Budgets, or the more palatable term “spending plans,” provide structure and can make your financial life less stressful.
With students going back to college and college graduates beginning their careers, it’s a good time to review sometime-tested budgeting tips parents can share with their children.
11 Budgeting Skills Everyone Should Master offers some sound advice, but here’s my top three takeaways from the Kiplinger’s article:
- Record every transaction over the course of a few months. It’s amazing just how much folks tend to underestimate what they spend. There’s no way to efficiently manage your spending without having an accurate picture of your expenses. You can do this by hand or with the help of an app, but it’s important to stick with it over a period of months and average monthly outflows. This forms the foundation of your spending plan.
- Write your budget out. More effective than saying, “I spend $600 on groceries each month” and “I spend an average of $100 per month on clothes” is to write out a complete budget and list each expenditure. Then, post your list somewhere in plain sight. Studies continue to prove that a written financial plan can be helpful to keep you disciplined when you are tempted to overspend.
- Include some “mad money.” It’s important that your budget not feel like a restriction imposed on you by an outside force. Giving yourself a little flexibility can help you stick with your spending plan. I suggest that the amount be affordable; in fact, sometimes it has to be as little as $25. Many couples will agree that they can each spend a particular amount of mad money per month from the joint budget without alerting the other spouse. That provides each person with some independence.
A budget should be a document that you revisit in order to assess your financial successes and failures. Asking yourself questions about your spending like “Why do I over-spend on groceries?” or “How can I trim expenses to afford a vacation next year?” can help you hone your budget and have better success meeting your long-term goals.
To get started, check out programs like YNAB and Mint that help you see track your spending in different ways. Personally, I still use Quicken to track my spending and net worth only because I have been using it for a couple of decades.