets, more toys, more stuff—and better stuff—then you’re going to struggle at winning financially.

And simple math is the culprit. As much as virtually all of us would like to have all the money in the world to both buy the things we want and do the things we really should do for our financial stability and success, the truth is that most of us simply don’t have the money for both. And so we have to choose.

Learn 9 powerful principles that will help you to be more content (so you can save more money)!

 

6. Differentiate honestly between needs versus wants.

As you work to change your money mindset, begin to differentiate honestly between needs versus wants, and then make adjustments to your budget accordingly. Sometimes we do a pretty good job of justifying wants by calling them needs. But to truly differentiate needs versus wants, remember this: you need housing (unless you can live under a palm tree or something), but you don’t actually need a fancy or new or even nice home.

Similarly, you need food, but you don’t need restaurant food or gourmet food or to always eat name-brand food. You need transportation, but you may be able to get around with one car for a while (or even possibly no car, if you can use bikes or your feet or public transportation). And you definitely don’t need a brand-new or ultra-safe or super fancy car.

The better you can differentiate needs versus wants and base your budget on your needs first and then the wants that you can truly afford while still saving and investing adequately to meet long-term, crucial financial goals, the better off financially you will be later in life.

As you create your monthly spending plan or budget, allocate money for your needs first. That means designate money first for reasonable food, clothing, shelter, transportation, utilities, and other true necessities.

Then designate money to build up an adequate (three- to six-month; six months is ideal) emergency fund, to create sinking funds to cover future larger expenses and larger purchases (such as appliances and furniture and vehicles and so on), and to save adequately for retirement (save at least 10 but preferably 15 percent of your income for retirement as soon as you are financially able to).

Learn more about differentiating between needs and wants here.

 

7. Cultivate gratitude in your life as you work to change your money mindset.

Another one of the most important things you can do to change your money mindset and to help ensure you have lasting peace and joy in your life is to develop an attitude of gratitude.

If you are reading this blog article, you probably have power, running water, shelter, and all the necessities of life. You probably have a lot of what you want as well, like a nice home or apartment that you are living in, a nice car or two, nice clothes, high-speed internet, smartphones, and so on. In fact, you probably have everything that you need, and much of what you want.

Collectively, I would wager that the people on the earth have never had so much wealth as we have now. And when we remember that, when we remember how truly blessed we already are, it makes it easier to say no to a daily latte or eating lunch out every day or buying a nicer car or buying one more toy for your kids’ already overstuffed playroom. It also makes it easier to then work toward the financial goals that we know we should be working toward, like saving for an emergency fund and saving for retirement and for larger purchases to help us avoid debt.

For more on this important topic, read this article on the power of gratitude.

 

8. Understand that money is not evil.

Depending on your parents view of money or the views of other influencers around you, you may have grown up being taught (either overtly or covertly) that money is evil. If you are a Christian, you may even have been taught that money is the root of all evil.

But that is simply not true. The Bible says that the love of money is the root of all evil. In other words, putting money above things that should be more important like family and love of humankind is wrong, but money in and of itself is not bad.

You can do amazing things with money! If you don’t have money—enough money to provide for your own needs and then some beyond that—it is very difficult to give money away to help those less fortunate. By building wealth, you can have ample resources to give away to bless the lives of other people in need.

It is not money that is evil; it is what we do with our money that determines whether money is good or bad.

 

9. Set big financial goals.

If you do not set financial goals, your financial life will never go beyond being mediocre. If you want an awesome financial future, you need to set and then diligently work toward big financial goals.

That doesn’t mean the goals have to be overly difficult. You can stop overspending and stop living paycheck to paycheck now.

You can work steadily and incrementally on getting out of debt.

And then you can work on saving for your future. You really can retire comfortably if you will invest just $200 a month. And investing just $200 a month really is not too difficult given the income of most households if you will just have a little discipline.

On the flip side, if you want to have an even more comfortable life and retirement in order to travel and give more money away, for example, then set bigger financial goals! Invest more money every month, and watch your wealth grow over time. Pay off your mortage, and invest that money in sound investments, and you will be amazed at what that alone can do for your financial future. Continue to invest at least 15 percent of your income above that, and your money will grow even faster. You might decide to retire early, or you can pursue other goals that come with financial freedom.

 

Conclusion

As you follow these steps to change your money mindset, you will be able to move yourself and your family steadily toward financial freedom. First you will be able to achieve freedom from overspending, then freedom from living paycheck to paycheck, then freedom from the stress of having no financial cushion (savings), then freedom from being in debt, and then ultimate financial freedom—from having to work.

With ultimate financial freedom, you will get to the point where you can choose when and how you want to work, or if you want to work at all. Your time will be your own to accomplish the amazing things that you want and maybe even were meant to do in your life.

So transform your money mindset and go after your amazing financial goals!

 

What do you think are the most important steps for transforming your money mindset? Where are you on the journey to financial freedom, and how has your money mindset helped you get there (or prevented you from getting farther)? Let me know your thoughts in the comments below! I would love to hear your best ideas for how to change your money mindset!

Invitation to Share

Was there something in this article that inspired you to change something about your money? Are there ideas or tips that you feel could help others? Would you please take a minute to share this article via email or social media? I would love your help to share these principles of financial well-being. Thank you!

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7 Simple Steps to Create Your Emergency Fund

how to create an emergency fund

How to Create an Emergency Fund

When you are working to get your finances in order, it’s crucial to understand how to create an emergency fund. It’s just the simple truth—unexpected problems are going to happen. And many of these problems are going to cost you money.

That’s why saving for emergencies isn’t just a nice thing to do—it’s an essential part of your financial well-being as well as a necessary part of your long-term financial success. So this article explains what an emergency fund is and how you can create an emergency fund to start saving for unexpected financial challenges.

 

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What is an emergency fund?

Before determining how to create an emergency fund it is important to understand exactly what an emergency fund is (and what it isn’t; see the section at the end of this article).
An emergency fund is a savings account that you set up specifically for when unexpected events happen that cost you money to resolve.

So, for example, an emergency fund can be used to pay for needed car repairs if you do not have enough money yet in a car maintenance fund to pay for such expenses. It could be used for home repairs that you haven’t yet been able to save up for, or for a sudden job loss, or medical expenses.

Unfortunately, there are many types of financial emergencies that can happen, but with a fully funded emergency fund, you can be prepared for these events.

Why do I need an emergency fund?

An emergency fund is crucial because you are going to have emergencies! You’re not immune to challenges and problems. The average American family faces a large financial setback (of several thousand dollars or more) at least once every 10 years, so you need to be prepared for that eventuality. And less severe financial hardships that cost $1,000 or less happen more frequently than that.

How much do I need to save in an emergency fund?

Your goal should be to reach a fully funded emergency fund (EF) of three to six months’ worth of expenses (not income) as quickly as possible. If you don’t know how much that is, then it’s time to create a monthly budget! 🙂 If you can, try to save this amount in 12 months or less, once you have paid off all nonmortgage debt.

