While budgeting skills will be key to getting through financial losses caused by the Coronavirus pandemic, thirty-three percent of Americans admit that they have no budget whatsoever. Of those under the age of 22, only 50% use a budget at all.
Additionally, if we were to look at that figure more critically, we could ask what people even count as a budget.
Is it loosely keeping track of money? Is it having a set amount of money to spend each month or week and trying not to go over? Instead of going into definitions, let’s talk actionable budgeting skills you can implement today.
Budgeting skills are essential for living life on your own, and pretty much adulting 101.
Top Budgeting Skills Everyone Should Learn
Read on for the top seven budgeting skills I recommend you implement. If you’re feeling the squeeze of the Coronavirus recession, they just might get you through.
1. Create a Budget
This sounds like a no-brainer, but it may be worth a reminder if you’re one of the 50% of people in their early 20s flying without one.
When you create a budget, it is important to be realistic. Give yourself some indulgences but try to avoid extravagance, unless you’re lucky enough to afford it.
With your monthly income in mind, write down things you need to purchase each month and how much it costs. Include things like food, entertainment, and clothes so that you don’t find yourself under budgeting and thinking you have loads of money left over.
A good way to start is to figure out your non-variable bills first, like rent, insurance, cable, car payment, streaming services, and utilities. Then, move onto bills that can vary, but often stay within a certain range, like electricity, gas for your car, water and groceries. Finally, move on to setting a goal for spending on variable items like entertainment, shopping, and travel.
If you’re working toward a financial goal, budget that in too.
Don’t just think, “I’ll put whatever I have leftover toward my savings,” because then you likely won’t save as much as you should, and you won’t hit your goals in a timely manner.
2. Know the Major Budgeting Categories
After committing to creating a budget, the question becomes, how should you break it up? Here’s where knowing the major budgeting categories comes in handy.
Put simply, every budget should include:
– Fixed costs (rent, insurance, car, phone bill, etc.)
– Variable costs (groceries, utilities, etc.)
– Pleasure/Entertainment (eating out, shopping, travel, etc.)
– Savings (emergency budget, saving for major purchases, savings to invest)
– Buffer (due to variable expenses from month-to-month, it’s best to add a buffer)
Because some of your life expenses are variable, you are never going to get your budget “just right.” This is why I’d also suggest that you include a buffer of around 5%. It’s there to cover small surprises and things you forgot to include.
3. If Your Budget Is Really Strict, Keep a Written Log
I get it. At some point in everyone’s life, you pay the rent or the grocery bill and have just a few bucks to spare for the rest of the week. While it’s not ideal to live that way, for some people, it’s reality—particularly for many young people and those in college.
If this is you, keep a written budget (or use a Word Document or a phone note), of everything you purchase and deposit. Or, if you’re too tech-savvy for something so unsophisticated, there are apps that can help you as well.
While many people rely on online banking, it can get you into trouble if you’re not super strict. That’s because not all online banking transactions go through immediately. Often there is a pause, especially if you’re paying the tab through a third-party like PayPal.
Relying on your bank balance alone can lead to serious trouble. So make sure you’re keeping an eye on everything.
4. Withdraw Your Savings When Income Hits
This tip is the trick to hitting any financial goal that you set for yourself!
If you have a goal to save $100 per month, then set up an automatic transfer to withdraw that amount from your checking account 1-2 days after your paycheck hits.
The reason to wait 24-48 hours is to ensure that your money is available for withdrawal. You definitely don’t want to incur penalties or bank fees, which can be substantial.
If you’re receiving income from another income source than a paycheck – for example, unemployment, alimony, rental income, etc. – do the same thing. Set up an automatic withdrawal to pull from your checking account shortly after the money is scheduled to arrive.
Move this money into a “sacred” account that you won’t touch, such as a savings account.
Savings accounts are quick and easy to set up, and many banks will allow you to do so online. The key to this method is that by pulling money out when it hits, it’s not available in your account to spend.
Known as “paying yourself first,” the government does this to you when it withdraws your taxes before it lets you have your paycheck. If it works for the IRS, it will work for you too!
5. Evaluate Your Budget and React
Everything in life changes, including your budget.
If you’re brand new to budgeting, you may wish to go over your budget again after a month or two to see what’s working and what isn’t. Adjust everything accordingly. Are you spending too much on eating out? Are you spending too much on streaming services you’re not using?
Re-evaluating can help make your budget serve you better, and can make it easier to save money by laying out what you’re spending on what.
Often, seeing it laid out makes it easier to see where you could be saving money.
For example, if you’re over-spending on eating out, you can easily react and implement a fix, such as:
- Eating out less frequently
- Spending less when you do eat out by choosing lower price point restaurants
- Lowering your bill by avoiding expensive appetizers, drinks and desserts
With these approaches, you still get to enjoy yourself, but you also curb your overspending appropriately.
6. Budget for Emergencies
I understand this may not be realistic for everyone, but I do recommend that each month you set aside some money for an emergency. This could be as little as $50 or $100. The goal is simply to have a little cushion should you need it.
As humans, we often don’t think about the fact that things often happen out of the blue, which is why we don’t budget for them.
But, if you’re on a tight budget, having a few dollars to spare could mean the difference between refilling gas in your car after taking a friend somewhere last minute or between seeing the doctor or not after sustaining an injury.
It could also be the difference between being able buy groceries versus living off remains in your cupboard if you’ve lost your job due to the Coronavirus.
If there’s one motto you should adopt in life, it is to expect the unexpected.
With time, you should aim to get this “rainy day” fund up to $2,500 to $5,000. Even if you have to chip away little by little toward this goal, make it a priority and stick to your plan.
7. Bang Away at Your Biggest Expenses
If you get honest with yourself, then you know that your biggest expenses are where you have the most room for impact.
For example, for many people, paying your rent/mortgage, car payment, insurance, and utilities will likely make up 50% or more of your total budget each month.
Because these are large dollar figure expenses, reducing them by only a little bit can pack a big punch. The strategy here is to tackle your biggest expenses first and then get creative about how your can shrink them.
If your rent is your single biggest expense, then see if you could move a roommate in to reduce your rent by half. Or, ask if your landlord will reduce your rent by $50/month if you commit to a longer term lease. (Landlord’s like long leases because it prevents tenant turn-over, so they are often willing to make concessions in exchange.)
If your car is a big expense, see if you can trade it in for a less expensive one. If you have a hefty car loan, see if you can refinance it at better terms. If you’re suddenly working from home full-time due to the Coronavirus, see if you can sell your vehicle and car-share with your partner until times get better.
If your phone bill is sky-high, see if you can join a family plan with your parents or siblings. Or, call your provider and ask to reduce your data package.
If your utility bill is enormous, try turning off your thermostat during the spring months we’re in now or the fall months ahead. If it’s hot during the day, then cut if off at night when the temp drops and open a window instead.
Budgeting Skills Get Easier as You Go
“Adulting” may seem like hard work, and it kind of is. But you’ll find that with anything, your budgeting skills will get better the more you work on them.
Don’t stress if you mess up a few times in the beginning. Like everything, you have to practice before you get really good. That’s when the rewards will really kick in.
For more tips and techniques on budgeting, explore the finance section of the blog.