Budgets are the cornerstone to personal finance. A good budget keeps your spending within your income and leaves room for saving. A good budget also lets you save enough for your short-term and long-term goals. However, learning to live within a budget can be hard. A budget limits your spending. And spending can be fun!
When you first start budgeting, you may experience a ‘lifestyle squeeze.’ Putting money towards an emergency fund or retirement savings means less spending money. Just prioritizing ‘needs’ rather than ‘wants’ puts a squeeze on your ‘fun’ spending. However, in the long run, making these sacrifices will be well worth living without the constant worry of running out of money. Believe it or not, you can even learn to enjoy life on a budget!
Learning to Live Frugally
Learning to live frugally goes a long way towards fitting your spending within your budget. Frugality has an undeserved bad reputation because it is misunderstood. Living frugally does not necessarily mean you give up all ‘wants’ and live a bare-bones existence. Rather, the frugality I recommend is three-fold: learning how to maximize your spending, eliminating worthless spending, and only lastly making sacrifices.
Maximizing your Budgeted Spending
Maximizing your spending is simply learning to get the ‘biggest bang for your buck’. This is examining your expenses and looking for ways you can get similar results with less spending. For example, usually periodically shopping around for insurance quotes will yield lower premiums. Often you can bundle phone and internet services for a lower total bill. Stock up on regular purchases when they are on sale (although don’t let the sale entice you into buying more than you need). Perhaps you’d be willing to exchange your daily Starbucks coffee for a cup made at home.
There are infinite ‘hacks’ to save money here and there. You may decide some tips are perfect for you, and others don’t quite cut it. That’s fine! Find things that work for you! For a list to get you started, check out this roundup of tips.
Eliminating Worthless Spending
If you examine your spending habits close enough (a good reason to track and record your spending), you’ll probably find areas where the joy or convenience you receive from a transaction is not worth the amount of money you’ve spent. Perhaps you’ve never given thought to how much you’re paying for something. Or maybe you just continue spending money on something out of habit. Again, this is different for everybody.
Deciding what is worthless spending depends largely on your own assessment of your satisfaction and on how hard you work for each dollar. A $10 lunch represents a lot less work for someone making $60/hour than for someone making $14/hour. On the other hand, perhaps the individual making $60/hour realizes she actually enjoys eating a sandwich in the park more than a meal in a busy restaurant, while the $14/hour individual really values the $10 dollar lunch because it is a time to connect with friends he doesn’t otherwise see much. Every transaction involves trade-offs, and you have to decide the worth of the trade-offs.
Tackling unnecessary spending applies to habitual or recurring spending and to everyday decisions. When you’re checking out at the grocery store and about to reach for one of those ‘impulse’ items, check yourself and decide if the purchase is really worth the amount you’re going to spend on it. When you’re about to grab a movie from the $5 bin at Walmart, stop and consider whether you’re really going to watch it more than once. Perhaps a rental is a better bang for your buck.
If you’re lucky, after going through the first two steps of maximizing your spending and eliminating worthless spending, you’ll find you have no problem staying within your budget. Often, however, you’ll find you still need to trim your spending. This is where the hard work of eliminating things that you actually do consider worth the cost and things that truly do benefit you. Doing this really requires you to keep the long view and remember the financial stability budgeting will bring to your life. This is where you need to remember the alternative to living within a budget- stress, missed bills, living paycheck to paycheck, etc. Maybe that daily coffee you decided was worth it in the first step does indeed need to be cut. Or maybe you can indeed live without cable. And maybe driving a brand new sports car isn’t in fact worth it.
The alternative to sacrificing your spending is increasing your income, which often means sacrificing more of your time. Pick up a part-time job somewhere or paid-gigs here and there. Another hard choice? Yup. But maybe not as hard as eliminating spending.
Making Your Budget Work For You
Everybody has different priorities. Figure out what yours are. Budget, save and spend accordingly. Soon you’ll develop a lifestyle that works for you and your budget. The important thing is that your budget helps you escape the paycheck-to-paycheck trap and allows you to save towards your goals.
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- While I do strive to only write accurate information and dispense valuable advice, I am not a licensed financial adviser. All information is based solely on my personal experience and personal research and should be treated as such. Find out more.