In general, I recommend leaning toward a six-month emergency fund if you can. Personally, I think the extra peace of mind is important and may give you the courage to do the other things with your finances that you need to, like investing in good stock mutual funds for retirement.

However, if you have two incomes, you are in a stable job situation, you don’t have any major medical conditions in your family, you are not anticipating any major life events soon (like the birth of a child or purchase of a home), your house and your vehicles aren’t too old, and so on, then a three-month emergency fund may be fine for your circumstances.

Set up automatic transfers to transfer money into your emergency fund savings account every time you get paid or at least once a month until your EF is fully funded. Even if you’re in a situation where, because of a tight budget and circumstances where you or your spouse may not be able to take on much extra work, you can’t save very much each month, even $50 to $100 will add up over time and go a long way toward providing a needed barrier between you and Mr. Murphy.

Where should I keep the money in my emergency fund?

Your emergency fund money should be in a separate savings account at a bank where you have a (fairly) easily accessible checking account so that you can transfer the money over fairly quickly and use it if needed.

Though you probably won’t get as high of an interest rate, you may want to have your EF money in a brick-and-mortar bank, not an online bank, so that you have virtually instant access to it either by stopping at a nearby bank branch or by transferring the money from your EF savings account to the linked checking account so you can withdraw the money at any ATM with your debit card.

You could also use a money market account at your local bank or credit union for your EF. Don’t keep the money for your emergency fund in your checking account—that’s a sure way to end up spending it. Again, make sure the money is in a separate savings account. And even though it should be accessible in case you need it, don’t make it so accessible that you are tempted to spend the money for anything else besides emergencies.

If you decide to use an online bank, these are some good options for places to put your emergency fund:

Capital One 360. This is the account that we used to use for our emergency fund. (Now we get an even better interest rate from a local credit union.) We’ve been customers since the time that this branch of Capital One was ING Direct, and though I was sad to see ING go and though I’m not a fan of big banks, I have to say that our experience with Capital One has been great.

On the couple of occasions where we needed them to fix something with our account (both times were minor things we did that were our fault, not theirs), they did it right away with a simple phone call, and their customer service was great.

And they still offer one of the best savings rates around. You can see their . One of the things that I love about our Capital One 360 account is that you can open multiple (and by multiple, I mean we now have more than 20) savings accounts for the different things you want to save for beyond just your emergency fund. It’s awesome!

HSBC. We’ve simplified some, but there was a time when we collected bank accounts like some people collect postage stamps. And another one of the online banks we tried out was HSBC. They’ve been a good bank for us, and we’ve never had any problems with them. And similar to Capital One 360, you can open multiple savings accounts that all link to your checking account, and they offer rates far better than most the of the local brick and mortar banks.

Schwab. Schwab has been a great bank for us. This is the first brokerage firm we used, and it’s still where we do the bulk of our investing for our Roth IRAs, children’s education savings accounts (ESAs), and other long-term investing. Though their savings rate is not as high as some of the other online banks, there are no account minimums or service fees, and they offer unlimited ATM fee rebates worldwide. In addition, when it comes to investing their fees are very competitive and in some cases even better than Vanguard’s for comparable funds, which is one of the reasons that we went with them in the first place.

Ally Bank. We don’t have a bank account with Ally, but I have heard great things about them and know that they also have very good savings rates, so they’re another option you should check out if you’re shopping around for a great savings rate.

Dollar Savings Direct. This is another bank that I’ve heard very good things about. They too have one of the best savings rates around, with low minimum balance requirements.

How can I save for my emergency fund?

A crucial part of knowing how to create an emergency fund is understanding how you can actually save the money for the EF. Here are three crucial things you can do to save the money for your emergency fund.

Sell stuff. There are probably things around your house that you aren’t using that you can sell on eBay, Craigslist, or your local online classifieds. Or you could have a garage sale. By selling a few electronics or well-cared for furniture items, for example, you could be well on your way to a starter emergency fund of $1,000. Or maybe you have a motorcycle, jet ski, snowmobile, or similar item that could be sold. Have a car in your driveway that seldom gets used? Sell it and you might be pretty close to having a fully funded emergency fund.

Work to increase your income by getting an extra job or taking on a side hustle. There are so many ways that you can earn extra income these days. And many of them you can do online without ever even leaving your home. You could work from home as a customer service representative, become a mystery shopper or do online surveys or user testing, drive for Lyft or Uber, rent out an extra room on Airbnb, become a virtual assistant, or, my personal favorite, even blog for profit!

I talk more about many of these opportunities in this article on earning extra income. You could also do overtime at work or get a part-time job, or take on extra clients or work if you own your own business.

Here are 19 awesome (legitimate!) side hustles you can do from home!

 

Reduce necessary spending and eliminate (for a time) unnecessary spending. Cancel your cable or satellite service, cancel subscriptions, spend less money eating out and slash your grocery spending, do a spending freeze for a period of time, and make other cuts where you can. Treat funding your emergency fund like an emergency! (That way, when you have a financial setback or emergency, you’ll have accomplished this goal quickly so that you’ll be prepared.) For more information on how to reduce your spending, see this article.

What should I use my emergency fund for?

An emergency fund should be used only for—you guessed it!—emergencies. Don’t use it unless it’s an actual emergency. That could be an unexpected funeral, an illness, or something that goes wrong that you haven’t yet saved up money (or enough money) for in a separate account to cover (but that you eventually should!), such as a car repair or home repair or needed dental work or similar expense.

Expenses that you should plan for—such as car repairs and maintenance and home repairs and maintenance (once you have adequate funds in these savings accounts to start covering these expenses), a great sale, birthdays or weddings, family vacations, and so on—should not come out of your emergency fund.

 

Conclusion

Again, knowing how to create an emergency fund is an essential part of your overall financial success. And so is actually funding it! When you have an emergency fund with enough money in it to cover most things that could go wrong, there’s something in your psyche that changes.

You know that pit in your stomach that you get when you don’t have the money to pay for something you really need like a car repair or a new-to-you appliance to replace one that stopped working? With an emergency fund, that feeling will happen far less often, and when you get to the point where you have a fully funded emergency fund, that feeling will virtually go away altogether. A part of you that may never have relaxed before is able to.

An emergency fund means peace of mind, and that is priceless. Believe me, the effort (and maybe even sacrifice) it takes to get your fully funded EF in place is well worth it!

 

What questions do you have about how to create an emergency fund? Or what tips do you have? I would love to hear them! Leave a comment below and let me know!

 

Invitation to Share

Was there something in this article that inspired you to change something about your money? Are there ideas or tips that you feel could help others? Would you please take a minute to share this article via email or social media? I would love your help to share these principles of financial well-being. Thank you!

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Get the New, Free Budget Planner!

free budget planner

FREE Budget Planner Printables!

Get the free budget planner printables to help you take control of your money today! The free Budget Binder with many helpful budget planner printables will help you to track your income and expenses, pay off more debt, spend less and save more, and reach your financial goals!

 

Note: Save the image above to Pinterest so that you can easily find these budget planner printables again later!

