Preparing for the future is about more than simply having goals: It means setting up a budget as a roadmap to get you from where you are to where you want to go.
Though it may sound like a chore, a good budget can be your best financial friend. It can help you pay down debt and take control of your spending to prepare for future expenses.
Contrary to popular assumption, a proper budget is not designed to keep you from spending money on the things that you want. Rather, it should help you to spend more on the things that truly matter most.
Your budget can be as detailed or as general as you want. It may have expense categories that take all monthly spending factors into account, or just basic budgeting frameworks that you can apply right away to help you fulfill your financial goals. Continue reading to find a budgeting solution that works for you.
Starting Fast and Simple With the Balanced Money Formula
You probably would not run a business without first having a plan. Likewise, it also pays to have a budget ready when it comes to your personal spending habits.
While each saving strategy is unique, it is wise to begin preparing a budget plan by categorizing your income into three basic categories: needs, wants and savings. The Balanced Money Formula, developed by Elizabeth Warren and Amelia Tyagi in their book All Your Worth, proposes doing just that. The authors say to avoid spending over 50 percent of your monthly income on needs, which include house payments, transportation costs, groceries and insurance.
The “wants” category includes costs such as your television bill, dining out, entertainment and luxury expenses. The Balanced Money Formula recommends keeping these “wants” to 30 percent or less of your monthly spending.
The 20 percent of income that remains will be directed toward your savings. You can use these savings for paying off any existing debt, saving for a down payment on a new home or whatever goals you may have in your financial future.
This simple budget template lets you balance what you need to enjoy today, while still letting you prepare and be financially responsible for whatever tomorrow brings. Adhering to this basic framework is one of the easiest ways to make a budget.
Adding a Bit More Detail With the 60% Solution
It is important to realize that many budgets fail because they are overly complex and therefore, difficult to maintain. The best ways to budget and save money involve strategies you can adhere to over time. This often requires limiting the number of categories to keep track of until you gain enough experience to successfully live within your budget.
When you are ready for a bit more detail in your approach, you may consider using “the 60% Solution,” developed by author Richard Jenkins. This budgeting model helps you manage “committed expenses.” Similar to “needs” in the previous model, these are expenses that you are already “committed” to.
The 60% solution recommends keeping your committed expenses under 60 percent of your monthly income, while allocating the rest to categories that include both long-term and short-term savings goals, as well as “fun money” to enjoy when needed. The 60% Solution can be described as follows:
- 60 percent of monthly income goes to committed expenses that include taxes, basic living expenses, rent or mortgage payments and regular bills (like your phone bill).
- 10 percent is contributed to short-term savings, such as home repairs, vacations, special events, and similar savings goals.
- 10 percent should be dedicated to long-term expenses that include home renovations, emergency savings, paying off debt or college tuition.
- 10 percent can be saved toward a retirement savings strategy that includes a Roth IRA, 401(k) or savings account.
- 10 percent goes to fun money that includes hobbies, dining out, movies or entertainment.
Over time, the goal is to work toward having your “committed expenses” amount make up less and less of your monthly income by cutting back where necessary, and putting more toward savings.
By practicing simple budgeting in the beginning stages with a more general approach, you will be able to gain a feel for where you’re at and build a detailed strategy that can accommodate your individual needs and goals in a more targeted way.
Tools That Can Help You Go Further
Many online tools, apps or even desktop software are designed to help you stick to a simple budget or get a more detailed look at your finances when necessary. These tools can enable you to adapt to your financial situation and focus more intently on your goals.
Creating a budget can be confusing at first, but with help from the right tools, you can automate the budgeting process and keep track of your money with more precision and confidence. Using a simple budget planner such as Intuit’s Quicken gives you an overview that lets you track your saving and spending, or create a brand-new budget as you see fit.
While a number of desktop-based tools still exist, online budgeting and money management solutions are the future for people looking to keep track of their monthly finances. Many of these programs are free to use and let you track a simple budget while also providing helpful blogs and other useful features.
- Mint is one of the most well-known personal finance websites out there, with over 15 million registered users. It features budgeting tools as well as automatic synchronization with your bank accounts. It can also assist you by providing investing insights and strategies to take your saving to the next level.
- BudgetPulse is a free service that is compatible with Intuit’s Quicken software, so you can upload files from that program, as well as spreadsheets from Google Sheets or Microsoft Excel to share information across platforms.
- PearBudget is an easy-to-use service for simple budgeting features and expense tracking that costs just around $5 per month, with the added bonus of a free trial for your first 30 days.
- MoneyStrands is a tool that makes it easy to set goals and create spending alerts. These spending alerts will let you know when you have spent above a certain amount, such as on coffee, movie or other expenses.
Many of these services also offer apps that you can install on you Apple iPhone or Android smartphone, making it even easier to access your budget and take control of your monthly spending.
Your budget should feel personal and designed around the way you really live, as well as your most genuine goals and financial ambitions. Budgets can fail for many reasons, but usually, it is because they are overly complex, unrealistic or too distant from where you currently are in life. Remember, your ideal budget should be simple, attainable and consistent with your future saving strategies and goals.
After taking a look at the steps involved in crafting a straightforward and easy-to-follow budget, you can take the next step forward by assessing what available web-based tools and software are best for you. By doing the required work today to make your budget and financial goals as clear as possible, you will position yourself to make lasting progress in a shorter time period than you might expect. Keep in mind that your primary goal is not simply to keep a budget: It is actually to use your budget as a tool and guide to help you live a more wealthy and financially responsible life.