Budgeting may sound about as fun as a root canal, but it’s crucial for managing your money. Robin Snell, a certified financial planner and founder of Nested Financial and Tax Planning, says people often think of budgets as the “dreaded B-word.
Money impacts every aspect of our lives, from where we live to what we eat. It’s an emotional topic that many people avoid thinking about.
But dodging a budget usually causes more stress than making one. Snell says budgets ensure you’re “not overspending and your money is going where you need it to go.” She adds, “When you start a budget, you can assign every dollar a job, and by doing that, you can start to pinpoint where money is going for your own happiness.”
To get started, experts recommend tracking all your income and expenses for 30 to 90 days. Katie Gatti Tassin, founder of the personal finance podcast and education company Money With Katie, says budgets “can be helpful as a diagnostic tool.” Reviewing your spending helps you see if it aligns with your financial goals.
You can track your budget with an app or spreadsheet or by charging everything to one card and reviewing the statements. Once you know where your money is going, you can determine how to redirect it. Tassin says people who struggle with money usually fall into one of three groups.
The first is those who don’t earn enough to save, even with reasonable spending. For them, small budget tweaks won’t help much. “There’s no amount of budgeting that’s going to make an insufficient income feel sufficient,” Tassin says.
She advises seeking higher-paying work. The second group has a decent income but spends too much on big, fixed costs like rent or car payments. Ideally, housing should be under 30% of net revenue, which can be challenging in pricey cities.
“This is why roommates are really valuable,” Tassin notes. Downsizing or getting a cheaper car could help. The last group is people whose income and major expenses are reasonable but who spend a lot without realizing it.
“If you find yourself in this position, congratulations!” Tassin says.
Budgeting tips from financial experts
“This is the easiest thing to adjust because it’s entirely behavioral.” Many overspend on dining out, subscriptions, and impulse buys.
If you have high-interest debt, such as credit cards or loans with interest rates over 7%, paying it off should be your top priority. This will allow you to “get more intentional with other funds as opposed to paying the credit card company,” Snell says. Experts also recommend setting specific financial goals.
Winnie Sun, managing partner at Sun Group Wealth Partners, suggests considering short-, medium-, and long-term goals. A short-term goal could be a vacation fund, while a medium-term goal might be saving for a car or house.
Long-term is often retirement. Key milestones include an emergency fund with 3-6 months of living expenses and saving 10-20% of net income. To hit your targets, make a realistic plan.
Strict spending limits tend to backfire. “Typically, this type of spending is driven by something that is not rational,” Tassin says. Allow some flexibility to adapt to changing needs.
Automate as much as possible by setting up accounts for specific goals and scheduling automatic transfers. The biggest budgeting mistake is often not sticking to the plan, and perfectionism is a common pitfall.
“If we say,’ I’m going to cut my restaurant spending from $1,000 a month to $100 a month, ‘that’s not going to work,’ Tassin says. Start with small, achievable changes and build from there. Creating a budget can be intimidating, but these steps will help you take charge of your finances and work toward your dreams.
With some planning and commitment, you can stop stressing and start thriving.
