5 Ways to Budget Better
Reaching personal financial goals is easier when you have a well-designed budget to work from. While most people have some general sense of their overall spending, income, and debt, laying the figures out in black and white each month with categories for money in and money out will provide a much clearer—and more accurate—picture of your financial health and habits, as well as guide you toward ways to spend and save better this year.
Make personal financial goals attainable by reviewing and revising your household budget this year
If your spending was up or your savings was down in 2023, now is a good time to audit your personal financial management system and create a budget that you can actually stick to this year. Some ideas to get started on improving the household budget:
1. Separate business from personal spending
Millions of people have found that working for themselves—even part-time or as a side gig—can provide a good primary or secondary revenue stream. While all the flexible and remote working options that have taken over in the last few years have made entrepreneurship a popular choice, they have also made financial management a bit trickier for those who are used to blending the personal income with business revenue. When the blending of personal and professional money starts to complicate the expense tracking, account reconciling, and budgeting, it is advisable to open a separate account for business income and expenses so that it does not co-mingle with personal funds. When you design your personal or household budget, plan to draw only from the personal bank account so that you don’t confuse and overlap expenses and go over budget without realizing.
2. Revise the expected costs in all categories
Have you noticed? The cost of just about everything has gone up. If you’re working with a budget that is a year or two old (or older), chances are your anticipated costs per category are outdated and probably way off. Underestimating the costs for typical monthly expenses—even just a little—will have a cumulative effect each month and eventually leave you in debt or overdrawn. This year marks a good time to contrast the actual costs of your monthly expenses with your estimates and revise the amounts so that they match up with reality.
3. Cut out one overpriced expenditure
If re-estimating your necessary spending seems to leave you with too little money after your bills are paid, consider ditching one luxury item that you can live without. Even a temporary reprieve from a big-spend item or activity can help put you a bit ahead financially and enable you to stick to your budgeted spending in other categories.
4. Build an emergency fund
The best way to shield your finances against a large, unexpected bill—for a major home repair, medical treatment, or other unforeseen crisis—is to have a cushion that is reserved only for emergencies. Building the emergency fund directly into the budget right from the beginning will keep you reminded and disciplined about paying the small, designated amount into it each month.
5. Record everything
Documentation is key to efficient financial management. If you have a home-based or side business, especially, it is important to keep records of spending, charging, borrowing, and invoicing so that you know exactly where your money is going each month, as well as the deductions for which you may be eligible. Even for individuals without side income, records and receipts help keep your finances organized and guide you toward budget categories and amounts that are accurate and easier to adhere to.
A personal budget needs to be flexible to adjust to life events and evolving lifestyle needs, but it also needs to be adhered to if it is going to help individuals realize their personal financial goals. Online financial management tools are widely available to help individuals, households, solopreneurs, and small business owners generate a working budget, track expenses, record money deposited and withdrawn, print and mail checks, and issue timely payments. Many cloud-based tools not only record and store transactions, but they make access to financial data instantaneous and up-to-date from anywhere their clients are living, working, or traveling. Financial tools that are affordable and help people analyze their spending habits can make adherence to a budget a much more attainable goal.