5 Budgeting Tips for Healthy Finances

Creating a budget helps you find balance between paying for essentials and creating space to purchase the things that make you happy.

Why is it so hard for us to stick to a budget, even when we know it’s good for us?

Similar to growing a garden, budgeting takes patience and persistence, and requires you to keep the long-term payoff in mind even when you aren’t seeing immediate results. But, just like gardening, budgeting requires finding the right balance. Just as you choose different plants for your garden based on factors like soil, sunlight, and aesthetics, allocating your budget based on your wants and needs is crucial.

If you only focus on your short-term needs and immediate obligations, your budget can feel limiting and monotonous, similar to a garden lacking variety. However, by finding the balance and incorporating your wants and goals, you can add some excitement and variety to your finances, much like adding colorful plants to your garden.

Plus, having a budget could make you feel less stressed. In fact, a 2019 survey from the Certified Financial Planner Board of Standards (CFP Board), found that 62% of consumers who have a budget feel more in control of their lives.¹ A survey by Morning Consult found that 89% of respondents want to create and follow a budget in 2023.² Right now, we’ve all got inflation on the mind — sky-high prices will naturally make you think twice about your spending.

No matter where you are in your financial journey, a strong budget plan could organize your spending and help you reach your goals.

Key Takeaways:

• It’s tempting to sweep your finances under the rug, but setting (and sticking to) a budget provides a structure to help you live life the way you want.

• Work smarter, not harder. Budgets come in many shapes and sizes. Decide what works for you and stick with it.

• Budgeting could make your finances more manageable and help you achieve your financial goals.

What Is a Budget and Why Is It Important?

Let’s start with what it isn’t: a budget is not a one-size-fits-all solution. While no two budgets are identical, there are some standard formats and principles that can help you create yours. Think of it as a financial planning tool that can accommodate your life and personal goals.

Whether you’re trying to pay off student loans, buy a car or house, get a new laptop, or pay for a wedding, a budget could help you manage your money flow, prioritize your spending, and track how much you’re saving toward your goals. It may allow you to take control of your financial health so you could go into every stage of life with more confidence.

So, what’s included? A typical budget includes all mandatory expenses — think food, utilities, housing, and transportation — along with any other monthly expenses. That could be debt payments, insurance, entertainment, and other personal spending. A good budget includes a line item for savings too. Treat savings like another expense. Paying bills comes first, of course, but prioritizing savings and making it a commitment in your monthly budget will serve you in the long term.

Once all your expenses are laid out, you can start to customize your budget to fit your overall income and long-term goals. Here are our top five tips for building the right budget for you.

Let’s Build a Budget! (Hardhat Not Required)

Building a budget could be a great way to take control of your finances and set yourself up for success. But, before you start building one, it’s important to understand your current financial situation. This includes tracking your expenses and spending habits, understanding how you’re using your money, and establishing financial goals for yourself.

Once you’ve done these things, you’re ready to start the budgeting process.

Tip 1: Start with Tracking

Tracking is crucial to creating a realistic budget because it helps you determine where your money is going. This means documenting all your transactions and income to map out your cash flow. Once you list out your spending, it’s easier to identify places where you may need to change your budget. For example, if you’re consistently over-spending in one area, you might need to adjust how your budget is allocated rather than just how you spend.

We found in our survey that people track their spending in different ways: about 50% use checklists, 29% use spreadsheets, and others use bank or financial apps (29% and 26% respectively). The key is to build a system that works for you.

After establishing your budget, tracking helps keep your spending on target and may accelerate your progress. By tracking what you actually spend each month, it may be easier to avoid overspending. You’ll know what’s left in every budget line, and you’ll have a better grasp on where you are in relation to your goals.

Once you understand how much money you have coming in and where it’s going, you can move on and begin building your budget.

Tip 2: Get Specific—Like, Really Specific

Make a budget for each month, not just one for the whole year. This might sound like a lot, but many expenses stay consistent month-to-month (I.e., rent and car payments), making it easier to know what to expect.

Some months, you have to spend a little more. Maybe your family takes a vacation every year or you want to be ready for gifting around the holidays. Regardless of what’s coming up, breaking down your spending by month will help you think about your annual budget holistically and ensure you’re staying the course.

