This week we'll be working on a budgeting hack challenge!
So you probably know the deal with budgeting.....you've heard it a thousand times before right? (and if you haven't then this is a good review!).
Succeeding with your budget includes:
- Spending less than you earn
- Keeping your expenses low
- Creating a budget every single month at the minimum aka giving every dollar you earn a job to do for you
- Tracking your budgeted amounts against your actual spending frequently
- Making it easier to do by creating a system
- Involving your significant other and/or kids
The goal of this challenge is for you to focus on how to make your current budget better and easier to stick to.
You can start by asking yourself a few questions:
1. Are you being unrealistic?
Your budget should be based on what you know you will be earning for sure (or an average of the last 3 months if your income is inconsistent) and not what you wish you will be earning.
2. Are you being too restrictive?
You need to give yourself room for small pleasures. For instance you can give yourself a $50 allowance to do something for yourself and if you don't use it, it can go into savings or towards your debt at the end of the month.
3. Are you checking in frequently?
In order to be successful with budgeting you have to track your spending against the budget you have set and that means checking in daily or weekly at the very minimum to make sure you are within with your budgeted categories.
It's also important to review your prior month's budget to see how things went overall e.g. what went wrong if you slipped up or what went really well so you know what's working.
Next review your current budget, is your budgeting method working for you?
Keep in mind that there are a variety of different ways in which you can budget. The method you choose is entirely up to you, the most important part is picking a style that works for you.
A few include the following:
The envelope or cash method
This is where you subtract your expenses from your income and then put each expense amount into it's own envelope. Once the envelope for a particular expense is depleted, you can no longer spend anymore. If you don't spend all the money in a particular expense envelope, then you can repurpose the funds towards something else like savings or debt.
There's the percentage breakout method
The most common percentage breakout method is the 50/30/20 (which is also the general guideline) where you break your income into percentages and spend no more than 50% of your income on needs & essentials, no more than 30% on wants & non-essentials and at least 20% on savings and debt repayment.
Keep in mind that these percentages are not set in stone and should be adjusted based on your unique circumstances or according to the goals you have set.
For instance you can choose to spend less in the needs & essentials and wants/ non-essentials categories and put more to savings or towards your debt repayment e.g. A 35/30/35 percentage breakout.
Below are a few example illustrations:
Illustration #1: General guideline
- Your essentials / needs e.g. shelter, food, transportation, Insurance - no more than 50%
- Your other money & life goals, everything else - no more than 30%
- Money for your future self, your emergency fund & debt repayment - at least 20%
Illustration #2: Focus on debt repayment
- Your essentials / needs e.g. shelter, food, transportation, Insurance - 35%
- Money for your future self & your emergency fund - 10%
- Debt repayment - 45 %
- Everything else - 10%
Illustration #3: Focus on savings catch up
- Your essentials / needs e.g. shelter, food, transportation, Insurance) - 40%
- Money for your future self & your emergency fund - 40%
- Everything else - 20%
Again, it's all about adjusting these percentages so they make the most sense for what it is you are focused on accomplishing.
Keep in mind that regardless of the breakout you choose, you want to be careful spending more than 30% of your income on just housing alone, otherwise you won't be able to put as much money towards your other goals e.g saving and investing, becoming debt free etc.
There's also the anti-budgeting or reverse budgeting method
This is where you focus on a single goal such as paying off a certain amount of debt or saving a certain amount money each month in addition to paying your bills. As long as you meet your monthly goal and pay your bills without exceeding your income, you can do what you like with the money you have left over.
Using an app to budget
And of course you can make it really simple by using an app to create and manage your budget e.g. Mint, Penny, YNAB (You need a budget app) etc
Once those questions are out of the way, you've selected a budgeting method and you've worked on creating your budget. It's time to hack what you just created by figuring out the following:
1. What monthly costs can you cut back on?
These cuts can be temporary or permanent. The reason for them is so you can make more money available towards your debt or savings goals.
2. How can you generate additional income?
This could be getting a part time job (not fun but again, it's for a reason - savings or debt repayment), selling things in your closet / home, starting a low cost to enter side hustle etc.
In order to master budgeting (regardless of what style you choose) it's going to take practice and so you have to keep trying. It's also ensuring that each dollar you earn has a job to do for you be it paying bills, saving, paying debt etc.
Some other resources on the CGF blog that can help you include:
Your challenge this week is to use the downloadable worksheet on this page to create or fine-tune your budget AND see what areas of your budget you can hack to reduce your spending and expenses.
P.S. Don't forget to share your progress in the Facebook group!
It's week 8 of The 26 week savings challenge!
This week, your savings deposit amount is $31.00
(If you've been consistent with your deposits, this week's deposit will bring your balance to $136!)
- Make your transfer.
- Check off this week's amount on your savings challenge schedule.
- Share your progress in the Facebook group!
Note: This challenge will be on-going throughout this accountability program in addition to your other weekly challenges.