Make a budget
Once you have separate accounts set up, the next step is to make a budget that you can stick to. Rachel Cruze, personal finance expert and daughter of Dave Ramsey, said it best, “A monthly budget gives you permission to spend money where you want.” By taking the time and effort to budget out your expenses, you make it easier for you to justify spending money on certain things.
The bottom line is that you shouldn’t spend more than you make each month. There is no such thing as a one size fits all budget. You have to figure out what works best for you and your financial goals. There are a lot of different techniques for budgeting that fit different lifestyles.
Some experts recommend the 50/30/20 budget, which is a method that separates your take-home pay into three different buckets: needs, wants and savings. “Needs” are considered expenses like rent, transportation, water, nutrition and other bills – this should take up 50 percent of your income. “Wants” are expenses like going out with friends, shopping and entertainment – this should take up 30 percent of your budget. The other 20 percent should be put towards savings and other financial goals such as getting out of debt or investing.
A simpler version of the 50/30/20 method is the 80/20 budget, which just has you take 20% of your income to put towards savings and freely spend the rest. Depending on how aggressive you want to be with your savings, you can change up the percentage that you want to set aside.
This probably isn’t the best technique for a beginner, but once you have a handle on your spending habits, this is an option you can move towards to simplify the budgeting process.
If fractions aren’t really your thing, there is also a technique called the envelope method. Label envelopes with certain expense categories. You can choose a simple categorization method – wants, need, savings – or something more intricate – rent, utilities, groceries, eating out, entertainment, savings. The idea is to physically set aside the money you will spend in each category.
There is an app for just about everything, and budgeting is no exception. If you have a smartphone or tablet, you can connect your bank accounts and credit cards to one of the many apps that will help budgeting. Mint is a crowd favorite, allowing users to track bills, create budgets, and manage pretty much all aspects of your personal finances. You Need A Budget (otherwise known as YNAB) is another popular app that you can use to help create budgets and stay accountable.