Many people believe that budgeting takes a lot of time and mathematical know-how, but this isn’t true. In reality, budgeting is about paying more attention to the little things and embracing moderation. If you aim to create better financial spending habits for yourself, don’t skip out on this opportunity to learn and grow as a fiscally-responsible person. Try these budget tips today.
How Do You Spend Your Money
There are four walls of spending:
Food: While there’s nothing wrong with enjoying a good meal, overspending on food can be a problem if you’re already having a tough time sticking to your budget or you’re going into credit card debt from partaking in restaurant meals. The average American household spends almost $300 monthly on takeout, fast food, vending machines, delivery, and food trucks. While this exact number varies based on location and other factors, it’s pretty common for Americans to spend at least 10% of their income on food alone.
Shelter: Most experts, including the United States federal government, recommend that you shouldn’t spend more than 30% of your gross monthly income on rent. Take this into consideration when it’s time to extend your lease.
Healthcare: Almost half of all Americans live with some sort of chronic condition, many of which require monthly spending for medication, supplies, and copayments for appointments with medical professionals. Take note that all nonprofit hospitals in the United States are required to offer financial assistance programs, so make sure to ask about them if you’re in a position where covering expenses is straining your finances.
Basics: Utilities (like water, electricity, wifi, gas), childcare, and transportation are basic necessities that you must factor into monthly spending.
I challenge you to take action and take this first step into budgeting. Look at your bank statements, receipts, and credit card statements from the last three months to identify where your money is going and how much you allot each of these prioritized categories. Once you take a look, you may be surprised about your spending habits.
Separate Essentials From Extras
For many people, spending money is something that just “happens” and feels as though it’s out of our control. All those miscellaneous purchases could be playing a big role in pushing you over the edge with your spending.
These miscellaneous costs may include:
- Alcoholic beverages
- Snacks, takeout, restaurant meals
- Clothes, shoes, and accessories
- Unused or underused subscriptions to streaming platforms, music libraries, monthly memberships, etc
- Gym membership
- Houseware and home goods
- Gifts for others
- Unessential technology or appliances
- Toys for your children or pets
- Cosmetic appointments or procedures (salon visits, cosmetic fillers, other cosmetic treatments)
Look over your last three months of spending and calculate how much you’ve spent on miscellaneous items and purchases that you cannot justify categorizing as “essential.”
Then ask yourself what miscellaneous spending you could be cutting back on.
Use Cash, Not Cards
While debit and credit cards can be extremely useful tools to utilize in daily life, they also make it easier to spend money that you shouldn’t be spending. One way to overcome this bad habit is to adopt something called the envelope method.
The envelope method is a money tracking system more than 100 years old and works by dividing discretionary spending into envelopes by category. One envelope might be used for eating out, another for groceries, another for clothing, and one for petty cash and miscellaneous spending.
This system isn’t meant to be used for paying bills but rather for purchases that you would otherwise use your debit card for. This method ensures that you stay on track with your budget and also helps visually represent how much cash you have on hand to spend. There’s just one rule, no borrowing from other envelopes!
This is a hard one for me. If you feel the same way, just remember this is not for bills. This is for the money after the bills are paid.
I do the envelope method best when I travel. Before I go on vacation, I give myself a specific amount that I can spend on usually food and fun. That way I don't go overboard which can be really easy during traveling.
To start out on something small, utilize the envelope method on your next shopping trip to the grocery store, big-box store, or a day out with friends.