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Free Printable Budget Planner

 With the new, free budget planner, you will find tools to help you to manage your money in order to spend less, save more, and live better. Use these awesome free budget planner printables to get out of the debt and paycheck to paycheck cycle, and start making your money work for you!

 

In this beautiful budget planner, you will get these awesome printables:

  • Awesome, classically designed cover
  • 1 inch, 1.5 inch, and 2-inch spine label
  • Financial goals sheet
  • Monthly budget sheets
  • Income tracker
  • Expenses tracker
  • Debt payoff tracker
  • Saving goal tracker
  • Monthly budget review sheet
  • Notes page

Now, let’s talk about each of these free budget planner printables a little bit.

Classy Cover

You will love this classy cover for your beautiful Budget Binder!

Convenient Spine Labels

There are three sizes of spine labels for your Budget Binder: 1 inch, 1.5 inches, and 2 inches. No matter the size of your binder, we have got you covered!

Convenient Spine Labels

There are three sizes of spine labels for your Budget Binder: 1 inch, 1.5 inches, and 2 inches. No matter the size of your binder, we have got you covered!

Financial Goals Sheet

If you want to accomplish amazing things with your money and stop simply living paycheck to paycheck, you need to set and work toward awesome financial goals for an awesome financial future!

With the financial goals sheet, you can set short-term, medium-term, and long-term financial goals to help you spend less money, save more money, get out of debt, build wealth, and more!

As you set your financial goals, remember to make them SMART goals: specific, measurable, attainable, relevant, and timely. Check out my best tips for how to reach large financial goals.

 

Monthly Budget Sheets

These monthly budget sheets are perhaps the most important part of your free Budget Binder printables!

If you have been intimidated by budgeting in the past, you don’t need to be! Think of your monthly budget as simply the mini goals that are going to help you reach your own financial awesome. Remember—you are the boss of your budget. But then once you have created your budget, let it be the boss of you, to keep you on track financially.

With these monthly budget sheets, you will record your monthly income and expenses so that you can truly manage your money!

The main categories have been designated in order for you to easily plan and organize your budget, so all you need to do is add the specific budget categories that meet the needs and circumstances of your family.

Some of the fixed expenses (meaning, the amount generally stays the same every month) you may want to include in your budget are these:

  • Tithing
  • Charitable giving
  • Rent or mortgage
  • Renters insurance
  • Homeowners insurance and property taxes (if not paid with the mortgage)
  • Car payment
  • Automobile insurance
  • Life insurance
  • Health insurance
  • Dental insurance
  • Internet
  • Cell phones
  • Cable/satellite TV
  • Home phone
  • Gym or rec center membership
  • Retirement savings

In addition to these fixed expenses, you will likely have a number of variable expenses (where the amount spent fluctuates from month to month) such as the following:

  • Groceries
  • Household items (such as cleaning products, towels, and related items)
  • Eating out
  • Gasoline/fuel
  • Public transportation
  • Clothing
  • Utilities (electricity, natural gas, water, sewer, garbage)
  • Toiletries, makeup, and related items
  • Child care
  • Pet food and supplies
  • House maintenance
  • Home furnishings and appliances
  • Car maintenance
  • Education/tuition
  • Kids’ school or sport/music expenses
  • Entertainment
  • Electronics/toys
  • Recreation/sports and vacations
  • Hair care (stylist/barber)
  • Christmas and gift giving

Income Tracker

With the income tracker, write down all of the income you receive during the month, no matter how small. Even small amounts can help you accomplish big things over time!

Expense Tracker

With the expense tracker, you will record all of your expenses, how much they are for, and when they are due (if applicable). This form can help ensure you get your bills paid on time every month.

Debt Payoff Tracker

The debt payoff tracker will allow you to keep up-to-date on how much you owe for each one of your debts and when your target date is to get each one paid off. You will also see at a glance your progress toward reaching that payoff goal.

 Print a separate debt tracker page for each of your debts you are working to pay off, record your progress regularly, and you will be surprised at how quickly you are able to crush your debt and get it out of your life!

Savings Goal Tracker

This is another powerful free Budget Binder printable in your financial toolbox. Use a separate sheet to keep track of your progress toward each of your awesome savings goals.

On each sheet, record the savings goal amount, how much you have saved already, how long you plan to save for (if known), what you are saving for, and why you are saving for this financial goal.

Don’t overlook or neglect to complete the line for why you are saving! Your financial why is very important because it will help give you the motivation to reach your financial goals!

Discover how determining your financial why can help you to save more money. And get my best tips for how to achieve your financial goals.

Monthly Budget Review Sheet

On this free Budget Binder printable sheet, record areas where you struggled with keeping to your budget or what you could do better for next month. Also record financial goals for next month that your Budget Binder can help you to accomplish!

Notes Sheet

Be sure to record here any notes that will help you to manage your money better and reach your financial goals.

Conclusion

With these awesome free budget planner printables, you can finally make budgeting work for you! By identifying and tracking your expenses, listing your income and expenses, and including money for saving and paying off debt, you will succeed at your financial goals! It will take some time and consistent effort, but you can do this! And your future self will profusely thank you! 🙂

If you want to be able to have financial peace and stability and eventually reach financial freedom, you have to be able to have money left over after your spending to save and to invest.

And in order to do that, you have to master a budget or spending plan. If you want to win financially, as with any area of your life, you have to make a plan and stick to it.

Find information on how to stick to your budget here. And you can find the complete  Beginner’s Guide to Budgeting.

What questions do you have about the Budget Binder budget planner? Have you tried to budget before and not been able to stick with it? What are your biggest budgeting challenges or hurdles? Leave a comment below and let me know!

 

Invitation to Share

Was there something in this article that inspired you to change something about your money? Are there ideas or tips that you feel could help others? Would you please take a minute to share this article via email or social media? I would love your help to share these principles of financial well-being. Thank you!

Join Our Facebook Group!

Join our closed Families for Financial Freedom Facebook group to get support and share ideas for how we can all improve our financial well-being by earning more, spending less, saving more, and investing more and reach our financial goals. You can do this! And we are here to help.

13 Top Tips to Help You Stick to Your Budget

how to stick to a budget

How to Stick to a Budget

In this article I share 13 simple tips to help you learn how to stick to a budget. Being able to stick to a budget or spending plan is crucial for financial success, so read on to learn how to make this goal a reality!

 

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How to Stick to a Budget

I know that being able to stick to a budget isn’t easy. If it were, everyone you know would be doing really well financially and building wealth. Instead, nearly 80 percent of Americans are living paycheck to paycheck. And close to the same percentage of Americans have less than $500 in savings. I don’t know the statistics showing the number of families who budget, but I would guess that there is a strong inverse correlation between the two. I would bet that most people who budget, if they have been doing it for a while, have built up at least a decent-sized emergency fund so that they aren’t on the very brink of financial disaster.

