Stop Wasting Money and Finally Start a Budget

https://www.nytimes.com/2018/04/02/smarter-living/how-to-start-a-budget.html

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Diets and budgets have one important thing in common: The best one is the one you’ll stick with.

And that’s pretty much it! There’s really no wrong way to make and maintain a budget as long as you’re tracking your spending versus your income and accounting for where every dollar goes. It’s a simple idea, but it’s one that can be difficult to pull off. Still, it’s an exercise in financial responsibility that you’ll benefit from no matter what your income is.

(Maybe creating a budget is that one thing you’ve been putting off forever?)

Only around 40 percent of Americans use a budget, but for those who do, the benefits can be huge. Budgeting can help you find sources of income leak (those habits you don’t really think about but that can drain your bank account), it can put you on a path toward saving for things like an emergency fund or home down payment, and it can boost your retirement savings, among many other benefits.

There are tons of apps and websites to help you create a budget, but experts say the best way to manage your money is to do it yourself: Doing so gives you complete ownership of your financial decisions, and it drives home the importance of understanding where every dollar goes.

If you’ve never created a budget or if you need a refresher, the simplest way to get going is to write down every single expense in a given month, then break them down into two categories: fixed expenses (the things you must pay, like rent, bills and loan payments) and discretionary expenses (things you control, like food, entertainment, car-related expenses and clothes).

You have many possible routes to take from there, but a good rule of thumb often suggested is to get your overall spending to fit into the 50-30-20 method: 50 percent of your post-tax income should go to those fixed expenses; 20 percent should go to long-term savings like a 401(k) or a Roth I.R.A.; and the rest should go to your discretionary spending. The exact proportions will vary person to person, but that general budget makeup is a good mix to aim for. Here’s a simple template to get you started if you want to create your own budget. If you want more detailed tracking, try this one.

(And while we’re at it, here are four simple ways to save a few extra bucks this week.)

If you’d rather use an app or a service to track your budget and expenses, Wirecutter, a New York Times company that reviews and recommends products, suggests You Need a Budget for most people. This web and mobile app guides you through the process of creating a budget and itemizing your expenses, and it gives feedback about your spending habits. (Its biggest flaw, however: It’ll cost you a little more than $80 a year to use, so if you go this route, make sure you’re adding at least that much in increased savings by using it.) Other options are Simple and Mint.

Just remember: The best budget is the one you’ll stick with.

Have another method that works? I want to know your budgeting and money-saving tricks! Tweet me @timherrera or email me at tim@nytimes.com.

Have a great week!

— Tim

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