5 Simple Budgeting Guidelines to Follow

These guidelines simplify the budgeting process

Close-up of woman's hands on calculator
Photo: Nick White / Getty Images

When most people think of budgets, they automatically envision spreadsheets with line items. Unless you're the type of person who loves spreadsheets, creating and maintaining a budget doesn't sound like fun.

If you’re interested in budgeting, here's some great news—your budget doesn’t need to focus on the little details—and it definitely doesn't need 15 different categories.

Furthermore, it doesn’t have to be based around deprivation. You can allow yourself a little bit of fun within the context of your overall budget. In fact, if you don’t like the word "budgeting," then replace it with the idea that you’re creating a plan or a roadmap around how you’re going to spend your money.

You wouldn’t drive from Boston to San Francisco without using a map or some other type of navigation, would you? Then why would you navigate your finances without using some other type of roadmap?

Are you on board with budgeting now? Consider these five general guidelines as you put together your first budget:

Less Is More

One common rookie mistake is to overload your budget with too many categories. You don't need to include how much money you’ll spend on nail polish, gasoline, magazine subscriptions, or new socks. Having fewer categories is better. A more complicated budget, or one with too many categories, is less likely to be maintained due to the time and energy it takes to keep filling it out.

At the far end of the extreme, your budget could have as few as two or three categories. The anti-budget or the 50/30/20 budget works better with less. A side category budget works well, too.

Be Realistic

If you’re currently spending $400 per month on groceries, don’t assume that next month you’ll be able to crush this down to $100 per month.

Instead, set incremental goals. If you spend $400 on groceries this month, try spending 5% to 10% less next month, which would result in spending between $360 to $380 on groceries. 

Do that for a month or two, and then adjust further down from there. Eventually, you'll reach the $300 mark. Small incremental changes over time are more sustainable.

Don't Make Overly Lofty Goals

If you plan to cut money out of your budget, don't start by trying to slash 60% off. Instead, start slowly to ensure that you'll stay on track.

Be Wary of the Latest Fads

Many people turn to software or apps to manage their money. If this comes naturally to you and you enjoy these tools, that’s fantastic. But don’t be afraid to resort to old-fashioned tools like paper and pens if that’s what you prefer.

There’s no right or wrong way to manage your budget. The key is to find whatever works for you, regardless of whether that’s an app, a spreadsheet, or a pencil and envelopes.

Weekly Budget Conversations

You’re probably not the only person who spends and saves in your household. Plan weekly meetings to include all stakeholders in the decisions you make with your budget.

Review your major goals, such as building an emergency fund or maxing out your retirement account. Talk about the "why" behind every spending decision, too.

Your family might not like the fact that you’re buying a cheap used car instead of the latest model. However, they’ll understand when it’s framed in the context of making a bigger contribution to your child’s college savings fund.

Adjust Each Month

Realistically, your budget is going to have at least two columns: the amount you intend to spend every month, and the amount you actually spend. A good third column would be the difference between the two, allowing you to easily see where you hit the mark and where you need to improve.

As you re-evaluate your budget each month, you’ll notice how reality diverges from your best-laid plans. When you see the results of your spending, you’ll know where your problem areas are. Review these categories and make adjustments.

When people start budgeting, they often discover that they are spending more money in various categories than they realize. But thanks to reviewing their spending, they become more conscientious about their spending habits.

Most importantly, maintain an upbeat attitude about budget. Even if you only make one minor improvement each month, those can add up to a major life shift over time.

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