If you find the idea of committing to live by a budget difficult, keep this in mind: you are the boss of your budget. You get to decide what you want to spend your money on! 🙂 If you want to spend $700 on entertainment each month and $200 on housing, as long as that provides adequate housing for your family, then that’s great. But do you have to make your budget balance—you can’t be going into the red anymore. Because that will never lead your family to where you ultimately want it to be.

Creating a budget and then committing to live by it is so important because it’s the foundation of your financial stability and wealth building. If you don’t know where your money is going and aren’t being intentional with how you are spending it and saving and investing it, you won’t be able to attain financial prosperity. In this article I discuss 13 things you can do that will help you to stick to your budget in order to reach your financial goals.

 

1. Identify your financial goals and dreams—know (and remember) your why.

W-h-y. Those three letters are incredibly powerful. Understanding your financial why may be your most powerful tool for curbing your overspending and getting control of your money, and that’s why we’re talking about it first. Because in order to change old habits and start new, better habits, we’ve got to have a very strong motivation—and that motivation, for many people, is their why. To learn more about the power of why, I highly recommend the book Start with Why, by Simon Sinek. It is (and all of his books are) an excellent read.

In order to be effective, your why has to be powerful—more powerful than your urge to buy stuff or do things you can’t really afford—or better put, things that jeopardize your long-term financial stability or goals. Maybe your why is to have financial security, have one parent be able to stay home with your children, be financially independent early on in life, live in comfort (or luxury) in retirement, be able to give very generously to worthy causes, be an exceptional financial example to your kids, or be able to retire early to travel, volunteer, or spend time with your children and grandchildren.

Take some time to sit down with your spouse and determine your financial whys—why is it worth getting out of debt? Why is it worth saving for retirement? Why is it worth saving for your children’s college educations? Why should you stop using your credit cards to buy things you can’t afford? Why should you pay off your home early? Why should you retire early(!)? Once you’ve talked about your whys, talk about the goals and dreams related to those whys, and make plans to accomplish them! Turn your whys into will-dos, and get after it!

For me, my financial whys are very strong motivators. My current financial goal is to be able to get this blog to the point where it can replace my full-time income so that I can be home all day with our three little cherubs. Even though I love my current job, being able to be home with our children is something I want even more, and so I’m willing (very willing, really) to make sacrifices (of sleep, mostly, and leisure or “me” time) to make that hope and dream a reality. And then they aren’t really sacrifices at all—just choices to be made.

When your motivators are strong enough, you will choose to stop overspending and to get control of your money. You will stick to your budget. And I’m here to help you every step of the way.

 

 

 

2. Plan your budget with your spouse so that you can work together to stick to a budget.

If you are married, then you need to be on the same page financially with your spouse in order to stick to a budget and win with your money. So if you haven’t done so already, sit down with your spouse to create your first budget. Or if your sweetheart really isn’t into numbers, then you could create the budget, but then make sure that you go over and agree to it together. And make sure that your spouse gives input and even changes some of the allocated amounts. Because without true buy-in, your spouse will likely (intentionally or unintentionally) sabotage your efforts to stick to your budget.

 

3. Plan a (slightly) unique budget for each month.

You don’t have to re-create your budget from scratch every month, but you do need to adjust categories as needed to reflect the circumstances for each month. This will definitely help you be successful as you work to stick to your budget.

So, for example, your rent or mortgage payment, cell phone payment, and insurance premium will probably be the same every month, but your utilities and fuel costs will likely fluctuate somewhat from month to month. You’ll probably pay more for utilities in the summer and winter than you do in the spring and fall. So you’ll need to plan accordingly.

And if you have a wedding or birthday to attend next month or if it’s Christmas next month, you will need to plan for those kinds of things, as well.

 

4. Plan ahead for this month’s unique expenses in order to stick to a budget.

Going along with the point just above, make sure that you sit down a few days before each month begins, and have your calendar in hand. Look at upcoming events so that you can account for their associated costs in that month’s budget. If you’re going to be doing some traveling or going on vacation, plan for that. If you have a high school or college graduation, plan for that. If you know you want to replace an appliance or piece of furniture (and you have saved up the money to do so), make sure to account for that. Doing so will help you keep your budget balanced and avoid overspending.

5. Be willing to be flexible to help you stick to a budget.

Even though you are going to be creating a unique budget for each month, even then you still need to be flexible. Sometimes things come up later in the month that are outside of your control that you just can’t anticipate. So when that happens, take money from another category or categories, so that your budget still balances. Once you start saving for larger expenses and purchases, you could take the money from one of those savings accounts if needed. Or if it is a true emergency and you don’t have other money saved up yet and you can’t take the money from another budget category for the month, then take the money from your emergency fund.

 

6. Shoot for progress, not perfection as you work to stick to your budget.

As you are working to stick to a budget, realize that when you’re new to budgeting, it takes some time to get the kinks worked out. So give yourself some grace. It’s probably going to take you about three months of trial and error before your budget starts to really work. So don’t give up! Your budget is a key to your financial success. Hang in there, and if you have questions or need encouragement, visit our new Facebook group.

 

7. Be realistic about your current spending habits, and work from there.

To help you stick to a budget, don’t try to change things too drastically with your spending right at first. If you’ve been spending $500 every month eating out, you probably shouldn’t drop that to $50 (unless you have a really strong motivation and strong will).

Similarly, if you haven’t been saving anything, you probably don’t want to budget to save $1,000 next month. Take reasonable steps as you work to improve your finances. Spend a little less eating out, and then a little less, and then a little less. Contribute a little more to your 401(k), and then a little more, and then a little more. It’s OK to take a few months (or maybe even longer, for really big changes) as you work to change old habits to better ones.

 

8. Automate your finances as much as possible to help you stick to your budget.

One thing that can really help you to make financial changes and stick to a budget is to automate your finances. That way, you’re not left so susceptible to temptation. Right after you get paid, transfer money directly to pay extra toward debt, into savings accounts, into your Roth IRA—take care of your financial goals by funding them automatically. And then live on what is left. The envelope system (discussed a little more below) is an excellent way to help you do this, especially if you are regularly tempted to overspend.

You should automate your finances in order to get paid (through direct deposit); save for emergencies, large purchases and expenses, and so forth; invest for retirement; pay bills; save for kids’ college; and more.

Read this article to learn more about automating your finances.

 

9. Use an envelope system, and pay for purchases with cash to help you stick to your budget.

One of the best things you can do to stick to a budget is to use the envelope system as you manage your money. The envelope system is where you take the money that you have allocated for a certain category in your budget and you put that amount of cash in an envelope. Then when you spend money in that category, you spend it from the envelope. And when the money is gone, it’s gone—no more spending in that category till you replenish the envelope from your next paycheck.

Some areas that you’ll probably want to use cash for in your budget include food (both groceries and eating out), entertainment, clothing, and personal fun money. You can use envelopes to keep your cash for the week or month or a wallet with different compartments.

 

10. Know how to avoid budget busters so you can stick to a budget.

A big part of sticking to your budget for many people is avoiding their spending triggers. And another crucial aspect of sticking to your budget is planning ahead. You can’t keep to your budget—or win with your money in general—if you don’t make a plan and then follow it. Here are some things you can do to avoid budget busters and stick to plans that help you spend less and save more.

