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I don’t know about you, but I could have benefited from a few less trigonometry classes in high school and a few more lessons on how to keep money in my savings account. Gaining financial literacy is a life skill that is often acquired through hard-won experience—we live and learn how to turn an income into financial stability, and grow financial stability into wealth.
Regardless of whether you’re just starting off on this journey, or are an investment pro, one of the most fundamental components of any financial plan is basic budgeting. In this blog post, we’ll give you tips for planning, implementing, and maintaining a healthy budget so you can stay on track to achieve your financial goals.
Tip #1: Identify your financial plan—and write it down.
The difference between a dream and a goal is a to-do list. It’s one thing to daydream about someday having the money to put a down payment on a house, but if you want to achieve your financial goals, you’re going to need a plan. Having a specific goal to work toward can be a huge help in maintaining your momentum.
Personal budgeting statistics suggest that only 25% of American citizens have or use some sort of written financial plan, while only one in three families use a household budgeting plan.
You don’t need to make a plan for every single purchase you intend to make over the next year, but it’s a good idea to map out a short-, medium-, and long-term road map for what you’d like to accomplish over the next several years.
Tip #2: Build an emergency fund.
Recent research indicates that 44% of Americans don’t have enough cash to cover a $400 emergency, and 58% of US citizens have less than $1,000 in the bank.
Most financial experts recommend that you keep three to six months’ worth of living expenses in an emergency fund. The recommended amount will vary depending on whether you're single or married, and what your financial situation looks like.
If, for example, you’re married, your spouse works, and you have little debt, an emergency fund consisting of three months of living expenses may be sufficient. Similarly, if you’re single with little debt and relatively large amount of liquid funds to draw on, you may be able to get away with a smaller emergency fund.
Related Reading: When to Dip Into Your Emergency Savings Fund
Tip #3: Try using cash instead of paying with a card.
Swiping a debit or credit card to pay for purchases is fast and easy—so much so that it may cause you to lose track of how much money you’re actually spending! A couple of dollars here and there adds up over the course of a month. If you aren’t paying close attention, some of those purchases may end up breaking your budget.
One tactic to help control your daily spending is to use cash instead of a card for everyday purchases. That way, you can keep an exact count of how much money you have left to spend. Using cash also provides a helpful tangible experience to attach to your spending.
Tip #4: Budget with your future goals in mind.
Yes, you may have a ton of expenses and bills, and you may be thinking you can't possibly start saving for retirement, too. But believe me, your future self will thank you for saving even a few dollars now! If you have a job, setting aside as little as 5% of your pay each month now can really add up over the years, and if you make your retirement savings a habit, you are unlikely to miss those dollars now. Still not convinced? Consider this:
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If you put $100 per month into a retirement account starting at age 20 and get a four percent return on your investment, by the time you’re ready to retire at 67, you’d have $160,000 saved up. If you saved $500 per month, you’d have a whopping $800,000!
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If your employer offers matching funds, you're essentially giving up free money if you don't save at least enough of your own paycheck to secure the employer match.
Tip #5: Track your spending.
Tracking where your money goes every month is important—it gives you a comprehensive view of your expenses, and helps you identify spending patterns you may need to adjust.
Apps such as Mint, SWBC’s Vault platform, and most online banking services are also great tools to help you identify trends in spending habits. Identifying and cleaning out the unnecessary expenses will help you stay on track going forward.
Establishing and maintaining a sensible financial plan can sometimes seem like a daunting task. However, it's well worth your time and effort to cultivate healthy budgeting habits that will serve you well throughout your life.
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