Is budgeting a can of worms that you’d rather keep closed? Many find it restrictive and prefer to spend as they please without worrying about strict limits.
The problem comes, however, when you run out of money between paychecks or can’t afford larger purchases like a down payment on a house. Considering that 62% of Americans live paycheck to paycheck, according to a November 2023 survey by Lending Club, these situations aren’t far-fetched.
[Related:Tips to Avoid Living Paycheck to Paycheck]
So, is there a way to budget without feeling restricted or deprived? Many experts say yes.
How to Reframe Budgeting
Overall, budgeting enables more awareness so you’re not left wondering where your money goes each month. Further, it allows you to decide what you want your future to look like.
“Think of budgeting as a gateway to building wealth and establishing long-term financial stability. Saving allows you to make progress toward short- and long-term goals, whether it’s buying a home or retiring,” Mary Hines Droesch, the head of consumer and small business products at Bank of America, said in an email. But it’s not all delayed gratification.
“Spending mindfully and cutting back in some areas doesn’t mean that you can’t enjoy an occasional latte in the morning before work or a celebratory steak dinner at your favorite restaurant,” Droesch said.
Andrea Woroch, a consumer and money-saving expert, recommends considering budgeting as a tool that helps you get more of what you want.
“For instance, a budget can reveal that you’re overspending on certain monthly bills and offer savings in other areas without causing much sacrifice,” Woroch said in an email.
Uncovering those savings can allow you to spend more on things you thought you couldn’t afford, she said. For example, perhaps you can afford more traveling or a monthly massage.
Melissa Murphy Pavone, a certified financial planner and the director of investments at Oppenheimer & Co. Inc., also recommends focusing on the benefits of budgeting rather than the sacrifices. “I work with my clients to shift the focus to optimizing what is coming in and getting to allocate what is going out,” she said in an email.
Tips to Make a Budget Work for You
Once you see budgeting more positively, how can you make it work for you? Try these four strategies:
1. Set Financial Goals
Droesch recommended setting achievable financial goals.
“Whether you want to take that dream vacation or buy a car, goal setting can be a key motivator,” Droesch said.
And the more specific you are with your goal setting, the better. “Align your goals to a specific timeline and work out how much you need to save each month to ensure that your aim is realistic,” she said.
It can also help to share your goals with people close to you. Droesch pointed out that discussing your financial goals with someone you trust and occasionally checking in with them can help keep you accountable.
[See: 9 Ways to Improve Your Finances in 2024]
2. Start With a Framework
How much of your income should you be saving for your goals?
“Take 50% of your after-tax income to cover needs like rent and utilities or debt repayments, 30% to cover wants, like dining out, and 20% to be put into savings,” Droesch said.
While you may need to make adjustments to these allocations over time, the 50/30/20 rule is a good starting point.
3. Beware of Lifestyle Inflation
Growing income allows you to fast-track the path to your goals. However, you’ll have to overcome the temptation to spend it all on lifestyle upgrades.
“Many people get into a poor financial cycle of lifestyle inflation which means they take on bigger expenses and spend more when they make more. This takes away from the opportunity to build savings, invest and build wealth,” Woroch said.
To guard against this pitfall, Woroch suggested assessing your expenses and following a detailed budget. Whenever you get a raise or cash windfall, revisit your budget and decide how you can best spend it.
[READ: What Is ‘Lifestyle Creep’ and Should You Try to Avoid It?]
4. Use Budgeting Tools
Lastly, Woroch recommended using technology to help you set goals, track progress and hold yourself accountable.
“For example, GoodBudget uses the cash envelope method that assigns different digital envelopes for various expenses and a certain dollar amount for each. You then use those dollars to pay bills or cover purchases that fall into their respective categories. Ultimately, this helps you stick to your spending plan without much thought,” Woroch said.
She also shared that there are tools to help reduce your expenses for you.
“Trim (asktrim.com) will identify subscriptions and cancel the ones you don’t need. And, BillShark negotiates rates with monthly service providers,” she added.
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Hate Budgeting? Here’s How to Reframe It originally appeared on usnews.com