  • Skip Starbucks and stay out of restaurants (most of the time).
  • Plan your meals and shop with a grocery list (and stick to it!).
  • Reduce your number of shopping trips. Shop online (with a list, for the things you truly need) when possible.
  • Pack your lunch for work.
  • Stay out of department stores and avoid browsing online stores.
  • Avoid watching commercials.
  • Leave your kids home when you go shopping.
  • Spend less on hobbies, memberships, and subscriptions. Cancel store catalogs.
  • Avoid impulse buys.

For more ideas, read this article with more than 20 tips to reduce your spending.

 

11. Tell yourself “Not yet.” rather than no to help you stick to a budget.

If it helps you to not feel like you are depriving yourself so that you are better able to stick to your budget, when you are in a situation where you want to spend money on something that’s not in your budget, tell yourself “Not yet” rather than no. Tell yourself that you can write it down on a wish list, and if you still want it, you can work it into next month’s budget (or even in this month’s budget, if you adjust spending in other areas—but make yourself wait at least overnight).

 

12. Avoid commercials and other advertising as much as possible to help you stick to a budget.

I know I mentioned this in the bulleted list above, but I think it’s worth repeating here in a little more detail. You won’t buy what you don’t know exists or what you don’t think about, so avoid commercials and other advertising as much as possible. DVR your favorite shows so that you won’t have to watch the commercials, for example.

Or stop (or really reduce) watching TV altogether. (Do you really think you’ll miss that much? There are so many other wonderful things to do!) When we moved to our current home, it didn’t have a TV antenna, and since we didn’t watch much TV anyway and could watch the few things we do watch online, we have never gotten one.

And let me tell you—it’s much easier to avoid being tempted to go to a movie or buy a gadget or toy or go check out a new restaurant when you don’t even know they exist.

 

13. Keep your financial goals in mind to help you stick to your budget.

Remember those goals and dreams we talked about above? To help you stick to your budget, create ways to help yourselves remember them. Put up visual reminders, like a picture of your retirement beach house or your paid-for-with-cash bass boat or RV or luxury car. Put up construction paper loops representing the amount of debt you’re working to pay off.

Keep a copy of the last payment stub (or create one) for your vehicle or mortgage, and plan to burn it when you get it paid off. Write in a prominent place the name of your favorite charity or cause that you want to support or the charitable foundation you want to one day form. Put a picture up of your children that will help give you the motivation to make the changes needed to live on one income so you can stay home with them.

Whatever your family financial goals are, find ways to keep them firmly in the forefront of your mind so that you can continually work on them and so that you will have them to fall back on when you’re tempted to overspend or bust your budget.

If you need help to track your progress toward your financial goals and keep yourself accountable, it might help if you use a program such as You Need a Budget (YNAB.com). It’s a great, user-friendly budgeting tool with a lot of awesome features.

Or, especially if you have begun investing for retirement or intend to soon, you should sign up for my favorite money tracking app, Personal Capital. Personal Capital is a free app that not only tracks your spending for you and lets you see all of your bank accounts and credit card accounts but it also tracks your investment accounts, as well. So it provides a complete picture of your overall financial situation and helps you monitor your progress  If you’re investing in a Roth 401(k) or IRA or have other investments, you should sign up for a free account.

 

Conclusion

I’m not going to lie and say that sticking to a budget is always easy for everyone. It takes diligence and practice and discipline. But I will tell you that it is completely worth it. Remember—you are the boss of your budget. You decide what you want to spend your money on. A budget just helps you to face the reality of your situation.

But by sticking to your budget, you can make serious, consistent progress toward reaching your goals. And over time, I promise you—the results are amazing! The financial peace you feel is incredible. The contentment you feel is awesome. So let’s do this! I’m here to help.

 

What questions do you have about how to stick to a budget? What tips or tricks have you found that have helped you stick to a budget? Leave a comment below and let me know! I would love to hear your thoughts!

 

 

Invitation to Share

Was there something in this article that inspired you to change something about your money? Are there ideas or tips that you feel could help others? Would you please take a minute to share this article via email or social media? I would love your help to share these principles of financial well-being. Thank you!

Join Our Facebook Group!

Join our closed Families for Financial Freedom Facebook group to get support and share ideas for how we can all improve our financial well-being by earning more, spending less, saving more, and investing more and reach our financial goals. You can do this! And we are here to help.

Save More Money by Identifying Your Financial WHY!

Learn 3 simple ways that starting with why will help you save more money.
Identify Your Financial Why to Save More Money

In this article I am going to share three important ways that starting with why will help you to save more money.

W-h-y. Those three letters are incredibly powerful. Understanding your financial why may be your most powerful tool for curbing your overspending and starting to save and invest. 

And the reason is pretty simple: in order to change old habits and start new, better habits, we’ve got to have a very strong motivation—and that motivation, for many people, is their why. To learn more about the power of why, I highly recommend the book Start with Why, by Simon Sinek. It is (and all of his books are) an excellent read.

Read below to learn 3 important ways that starting with why can help you to save more of your hard-earned money!

 

Tip: Save the image above to Pinterest so that you can easily refer to this article on the motivational power of why later!

 

3 Important Ways That Starting with Why Will Help You to Save More Money

When it comes to your money, understanding your financial why can be a huge motivator.

1. Think about and write down your why to help get you motivated to start saving money.

What is your own financial why (or what are your financial whys)?

In order to be effective, your why has to be powerful—more powerful than your urge to buy stuff or do things you can’t really afford—or better put, things that jeopardize your long-term financial stability or goals.

Maybe your why is to have financial security, have a roof over your head that no one can take, have one parent be able to stay home with your children, be able to quit corporate life, be financially independent early on in life, live in comfort (or luxury) in retirement, be able to give very generously to worthy causes, be an example of exemplary money management to your kids, or be able to retire early to travel, volunteer, or spend time with your children or grandchildren.

Take some time to consider your own financial circumstances and your own financial why, and then write it down on a piece of paper (or print it up all nice and fancy :)) and put it in a place where you will see it often to help you stay motivated.

Check out these related articles:

2. Use your financial why to discover your financial dreams and set financial goals.

In order to reach your financial goals and accomplish great things in your life by managing your money well, you’ve got to have a roadmap. One of my favorite quotes is from Steven R. Covey: “Begin with the end in mind” (The 7 Habits of Highly Effective People). Take some time to sit down with your spouse and determine where you would like to be financially 3, 5, 10, 20, and even 40 years from now.

Then work backward to think about the kinds of habits you’re going to need to develop now and the amount of money you’re going to need to save and invest to make those things a reality. For example, if you know you want a vacation home near the beach by the time you retire, how much extra would you need to invest in your retirement accounts to make that happen? And then do your best to work backward and figure out how much extra you would need to invest in your 401(k)s or IRAs each month.

