How to budget but still have what you want.
Do you LOVE budgeting? Most people don’t. Sometimes budgeting is like trying to find a parking spot at Costco on a Saturday morning! It’s downright hard!
If you listed out the top things you want to do this weekend, I bet budgeting probably didn’t even make your top twenty. Yet, creating a budget can be a vital part of your wellbeing emotionally and physically.
But did you know, you can learn how to budget and still have what you want in life?
Knowing you have the money to cover your expenses keeps your life stress-free. And I don’t know about you, but I like to eliminate stress from my life.
Nonetheless, creating a budget doesn’t mean you can’t have what you want. In fact it if you use my methods, you will actually have more of what you want and stop feeling deprived.
Your new financial life will be like a three-year-old opening up his first toy on Christmas. Like a child, you will wake up each day with excitement and jubilation because you are living the life you have always wanted and everything you do with YOUR money is intentional.
10 Ways to Budget and Plan Finances but Still Have What You Want
Starting a budget means you are taking the first step in gaining control of your money. Once you have mastered your finances, you will find you still have money to pay for the things that are important.
#1. Make savings/investing automatic
Always make savings automatic. There are some core things you should be saving for listed below:
- emergency fund
- down payment (car/house)
You may be thinking that sounds great but how do I save for these funds automatically?
First, you want to set up direct deposit from your paycheck. Talk to your HR department and see if you can connect direct deposit with your bank. At times, certain companies only work with certain banks so you may need to set up a new banking account to get the process started. Once the money is in your new bank account, you can transfer it to your old bank if you prefer.
I had to set up a new bank account when I started teaching because my school district only did direct deposit with one credit union. Yet, I felt direct deposit was so important and I signed up. It doesn’t really matter what bank they use as long as the bank doesn’t require fees. You will want to avoid bank fees at all cost because there are so many banks that do not charge fees and these banking fees can quickly eat up your money.i
Then begin with putting the amount you owe for bills in your checking account. Many banks will do this for you hence making it automatic. Your bills should total around 50-60% of your total income. This includes all of your budget categories such as house, car, groceries, transportation, childcare, etc.
Next, set up separate sinking funds with your bank to allocate money toward an emergency fund. You can also set up sinking funds for anything you are saving up for such as a car, house down payment, vacation, or a wedding.
We will discuss how to make your retirement goal automatic in the next section but this is also a one-time set up with HR or staring a Roth which can also be made automatic.
Keep in mind, the rest of your money is yours to spend freely because you are already saving for your big items, retirement & bills. If you want lattes everyday then go for it! Do you want to spend money I travel, go for it! If your passion includes going out to eat three times per week, as long as the money is there, treat yourself.
One key thing you must keep in mind is when your extra money is gone for the month, it’s gone! You must wait for your next pay cycle to indulge again. But the good news is, since you made it automatic you will be able to treat yourself in the near future with no stress or worries.
Are you young? You may be wondering why I would bring up retirement. This is one subject I am thankful my work colleagues mentioned to me when I started teaching at age 23.
Why? Starting young is key to making the most of compound interest; however, even if you are in our thirties or forties you still have time!
In fact, the worst thing you can do is “do nothing” so don’t get overwhelmed by these suggestions and put it off! I know the feeling. But this IS important so don’t put it off. Take action because this is the most important thing you can do for your financial future.
I’m going to offer some advice on how you can invest easily and also take advantage of tax breaks in the process.
For the purpose of this post, I’m going to discuss your main areas of retirement that will get you started and you can easily automate so you can literally set it and forget it!
401k & 403 (b)
Depending on where you work, your company may offer a 401k or a 403 (b) if you are lucky. Unfortunately, companies are cutting back and not all companies offer these retirement packages anymore. Or they offer retirement packages but don’t help you contribute. So if you work somewhere that offers a 401k or 403 (b)you must take full advantage of it, especially if your employer matches your contributions up to a certain amount – that’s free money
These types of retirement funds offer a great tax break. Why? Because you are putting your money in these accounts before taxes.
