10 Budgeting Tips to Increase Your Money Management Skills (2024)

The average American spends around $67 each week, or $3,500 per year, going out to eat. But most people don’t realize how much they spend dining out because they don’t track it in a budget.

A budget is a financial plan that allows you to track your income and expenses. Every personal finance strategy should include a strong budget.As financial expert Dave Ramsey puts it, “A budget is telling your money where to go instead of wondering where it went.” But in order to make this a reality, you need strong budgeting tips to build the best budget possible.

Budgeting doesn’t mean cutting out all the fun in your life. It simply means planning for your fun spending. You can cut your expenses significantly by being aware of your spending. Limiting yourself to spending only what’s in your budget can save you thousands of dollars each year.It won’t necessarily teach you how to become a millionaire, but it can help you on the way to more financial security.

By increasing awareness of your spending habits and following these budgeting ideas, you will set yourself up for financial stability and long-term financial success.

Ready to get started? Follow these ten budgeting tips.

1. Identify Your Purpose

Of all budgeting tips, the most important one is identifying your purpose for budgeting. Like most things that can improve your life, budgeting takes some effort. That’s why you have to know why you’re doing it. The very first step in budgeting is writing down your purpose. This reminds you to keep going whenever you lose motivation to stick with your budget.

Personal finance educator, Nate O’Brien, advises, “In many cases, people just say, ‘I want to save money. I want to increase my wealth.’ Well, who wouldn’t? But you want to dig a little deeper because this is what can actually help drive you towards reaching those goals.”

Maybe you want to get out of debt, gather funds for starting a business, or simply build more long-term financial stability in your life. Whatever your purpose is, use it to stay on track with your budgeting goals.

2. Write Down Income and Expenses

Before you can create a budget, you have to know what you’re working with. How much money is coming into your bank account each month, and how much is exiting it?

Start by writing down your income. This includes your:

• Salary
• Dividends
• Money from your side hustle
• Or any other source of income

Next, list your expenses. For example, these would be:

• Recurring necessary expenses, like bills and food
• Miscellaneous purchases such as concert tickets or new shoes

When budgeting, you might struggle to guess how much you spend on miscellaneous purchases since they change month to month. To find out the average, look at your bank statements over the past few months. This should provide insight into your spending habits and allow you to get a good estimate of your expenses.

3. Follow the 50/30/20 Rule

The 50/30/20 Rule is a budgeting strategy that involves dividing your spending to ensure your money is used effectively. This rule states you should spend 50% of your after-tax income on needs, 30% on wants, and 20% on savings or debt repayment.

Budget 50% for Needs

Anything you can’t get by without should go in the “needs” category. This includes groceries, housing, medical expenses, insurance, utilities, transportation to and from work, childcare, and anything else that is absolutely essential.

Needs should take up 50% of your budget or less. If your after-tax monthly income is $5,000, $2,500 should go toward the necessities. If the necessities take up more than 50% of your monthly income, there may be ways to reduce the cost of some of your most important expenses.

Budgeting Tips For Saving Money on Needs

• Use coupons at the grocery store
• Buy generic brands
• Downsize your housing
• Set the thermostat a few degrees higher in the summer
• Carpool to work
• Plan meals out for the week

Budget 30% for Wants

Your wants are things that are nice to have but would be a minor inconvenience to go without. Wants can include dining out, hobbies, new home decor, vacations, and any other miscellaneous unnecessary expenses. Limit spending in this category to 30% of your budget. This means if your income is $5,000 per month, spending on “wants” shouldn’t exceed $1,500.

It can get tricky to decide whether certain purchases should go in the needs or wants category. For example, maybe you need a car to get to work, so you put that expense in the “needs” category. However, you don’t need that car to be a BMW or Lexus. You simply need a functional vehicle. If you decide to purchase a luxury car, that purchase should go in the “wants” category. Ask yourself if your purchase is just for fun or the most practical option.

Budgeting Tips For Saving Money on Wants

• Cancel unused or rarely used subscriptions
• Buy secondhand clothes, home decor, and equipment
• Entertain guests at home rather than going out
• Choose pick-up rather than delivery when ordering take out
• Attend movies, concerts, and museums on discount days
• Use cash instead of a credit card

Budget 20% for Savings

Budgeting 20% of your income for savings is essential. This category is crucial for determining long-term financial success. If you make $5,000 per month, 20% is $1,000. This means you’ll contribute $1,000 each month to your savings account.

Experts recommend saving enough to cover 3-6 months’ worth of expenses. This is called your emergency fund, and it should be a priority. After you’ve built up an emergency fund, you may want to build up your savings in a retirement plan like a 401K or an IRA. Others choose to start educational funds for their children or save up for major upcoming expenses like the purchase of a new home.

Debt Repayment

If you have significant amounts of debt, repayment should come before savings. Include debt repayment as part of your “savings” category. Some people wonder if they need to pay off all their debts before they start saving at all. The answer depends on the type of debt you have.

If you have debt with an interest rate over 8%, it should be paid off as quickly as possible. It’s crucial to prioritize eliminating these debts before building your savings because the longer you wait to repay them, the less affordable they become.

If your debt has an interest rate of 6-8% or lower, it may be best to contribute your excess income to savings. Budget enough for your minimum monthly payments, but beyond that, it’s not necessary to contribute extra to debt repayment unless you want to.

Many people choose to keep any savings beyond their emergency fund in an investment or retirement account. These accounts often grow at a rate of 6-8% or higher, which means the money you’ll earn will outpace the money you’ll owe in interest on your debt.