And remember the power of why. While you’re identifying your financial goals always keep in mind your financial whys—why is it worth getting out of debt? Why is it worth saving for retirement? Why is it worth saving for your children’s college educations? Why should you stop using your credit cards to buy things you can’t afford? Why should you pay off your home early? Why should you retire early(!)? Once you’ve talked about your whys, talk about the goals and dreams related to those whys, and make plans to accomplish them! Turn your whys into will-dos, and get after it!

For me, my financial whys are extremely strong motivators. My current financial goal is to be able to get this blog to the point where it can replace my full-time income so that I can be home all day with our three little cherubs. Even though I love my current job, being able to be home with our children is something I want even more, and so I’m willing (very willing, really) to make sacrifices (of sleep, mostly, and leisure time or “me” time) to make that hope and dream a reality. And then they aren’t really sacrifices at all—just choices to be made.

When your motivators are strong enough, you will choose to stop living paycheck to paycheck or stop overspending, start saving, and get control of your money.

Note: Need motivation? Have something you want to share? A success, a frustration, a fear? Post it in our new, closed Families for Financial Freedom Facebook group! It’s a supportive community where we’re all working together to learn and to grow and to help each other improve our finances and reach our financial goals and dreams.

What is your why? What are your motivators? What is worth fighting for and striving for and maybe giving up some of the things you might want now for something (or some things) you want even more? Sit down with your spouse tonight (or within the next couple of days, if you can’t tonight) and write out your financial dreams.

As you do, think about these questions: What are the financial priorities that really mean something to you and to your family? And what do you need to change to reach your financial dreams? Then write down the goals that will allow you to reach those dreams.

 

3. Use your financial why to help you commit to start saving more money and spending less money today!

Now date the document where you just wrote down your dreams and goals. Make sure to do that, because this is the beginning of the rest of your life—this is where you draw a line in the sand and you decide that you are going to control you in order to clean up your finances, begin to spend less, start to save more, and work toward building lasting financial security and wealth. Today is the day you begin a purposeful journey toward your own financial freedom. It begins today.

Now put that paper where you will see it often to help keep you motivated and on track. Roll up your sleeves, and let’s get to work. 

Find more information about how to start saving your money here. And get important tips for how to reach financial goals here.

What is your financial why? Do you have big financial dreams and goals you are working toward or that you are now going to start working toward? I would love to hear your plans and know your financial goals and dreams! Leave a comment below and let me know!

Learn 3 simple ways that starting with why will help you save more money.

Invitation to Share

Was there something in this article that inspired you to change something about your money? Are there ideas or tips that you feel could help others? Would you please take a minute to share this article via email or social media? I would love your help to share these principles of financial well-being. Thank you!

Join Our Facebook Group!

Join our closed Families for Financial Freedom Facebook group to get support and share ideas for how we can all improve our financial well-being by earning more, spending less, saving more, and investing more and reach our financial goals. You can do this! And we are here to help.

Beginner’s Guide to Budgeting

beginner's guide to budgeting how to budget

Beginners Guide to Budgeting

In this beginner’s guide to budgeting, I am going to discuss what budgeting is, the steps to create a workable budget, and how to succeed at budgeting. I’m also going to talk about common budgeting questions and answers.

Budgeting is so important to your financial success because when you get control of your spending by creating and then following a monthly budget, you gain control of what one financial expert calls your largest wealth-building tool: your income.

 

Tip: Save the image above to Pinterest so that you can easily refer to these tips on beginner’s guide to budgeting later!

 

 

How I Learned the Importance of Budgeting

Fifteen years ago, before I was interested in or knew very much at all about personal finance, I think that budgeting to me, if it meant anything at all, meant to not spend more than I had in my checking account. (And all things considered, that really is not a horrible place to start. :))

About a year after I graduated from college my husband had just started college, and we were taking an extracurricular class together that had nothing to do with personal finance overall. But as part of the class discussion that day we talked about compound interest, and that conversation changed the whole trajectory of my life.

From that time I became very interested in and then passionate about personal finance, and I read countless books and articles to learn all that I could about the topic.

I have now taught community personal finance classes (Ieading Dave Ramsey’s Personal Finance University), and my husband and I have also been able to use the knowledge we have about personal finance to pay off over $260,000 of debt in less than 10 years (including our mortgage!).

 

Why Budgeting Is Essential to Save Money

One of the most important foundational principles of personal finance is budgeting. By creating a budget, or a spending plan as it is also called, you are able to determine how you want to spend, or not spend, your money in order to accomplish the goals with money that you want to.

Personal finance in general and budgeting in particular are so important because money really touches every aspect of our lives. There is not much that we can do in this life that is not connected to or dependent upon money in some way. What we spend our money on indicates what is important to us. And how we spend our money really does determine not only our own financial future and influences some of the things that we are able to achieve but potentially also influences the financial futures of our future posterity, as well.

That is why understanding first what budgeting is and why it is important is so necessary to our financial well-being.

 

What Is Budgeting?

The first question I want to discuss in this beginner’s guide to budgeting is this: what is budgeting?

The word budgeting, unfortunately, has some pretty negative connotations associated with it for some people. Some people treat it as if it is the dreaded B word. Some individuals feel that a budget is constraining, that it takes all of the fun out of life. And because of that misconception, they choose not to budget, and so they are robbed of the power that comes from truly making your money work for you.

The reality is that a budget is nothing more than, as I mentioned above, a plan for the way that you  choose to spend your money. You get to create the budget and decide how much you are going to spend in each budget category.

How to Get Started with Budgeting

In this beginner’s guide to budgeting I am going to share 9 simple steps to make a budget that will actually work to help you save money and reach your short- and long-term financial goals.

1. Track what you spend as you work to make your budget.

Track what you spend for a couple of weeks or a month to really get a good feel for where your money has been going. This doesn’t have to be perfect; just do your best. Use a debit card to make purchases and pay bills as much as possible during this time so that you can go to your bank or credit union website to see what you have spent. 

Sign up below (after step 2) to receive a free spending tracker form to help you with this step! Easy peasy!

2. Start with a simple, hard-copy budget.

When you very first start budgeting, I recommend using a paper budget. This gives you a simple way to create your first budget by helping you to get a rough idea of what you would like to spend where.

Sign up below for a simple budget and spending tracker forms that will help you get started!

 

Once you get the hang of budgeting and have done it for a few months, go ahead and switch to a digital system if you prefer. Or if you really can’t stand paper and you prefer to do everything electronically, you can build a budget in Excel or use a program such as You Need a Budget (YNAB.com). It’s a great, user-friendly budgeting tool with a lot of awesome features.

 

Check out these related articles:

17 Must-Know Tips to Rock Your First Budget!
Budgeting Fail? Try This Simple Alternative to Budgeting
13 Surefire Steps to Help You Stick to Your Budget
9 Must-Know Tips to Help You Finally Start Saving!

 

3. List all income sources as you work to make your budget.

If you have a job where you receive regular paychecks, this step shouldn’t take too long. Simply add up all income (for you and your spouse), and write that number at the top of the page. Don’t forget to include freelance income and any money earned from second jobs, overtime, or side hustles.

