The word budget doesn’t spark joy in everyone. Like diets and to-do lists, you might think budgeting is all about deprivation and discipline. But the process doesn’t have to be painful. And even once you do pick a strategy, it’s not set in stone. Flexibility (and some best practices) can keep you motivated and ensure your budget stays on track.
Set clear goals
When it comes to budgeting, one size does not fit all. Your unique goals and priorities as well as your personality and motivation style all influence the budgeting approach that will work best for you.
Think of a budget as a tool you use to accomplish your financial goals. Maybe you want to get out of debt, save for a down payment on a home or go on a dream vacation. When you budget with these objectives in mind, it makes any spending sacrifices required a little easier to bear. Without your “why,” it’s hard to muster up the willpower to put your budget into motion.
Track your progress
Budgeting is important, but creating one is just the beginning. Putting your budget into practice is where the real work comes in, and to help evaluate its efficacy, you should regularly check your progress against your goals. Use smart tools like Buckets and Boosters (features of Ally Bank Online Savings Accounts) and automate wherever feasible to streamline the process and minimize those everyday hurdles that can get in the way of budgeting success.
Find your personal budget style
Have you ever been shopping and found an outfit that looked perfect on your friend but it wasn’t quite right for you? Style is personal and budgeting is no different.
The budget method you use should be reflective of you as a person and play to your distinct strengths and preferences. Not sure what works for you? These common budgeting methods can be a good place to start.
If you work best with clear, uncomplicated rules, the 50/30/20 budget is easy to set up, follow and maintain. It’s simple: 50% of your income gets allocated toward needs, 30% toward wants and 20% toward savings and debt repayment. It’s up to you to nail down how to categorize, but generally needs include expenses like your mortgage or rent, groceries and car payments, while wants may include things like vacations and dining out. Student loan payments, retirement contributions and credit card payments are usually best categorized in the savings and debt category.
The beauty of this budget lies in its simplicity. If you find certain expenses are throwing your proportions out of whack, it can help you recalibrate. Maybe your rent is too high and it’s time to consider more affordable accommodations. Or you may find you’re spending too much on happy hour with friends and could redirect some of that money to building up your emergency fund. The 50/30/20 approach is designed to give you room to enjoy spending on the things you want, while ensuring your expenses are covered and saving remains a priority.
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The zero-sum budget (also called zero-based) gives a purpose to each and every dollar. You use your last month’s income to budget for the month ahead, with the goal of reaching equilibrium (aka your income = your expenses).
So, if you make $2,500 in January, for example, you should aim to budget that amount for February. The benefit of having every dollar accounted for is that every dollar has a purpose. This avoids “leftover” funds being rolled over into the next month to be spent indiscriminately. For those that like everything to have a place (and a purpose), this approach can be cathartic. One caveat to zero-sum budgeting is that it requires monthly recalibration. If your income or expenses vary month to month (we’re looking at you, holiday season), you could find that this budget style will require a more active maintenance approach.
If you believe the devil is in the details, you might thrive with a line-item budget. You may have heard of this method for businesses rather than individuals. But getting into the nitty-gritty of your personal finances can help clarify your spending and saving habits, which enables you to make adjustments and improvements as you go.
Start by creating a list of your fixed monthly expenses. Then break up your other expenses into categories such as home, hobbies and health, for example. Within each category, designate specific line items and allocate a dollar amount to each. This gives you the ability to analyze the information month to month to better predict future spending. Your savings goals should be included as line items in your budget to ensure that you are saving toward each of your goals. If you have a home reno you are saving for, you can include a line item to save toward your project.
When you reach one small goal, use the momentum to keep going. Hitting benchmarks can inspire you to set even more ambitious goals. Once you become debt-free, for example, you might next set your sights on revamping your investing strategy. Consider rewarding yourself (with either a small monetary or non-monetary treat) each time you reach a goal to inspire yourself to stay on track and keep aiming higher.
Budget for where you are in life
As you progress through life, the things that matter to you most will change, so should your approach to budgeting. Reprioritizing goals and finding the right approach is important at every life stage.
As a teenager or young adult, your priority may be saving toward your first car or to fund higher education. This formative time is critical for establishing good budgeting habits and getting ahead of your goals. Whether you are a high school student saving for your first apartment post-graduation, working your first full-time job, or simply wanting to put those babysitting earnings to the best use, a budget can help bring your goals—big and small—to life.
Budgeting for two (or more)
If you find yourself in a serious relationship—perhaps starting to look at marriage, starting a family or homeownership, you probably already know these big life steps call for a critical eye on your budget and the chance to course-correct where necessary.
Deciding how—or even if—combining finances is right for you can be a tough conversation for couples. But talking through your shared money goals is the first step in determining the best approach and developing a budget that works for your household.
Budgeting during your golden years
Budgeting for your retirement lifestyle may require a change of pace and a recalibration of your income and expenses. At this stage, you may be downsizing and focusing more on travel and hobbies and it might also be time to consider dedicating more of your budget toward healthcare needs.
Don’t neglect the unexpected
Along the way, unplanned challenges — medical emergencies, career change or job loss, divorce and death of a spouse or a partner — can throw a wrench into your best-laid plans. Don’t be afraid to modify — or even completely transform — your approach to budgeting as your life circumstances alter your course.
Set yourself up for success
As your life changes and evolves, the budgeting style that fits your needs might change, too. Just like you swap out your sweaters for flip-flops as winter gives way to spring, as you enter a new season of life, your money methods will likely benefit from a refresh. So while budgeting may feel intimidating and overwhelming, once you hit your stride you may just be on your way to a brighter financial future.
Make your budget work smarter, not harder, with smart saving tools.