In our survey, we found that almost 90% of respondents have consistently set goals at the beginning of the new year. But, only 60% manage to achieve most or all of their goals.

For those of us who maybe struggle with taking the time to create a budget, find creative and fun ways to work it into your existing routine. Maybe you work out every day except Sunday – use this timeslot to review your spending for the previous week and prepare for the week ahead.

Make a point of including rewards in your budget from time to time. These rewards will make budgeting feel less like a chore and make it something you look forward to. Consider rewarding yourself with a trip to that new café, letting yourself binge just one more episode of your favorite show, or anything else that will make you look forward to the process.

Tip 3: Get Your Priorities in Order

In life, there are a handful of essential expenses, or needs, you can’t avoid and should be sure to account for in your budget. List these out first and make a line for every need, like:

• Rent/Mortgage

• Utilities

• Groceries

Then, you can prioritize your other expenses, like your wants and goals. Think, what aspects of your life do you want to protect most to maintain your quality of life? They may include:

• Eating out

• Streaming services

• Sports and hobbies

You can also use your budget to plan for big ticket expenses. Think about long-term goals you have and factor them into your budgeting. They may include:

• Vacation

• Saving for a down payment on a house

• A new entertainment center

Ranking your expenses allows you to meet your basic needs before you spend money elsewhere. From there, you can create a budget around the approach that works for you.

If you aren’t sure how much to set aside for certain categories, such as groceries, consider looking at average budgets for similar families in your area. According to The Ascent, a family of four in the United States spends approximately $968 per month on groceries.³ There are several schools of thought on how to allocate your money. One of these is the 50/30/20 approach. Let’s look at how it works. Start by splitting your income across three major categories: 50% necessities, 30% wants, 20% savings (including retirement savings) and debt.

Let’s say your take-home pay (after that 10% goes to retirement) is $10,000 each month. 50% of that, $5,000, will go to your essential line items listed above like rent, utilities, and groceries. $3,000, 30%, will go to the things you want. That could be vacations, your next auction item, or dinners out — anything that you want to spend money on that brings you joy. That last 20%, $2,000, will be set aside for paying off debt, investing for retirement, or keeping in an interest-bearing savings account .

The great thing about this structure is that it gives you the room to pay down your debt, cover your current costs, treat yourself occasionally, and save for future expenses.

Tip 4: Expect the Unexpected

In addition to the priorities we mentioned above, it’s also a good idea to have an emergency fund on hand. This might sound obvious, but it’s important to set some money aside for unexpected expenses that could pop up. We promise you’ll be glad you did when that emergency vet or car repair bill arrives.

The general rule of thumb is to have enough savings on hand to cover three to six months of expenses. If you’re just starting out, this might sound like a lot — that’s where your budget comes in! Add a line each month to allocate a certain amount of your income to the fund.

Consider automatically transferring a set amount of income into a dedicated, interest-bearing bank account each month. This way, you can keep your money separated while also avoiding early-withdrawal penalties that often come with certain accounts, like a certificate of deposit (CD).

Tip 5: Nobody’s Perfect — Give Yourself Grace

It’s okay to make mistakes or occasionally veer off course. With a strong budgeting plan in place, the periodic misstep shouldn’t destroy your progress.

Sometimes, when people miss a milestone or lose sight of their goals, their impulse is to ditch the plan altogether. We’ve all been there. Instead of throwing your goals out the window, learn from the experience and move on.

And don’t forget about building rewards into your budget as well — like getting those shoes you’ve been eyeing. In our survey, 44% said that rewarding themselves helped them achieve their goals.

Remember, this is a lifelong journey. Not only do you deserve to enjoy your life, but celebrating the financial wins, both big and small, will help keep you motivated in the long term.

Final Thoughts

A budget doesn’t have to feel restrictive or be a chore. Focus on what you gain by implementing a budget – achieving your goals faster and having peace of mind that you’re making smart choices with your money. Plus, building in opportunities to reward yourself along the way will help you stay on track.

And if things don’t go as planned? The comeback always outshines the setback.