4. List all of your expenses.

Then begin to list your expenses. Don’t forget to include tithing and charitable giving in this category.

Do a zero-based budget so that every dollar you have goes to a designated place. If you don’t, it’s almost certain that the unallocated money will get blown in one area or another. Be intentional with all of your money so that your money really works for you.

First list your regular, fixed expenses. Gather your regular bills, such as mortgage or rent payment, car payment, public transportation pass, utilities, health insurance premium (if not deducted automatically by your employer), cell phone bill, internet bill, car insurance bill, and so on.

Here is an easy list for reference of common fixed expenses you can use when creating your budget:

  • Tithing
  • Charitable giving
  • Rent or mortgage
  • Renters insurance
  • Homeowners insurance and property taxes (if not paid with the mortgage)
  • Car payment
  • Automobile insurance
  • Life insurance
  • Health insurance
  • Dental insurance
  • Internet
  • Cell phones
  • Cable/satellite TV
  • Home phone
  • Gym or rec center membership
  • Retirement savings

Then list your variable expenses. After you add up all of your fixed expenses, figure out your variable monthly expenses such as groceries, gasoline, household expenses, clothing, entertainment and eating out, pet food and supplies, and toiletries.

Here is an easy list for reference of common variable expenses you can use when creating your budget:

  • Groceries
  • Household items (cleaners, towels, and related items)
  • Eating out
  • Gasoline/fuel
  • Public transportation
  • Clothing
  • Utilities (electricity, natural gas, water, sewer, garbage)
  • Toiletries, makeup, and related items
  • Child care
  • Pet food and supplies
  • House maintenance
  • Home furnishings and appliances
  • Car maintenance
  • Education/tuition
  • Kids’ school or sports/music expenses
  • Entertainment
  • Electronics/toys
  • Recreation/sports and vacations
  • Hair care (stylist/barber)
  • Christmas and gift giving

 

5. Decide how much money you will budget toward savings.

It’s likely when you first start budgeting that you won’t have a lot of money left over to put toward savings. It’s OK to start small, but as quickly as you can, start increasing the amount that you save toward specific categories. And no matter how little your income, start saving something right from the beginning if you possibly can, to get yourself into the habit of saving.

As long as you make a little more than your fixed expenses each month, then determine a realistic amount to save, and save that portion of your income before you do anything else—known as “paying yourself first.” If you plan to just “save what’s left over,” the chances that you’ll have anything left to save are slim.

If you crunch the numbers and you really just don’t have anything left over to put toward saving (and then paying off debt once your starter emergency fund is funded—see the next section for more information) after paying all of your bills, then you should look at ways to earn additional income.

6. Fund your starter emergency fund (EF) first.

The first thing you should start saving toward when you make your budget is a starter emergency fund. This is a crucial next step because an emergency fund gets you out of the mode of relying on credit cards and it really does virtually stop emergencies from happening. It’s not that your car’s transmission never goes out or your roof never springs a leak, but those things are no longer emergencies—they are inconveniences because you have the money saved up to pay for them.

You should put all extra money above bare-bones expenses (that means zero or very minimal spending on eating out, entertainment, and so on) into your emergency fund until it is fully funded. Treat building up a starter emergency fund like an emergency!

If you have consumer debt, start with a small emergency fund of $1,000 to one month’s worth of expenses (depending on how likely you are to need the money—for example, scale upward if you have an older car or home), and pay off your consumer debt before you build your full emergency fund of three to six months of expenses.

Try to build up your $1,000 starter emergency fund in a month or less by slashing expenses such as your grocery bill and entertainment spending, by selling stuff, and by earning extra money through overtime or a doing a side hustle or second job.

Learn more about how to fund your emergency fund as quickly as possible.

After you have funded your starter emergency fund and have paid off all of your nonmortgage debt (discussed in the next step), start working toward your fully funded emergency fund and toward saving for large purchases.

 

7. Start working to pay off your debts.

Once you a starter emergency fund of at least $1,000, begin working to pay off your debts.

After you start budgeting and have all of your expenses written down on paper, you will start to see areas where you can reduce your spending (see this article for more than 20 areas where you can cut your spending!) in order to start paying off your debt.

Once you have a good handle on doing your monthly budget, try to set up your budget so that you can pay extra payments on your debt in order to have all of your nonmortgage debt paid off within 18 to 24 months—or faster, if you can! (You may want to find ways to increase your income or find things to sell in order to help you reach this goal.)

In order to pay off your debts, use either the snowball debt payment method or the avalanche debt payment method.

Briefly, the snowball method is where you list all of your debts smallest to largest and you pay just minimum payments on all of your debts except for the smallest one and then throw all of the money that you can toward that smallest debt until it is paid off.

Then once that first debt is paid off, you use the all of the money from your budget that you were spending on paying off that smallest debt to attack your next smallest debt. And then work to pay off the next smallest debt, and so on.

With the avalanche method, you similarly pay minimum payments on all but one debt, but the debt that you attack first is the one with the highest interest rate.

You will save on interest if you use the avalanche method, but I recommend that you follow the snowball method because of the motivation that comes from paying off the smaller debts first and getting the emotional boost from those relatively quick wins. The snowball method is the method we used to pay off more than $60,000 in nonmortgage debt.

However, choose the method that will be most motivational for you, and just get after that debt!

8. Adjust your budget categories if you overspend in an area.

Because you’re going to go off of a zero-based budget, if you decide you have to spend more in one area than you planned for, then you need to pull the money from another spending category.

So if something comes up where you need to spend more on your gifts category, for example, because you receive a wedding invitation, then the amount in your entertainment category or fun money or clothing category or eating out or somewhere else will need to be adjusted. Your budget needs to balance out.

9. Continue tracking your spending each month, and adapt your budget as needed over time.

It will probably take about three months to work out the major kinks in your budget, but then it will really start to work.

You should create a specific budget for every month because no two months are exactly the same, but once you’ve been budgeting for a while, your budget will be mostly set and you’ll only have to make minor tweaks from month to month.

However, when major events happen in life that cause big changes in your finances, be sure to adapt your budget accordingly.

How to Succeed at Budgeting

Another important thing to discuss in this beginner’s guide to budgeting is how to be successful at budgeting. To succeed at budgeting, here are 4 more important things you can do.

Automate Your Finances to Succeed at Budgeting

To avoid getting overwhelmed with budgeting and managing your money, automate as much of your finances as possible. I don’t have any bills that I regularly pay with a check—we use bill pay for all of our expenses, including tithing and charitable donations. Automating our financial transactions saves time and makes life much simpler (and helps me avoid forgetting to pay my bills!).

If you want to learn more about how to automate your finances such as bill paying, saving, and investing to simplify your life and start to build wealth, I recommend The Automatic Millionaire by David Bach. It’s one of my favorite personal finance books because it gives simple, actionable steps you can follow. And check out this article for more information on automating your finances.