Yes, you will not be taxed on your money until you withdraw and chances are you will be in a lower tax bracket when you retire. If you are lucky enough to have a company that offers one of these, then take advantage of it. Some employers even match your contribution, so that is free money and you cannot afford to miss out.
Nonetheless, if your company does not offer a 401k or 403 (b), then you can set up a ROTH IRA and contribute money yourself. Although you are putting the money in after taxes, you will not be taxed on the money when you withdraw. Setting up a Roth IRA is easy because you can do it online. I use Fidelity but Vanguard is a great one too.
Once you move money into your Roth, don’t forget to actually invest your money. You can set up investing easily but buying low-cost index funds.
Related Budget Posts:
#3 Health Savings account
Does your job offer a health savings account? According to Money magazine, the average person will need $280,000 for health care after retirement at age 65. (Source- Money)
Yet, many people do not take advantage of a Health Savings Account because they do not understand it. I know because my husband and I only started using this to its full advantage last year.
We used to use a health savings option where we had to spend all the money we put in our health savings for the year on qualifying health-related items or co-pays. I personally never understood why you would lose your money if you did I not use it. It seems unfair. But year after year, we would run to the store and stock up on contact solution and Tylenol before the New year hit.
However, we now use our HSA to help pay for copays and health spending. My husband has it set up so money is deposited in our health savings account automatically each month and although our deductibles are higher, as long as you are fairly healthy it makes sense to use this option. Also note, your premiums will typically be less with a health savings plan option.
You can also invest your money after you hit a certain amount. Considering the money is pre-tax and is also not taxed when taken out and used for qualifying health purchases, this is a great option.
Here is more information on HSA’s:
#4 Bill pay automatically
Call you accounts or look them up online. See if you are able to set up automatic payments.
Better still, try using your credit cards to pay bills and earn rewards and then set up an automatic payment so you never end up with a late fee.
Furthermore, set a budget for your credit card spending and you can go online and pay more if you spent more that month. But make sure to set up credit card payments automatically so you are never hit with a late fee. If you set up automatic payments to prevent late fees, you can still hop online and pay off the entire balance if you end up owing more than your automatic payment. In this way, you will avoid paying interest on your credit card.
Double-check your accounts to make sure you have enough to cover the bills before your bill due date. It is also wise to call your services to see if you can change your payment date to the first of the month so all your bills are paid at or around the same time. This will make things easier for you. You may need to set up a buffer for the first month you do this if you are paid bi-weekly.
#5 Sinking funds
Sinking funds are accounts set aside for a certain purpose. For example, if you want to save for a wedding, you would set this up with your bank and start putting money away. Many banks will do this for you for free and if your bank doesn’t may I suggest finding a new bank?
Sinking funds are great because of the psychology behind them. If you put the money in automatically, you forget the fund is even there and your money continues to grow each month. You are also less likely to take money out if you set aside money for a specific purpose.
Examples of sinking fun ideas:
- house down payment
- care down payment
- emergency fund
- vacation fund
- Christmas fund
Is there something else you want? Start saving up for it with a sinking fund.
Learn more about sinking funds here and start setting yours up today.
#6 Pay off debt
Debt is a burden however it is possible to get ahead and pay off your debt.
There are two solutions for your debt repayment: debt snowball or debt avalanche. You should pick the one that works for you and make a plan of attack.
Debt snowball method:
In the debt snowball method, made popular by financial guru Dave Ramsey, you will start with paying your smallest amount of debt. Let’s call it “credit card A” If you owe $300, you will pay more than the minimum until it is paid off while continuing to pay at least the minimum on your other cards. After credit card A is paid off, you will take the money you were paying on credit card A and apply it to credit card B (like a rolling snowball) until that debt is paid off in full. You will continue with this system until all of your debt is paid. Because you are actually seeing some of your debt paid down, you will feel a sense of accomplishment.
Debt avalanche method:
However, others will argue you are paying more interest with the “debt snowball” method and will opt for the debt avalanche. In this method, you will start paying down your debt with the highest interest rate. After paying off your high-interest rate debt, you will move to your next debt with the highest interest rate. You will continue this until all of your debt is paid off. Although you will pay less money with this method, many feel you are not seeing the little wins and may give up.