4. Practice Zero-Based Budgeting

The 50/30/20 Rule is an excellent starting point, but it’s only the first step in creating a budget. After determining how much of your income should go toward needs, wants, and savings, divide up those categories even further. Each dollar in your bank account should already have an assigned role. This strategy is called zero-based budgeting.

As Dave Ramsey instructs, “If you fill out every item in your budget and come out $100 ahead—meaning you have nothing for that $100 to do—you haven’t finished your budget. You have to find a job for that $100. It’s your decision what it does, but if you don’t give it a name and purpose, you’ll end up blowing it and wondering where it went.”

If you have $5,000 of income each month, your budget may look like this:

Needs

• Housing – $1,300
• Utilities – $50
• Transportation – $100
• Food – $350
• Internet – $100
• Phone – $100
• Childcare – $500

Total: $2,500 (50% of budget)

Wants

• Dining Out – $300
• New Clothing – $200
• Entertainment – $200
• Travel – $400
• Miscellaneous – $100
• Charity – $300

Total: $1,500 (30% of budget)

Savings and Debt Repayment

• Saving for retirement – $450
• Emergency fund – $250
• Student Loans – $300

Total: $1,000 (20% of budget)

You can see in this example budget that 100% of income is budgeted. While your actual spending may be slightly different than you anticipated, stay as close as possible to your budget.

5. Plan for the Unexpected

Unexpected expenses are one of the most common reasons people go over budget. There’s no way to avoid these types of expenses. You never know when your car will start giving you trouble, or you’ll have to buy a last-minute plane ticket for a family emergency. The only way to stick to your budget despite these surprise expenses is to plan for them.

If you’ve been following the 50/30/20 Rule, hopefully, you have money for emergencies saved up. However, you don’t want to dip into that fund unless you absolutely have to. Save your money for a time when you really need it, and allocate a small portion of your spending money for miscellaneous costs that you didn’t see coming.

If you don’t end up with any unexpected costs during the month, you can use the extra money to boost your savings or treat yourself to something nice. But if you do have an unplanned expense, you’ll be happy you planned for it.

6. Develop Habits That Support Your Budget

James Clear, the author of the bestselling book, Atomic Habits, explains, “Habits are the compound interest of self-improvement. The same way that money multiplies through compound interest, the effects of your habits multiply as you repeat them.”

It may initially seem difficult to set and follow a budget, but habits that support the budget make it easier over time. Develop habits like cooking dinner at home, paying your bills on time, and scheduling time each week to look at your finances.

These small habits may not seem significant in the short term, but the benefits will compound with time. Eventually, it will become easy to follow your budget, and you’ll realize you’re much more financially stable than before.

While your parents and grandparents may have spent large amounts of energy on their budget, today, there are tools available that make financial planning quick and easy. The trick is finding the tools that work best for you.

Spreadsheets have been a favorite tool among budgeters for decades. Google Sheets or Excel are excellent tools that help you keep your budget clean and organized. Google Sheets is also free for anyone with a Google account.

If you prefer to track your budget on your smartphone, Mint is a free app that syncs to your bank accounts and credit cards to track your spending and income. You don’t have to save your receipts or remember all your purchases because Mint does it for you. Mint can also remind you when bills are due and help you track the performance of your investments.

Goodbudget is another budgeting option if Mint doesn’t feel right for you. Unlike Mint, Goodbudget users manually track their income and spending. Some users prefer this feature because it can increase awareness of how they spend their money.

8. Evaluate and Adjust Regularly

All the time and energy you spent making and following your budget will go to waste if you don’t regularly evaluate the budget’s effectiveness and make adjustments. Schedule time monthly or weekly to reflect on the success of your budget and to make necessary improvements.

Maybe the money you budgeted for transportation was unrealistically low, or you budgeted more than you needed for entertainment. If you went significantly over or under budget in any category, your budget might need to be adjusted.

Life is rarely static, which is why your budget should change over time. Housing costs will rise, how you spend your free time will shift, and the amount of money you earn will change. Each time there’s a change in your life, it should be reflected in your budget. When your salary increases, don’t spend that extra income recklessly. Determine where it could be best used in the budget, and continue following that budget.

9. Keep It Attainable

One of the most important pieces of budgeting advice is that you have to ensure your budgeting goals are attainable. Your budget is only useful if you stick to it. It might sound nice to rapidly build your savings by adding thousands of dollars each month, but if you don’t budget enough for all your other needs, you’ll likely end up giving up on budgeting sooner rather than later.

Set realistic goals in your budget to ensure you’ll be able to follow them month after month and year after year. Budgeting isn’t a short-term activity; it’s a lifestyle change. Make sure you’re setting up a lifestyle for yourself that you actually want to live.

10. Run Your Household Like a Business

There’s no way to run a successful business without knowing exactly how much you’re earning and how much you’re spending. Think of your own household as a business. You’re trying to build wealth in the same way a company is trying to turn a profit.

If you’re still early in your budgeting journey, you might not be building very much wealth yet, but that’s okay. Businesses take time to become profitable, but smart business owners know success requires patience and consistently making smart financial decisions. Harness your entrepreneurial spirit, and you’re sure to achieve financial success before long.

Follow These Budgeting Tips to Prepare for a Better Future Today

Money management allows you to get closer to your financial goals. Remember your reasons for starting a budget and stay true to your vision. While following smart budgeting tips can be uncomfortable, you’ll thank yourself down the road when you’ve set yourself up for financial success.

Even better, you’ll see the reward of your hard work, and you’ll understand the impact of setting and striving to reach financial goals. Learn more about goal-setting and creating a vision for your life so you can continue applying smart financial principles.