Use Cash for Budget Categories You Tend to Overspend On

Some areas that you’ll probably want to use cash for in your budget include food, entertainment, clothing, and personal and family fun money. You can use envelopes to keep your cash for the week or month or a wallet with different compartments, or set up separate savings accounts for (most of) these budget categories, like we have. You can learn how to stop overspending here.

Budget to Save for Large Purchases and Expenses as Soon as Possible

If you do not have any debt and you have already created your fully funded emergency fund, then start to save toward other financial priorities. In order to stay out of debt and build wealth, you’ve got to be able to cover your expenses without borrowing money. This means you need to have the money saved to cover these costs with cash. For financial well-being, all families should have the following savings accounts in place and be regularly funding them.

  • Create a vehicle maintenance and replacement fund as soon as possible. Shorter term, funding your vehicle savings account prevents regular car maintenance and unexpected repair costs from becoming financial emergencies. And longer term, this fund helps you save thousands of dollars in interest by paying a car payment to yourself instead of to a bank or other lender.
    Learn how to buy a car with cash and how to get out of an upside down car loan. Learn how to save money on car repairs here and find more than 30 tips for how to save money on your vehicle here.
  • Create a house maintenance or down payment fund. If you are a homeowner (or plan to be a homeowner in the future), then this fund is a must. Eventually virtually everything in your home will need to be repaired or replaced. And some of those items are really expensive. Yes, homeowners insurance will take care of many things, but whenever you can, you should be your own insurance plan—you should self-insure by having savings to cover those inevitable expenses that will crop up. This will help to keep your insurance premiums as low as possible—so raise those deductibles! And there are some things that homeowners insurance simply won’t pay for (generally), such as burst water pipes, collapsed sewer lines, and damage caue by earthquakes, mold, floods, and more.
    Learn how to save money on housing here.
  • Create other savings funds. Here are some examples of other savings funds that we have and that I recommend you set up as soon as possible:
    • Save for vacations, Christmas, gift giving, larger household items (such as appliances and furnishings), and more. Once you have the essential items covered in your budget (food, clothing, shelter, transportation, and utilities, for example), begin saving for things like vacations, Christmas, household furnishings and appliances, and so on. The easiest way that I’ve found to do this is by having separate savings accounts for each category. Shortly after I got my first job I signed up for an ING checking account. What I loved about ING is that I could add as many different savings accounts as I want, and see them all together (and the sum total of the money in our various accounts). ING has since been bought out by Capital One, and even though I don’t generally recommend really big banks, I have to say that I’ve never had a problem with my Capital One 360 account. In fact, the one time I did have a problem (which was completely my fault—user error), they fixed it in about a minute. Their customer service was great. I know it’s going to sound a little crazy, but we have over 10 savings accounts for different things—for me, I just like to know we won’t accidentally spend money we have designated for one thing on something else.
    • Create a dream fund. When you are out of debt and have begun to save for all of the above items, begin funding your dreams. Doing so is helpful because learning to be financially savvy isn’t just so you can pay all your bills and retire with dignity and give to the causes you support—though all of those things are extremely important. It’s also so that you can really enjoy the many things money can buy, guilt free and without debt. This might mean saving for a motorcycle, a nice car, an RV, a boat, an exotic vacation—whatever you want. If you’re young or have a lot of debt it may be years before you can fully fund or maybe even start these savings funds, but if you keep it in the back of your mind, it will help you stay on track financially and help you reach important financial goals along the way.

Budget Money to Save for Retirement and Save for Kids’ College

There’s a saying in the personal finance industry that the best time to start investing was yesterday—and the next best time is now. So as soon as you can, start investing for retirement in a 401(k) or Roth IRA (or both!), and start saving for your children’s college expenses in an educational savings account (ESA) or college 529.

Related: Learn how to become a millionaire by investing just $200 a month!

Even if you start with just $100 a month, the savings begins to grow quickly, and by seeing the progress you make, you’ll be motivated to save even more. We have investment accounts with both Schwab and Vanguard. Both are inexpensive, excellent options to help you start investing for retirement and saving for college today.

Find more information about how to succeed at budgeting here.

Common Questions about Budgeting

I also want to discuss in this beginner’s guide to budgeting a handful of commonly asked questions and answers about budgeting.

How Do I Budget for Irregular Expenses?

As mentioned above, it is also important to include irregular expenses in your budget. So, if you pay for your life insurance once a year, for example, then you should divide the annual premium by 12 and then save that amount each year in a specific savings account just for life insurance (so that you won’t inadvertently spend the money on something else). You can save for your auto insurance, automobile registration, and other such expenses in the same way.

How Do I Budget If I Have an Irregular Income?

If you have an irregular income, then base your budget on your earned income for the lowest month from the last 12 months. Then make sure that you also write a list of the priorities for the additional income that could come in. Put any extra money that does come in toward those priorities, in order from most important to least important (such as paying off your smallest debt) until the money runs out.

What If I Regularly Overspend the Budgeted Amount in a Particular Category or Categories?

If you are regularly spending more than the allocated amount in a budget category or categories, then this may mean that you are not being realistic about the budget category. For example, if you regularly budget $500 a month for groceries but you always spend closer to $600, then you may want to decrease another budget category or categories to have more money available for groceries. Or, alternatively, you can find ways to save money on groceries (find more that 70 tips here!).

That is true for whatever budget category you are overspending on. Chances are very good that you can lower the amount of money you spend if you really want to. You may need to find the motivation to save the money by finding meaningful long-term financial goals to work toward.

You can find more than 20 ideas for how to reduce your spending (for virtually every budget category) here. You can also find information on how to stop overspending here.

The issue could also be a lower than average income. If you make a low income, then one of your long-term financial goals needs to be to increase your income.

What If I Have Expenses That Do Not Seem to Fit in Any Budget Category?

It’s OK to have a small amount of money budgeted each month toward a “Miscellaneous” or similar category. We budget about $50 per month toward miscellaneous expenses (we don’t spend that much on miscellaneous items every month, but some months we spend more than that, so it balances out). This is basically like an “other household expenses” category for us. If you are budgeting much more than $100 a month, you probably need to take a look at what the money is going toward and make another budget category for that item or those items.

What Is the Best Budgeting Tool or Best BudgetingApp?

Because we started budgeting so long ago, we have always used a simple Excel spreadsheet that my husband created years and years ago that we just updated as we needed to with different categories (such as when the kiddos came along). However, after researching the different apps out there, if I were going to use an inexpensive but paid app, I would go with You Need a Budget (YNAB.com). They use a zero-based budget and even encourage you to get to the point where you are budgeting off of last month’s income, both of which I strongly encourage. They have really good reviews, and their app seems both robust and user friendly.

 

Conclusion

If you want to be able to have financial peace and stability and eventually reach financial freedom, you have to be able to have money left over after your spending to save and to invest. And in order to do that, you have to master a budget or spending plan. If you want to win financially, as with any area of your life, you have to make a plan and stick to it. You can find information on how to stick to your budget here.

What questions do you have about how to make a budget or how to start budgeting? Have you tried to budget before and not been able to stick with it? Leave a comment below and let me know how I can help!

 

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