However, you must pick the best method for you and stick with it.
#7 Use rewards
If you are going to use credit cards, you must use discipline. Credit cards may be the reason for your debt. However, if you learn to use them wisely they can actually earn you free stuff. Stop letting the credit card companies ruin your life and learn to use credit cards to your advantage.
Find credit cards with the best rewards and only use them for what you will be rewarded for.
I like to use my credit cards to pay bills automatically and then earn rewards on my bills. When I was younger and rented, my complex used a management system that allowed me to pay rent on a credit card. This was amazing! I earned points on my biggest expense every month. Those points racked up enough for me to get $300 from Best Buy to by my computer and several other gift cards.
You can also use credit cards to rack up travel points. Many cards reward you for eating out and booking travel through the card. I often find this favorable because many cards offer travel protection if you use them to book.
Here is a post that offers the best rewards cards on the market today! Check it out and sign up for the one that suits your needs and remember to only use it for rewards and pay off your balance monthly.
#8 Pick your spending habit
Take out a pen and paper and write down the things you really love buying. Pay close attention to this task and make sure you are writing down things that are important to you and you cannot live without.
For example, if you wrote down your morning coffee, then this is going to be one of your budgeted splurges. If you said travel, you will set aside money to take a trip this year. The point is, find what you enjoy and save money on the rest.
During this task, you also need to find areas of your budget that are less important to you so you can learn to live frugally and save money in these budget areas.
Moreover, if you don’t care for soda then why not order water when going out to eat and save money. If you aren’t a big foodie, shop frugally and eat cheap meals so you can save your money for what you love.
Do you love clothing? No worries! Put clothing as one of your splurge expenses but cut back on your unused gym membership. You could even try a service like Stitch fix to avoid spending way too much at the mall, but still get your “clothing fix” every month or quarter, depending on how you set it up.
You see, we all have something we love and makes us happy. And in my opinion, we should live our best life and have the things that we enjoy. In fact, what is life if we don’t have those things? But there are also things we don’t care about as much. We can cut these things from our budget so we don’t have to worry about buying our morning coffee and leaving the barista a tip.
#9 Use cash
Now it is time to get rid of credit cards unless you are seriously disciplined and using them for rewards – and pay cash.
One way to make sure you stick to your budget is to use the cash envelope system. This is s a system of labeled envelopes that are budgeted accordingly. After you have completed the budget step above, divide your money for the month into envelopes with the following labels:
Cash envelope labels:
- splurge (this is for what you love)
Check out these new cash envelope labels to help you stay on budget
Feel free to add any envelope that works for you. You may have kids and want to add a “school” envelope for things like pictures and lunches. If you decided to splurge on morning coffee, then put the amount you need and when it is gone. Do not treat yourself again until next month.
In this way, you are not deprived of what you love and you do not have to give it up forever, but you are waiting until you have the money again. The same holds true for dining out, buying clothes at the mall, or if you are saving for a vacation keep adding money to your envelope until your trip is paid in full – then book it!
In this way, you are not deprived of what you love and you do not have to give it up forever, but you are waiting until you have the money again. The same holds true for dining out, buying clothes at the mall, or if you are saving for a vacation keep adding money to your envelope until you have your trip paid in full.
#10 Spend money on what counts and save in the rest
Set up savings automatically. Once you have paid your bills and you know you are saving money for retirement, an emergency fund, and a traditional savings account than it is time to have some fun and splurge. Rinse and repeat.
You have mastered savings and you do not have to worry about going out to eat this weekend. Because you have saved, you know you have the money to cover it in your cash envelope… But don’t’ forget to order water if you don’t LOVE soda or tea.
In order to save money, you needn’t feel deprived. You can still have the things you desire and value in life, but learn to live frugally and save on everything else. Love clothing? Then buy it! Love travel? Then book that trip! With this savings plan, you know you have automatically set up retirement, savings, and investments so the rest of your money is yours to do with what you wish.