5 Best Tips for Effective Budgeting

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I’ve got budgeting on my mind.

I’m going to be teaching a budgeting class at church this weekend, so I’ll be preparing some material for the class later this week.  Of course, my material preparation is simplified since I did all the leg work a couple of years ago when I wrote The Secret to a Successful Budget: Practical Advice for Creating a Budget That Lasts.

In thinking of newbie budgeteers, I wanted to put together a quick list of things I thought would be essential for any new budgeteer.

5 Best Budgeting Tips

1.  Know Your Why

I call this your Financial Focus Point.  Budgeting is a lot easier when you’ve already got the motivation.  For some, the motivation might be to pay off debt faster.  Others might be needing to save up money for a new car.  You might want to be able to start saving for retirement.  Others might budget to be able to give more.

2.  Record Expenses Immediately

In the book The Power of Habit, Charles Duhigg talks about the importance of a trigger in forming a habit.  The trigger for budgeting is any time you reach for your wallet or purse you know you need to record the expense.

After nearly a decade of budgeting, my wife and I stopped budgeting for a couple of years.  We started back up again when we downloaded the Toshl App on our phones.  Each time we spend money, the very next thing we do is record the expense.  It takes less than 30 seconds.

3.  Review the Numbers Monthly – as a Couple

If you’re overspending in a category, it’s absolutely vital that you’re both aware of the problem.  In far too many families, one person keeps the budget and the other spends the money.  What a terrible idea.  Get together and see where the money is going.  This will help you develop a plan for adjusting your spending as necessary.

4.  Keep it Simple, Saint

No, I don’t want to call anyone Stupid today.

Most people fail at budgeting because they make it too complicated.  What am I supposed to do when I buy a gum ball for 5 cents?  What should I do if my purchase has money that comes out of multiple categories?  Who really wants to use a calculator to divide a Walmart purchase into 5 separate categories?

Suggestions for keeping it simple:

  • Have a miscellaneous line item on your budget.  If you don’t know where the funds go, just add it to that line.
  • Budget $10-$15 a month on small expenses.  If we spend less than a dollar, we don’t record it.  We know the $10-15 amount will cover it.
  • If you really want to keep categories firm within your budget, it may be easier to divide your purchase into separate transactions rather than calculating the different purchases from your receipt. (Yes, check out 5 times.)

5.  Use the Envelope System

I think the most effective budgeting method (with the least amount of paperwork) is the envelope system.  First, this is helpful because it forces you to use cash instead of a credit card or debit card.  That automatically reduces the paperwork.  Secondly, it forces you to stay within your budget because when the money is gone, you must stop spending.

I think most family financial issues can be traced to the use of credit cards.  Start using cash, and I think you’ll be amazed at the results.

What are your budgeting tips?  If you had to teach a budgeting class, what would you be sure to emphasize?

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