This is likely the first category if your budget you will find easy opportunities to save each month. Remember, it is okay to spend on hobbies, coffee, and other wants. The key is being able to afford those expenses and only incurring them after your retirement savings, debt payments, and needs are covered first.
Adjust to your spending target
Now you know exactly how much you spent last month and have a blueprint for your budget. Your next stop is looking for places to save. Savings can happen in any category. In the wants area of your budget, you may cut things completely. In the neds categories, you may find substitutes and cheaper options.
One area to focus in your budgeting and saving efforts is the “big win” categories. These include expensive recurring costs and large one-time expenses. Think of things like cable TV, cell phone bills, cars, and even your monthly car payment when looking at opportunities to save.
Keeping a car a long time is one of the best big wins in your budget. If you can keep a car longer instead of leasing or buying a new one with a $300 monthly payment every month for a decade, you will save $36,000 compared to people who think a $300 monthly car payment is normal.
Cable TV is another easy target. I cut my cable back in 2011 and have saved about $5,800 in the years since. That is enough for a lavish trip to Europe with plenty of dollars left over for retirement contributions. Or, if you have student loans or other debt, $5,800 closer to debt freedom.
Three popular budget methods to try
Your budget won’t keep working on its own forever. You’ll need to keep up with things to make sure your budget continues to help you meet your spending goals. Here are a few different budgeting methods that may work for you.
Old school budget – A traditional budget is based on how much you want to spend each month with detailed categories guiding your spending within your self-determined limits. If you want to use an app for this type of budget, consider Mint or Mvelopes.
Zero based budget – This budget gives every dollar a job. You budget for savings, debt payments, and every other dollar you spend. This is best for people who have failed with traditional budgets in the past or people with serious debt or trouble reaching financial goals. If you want an app for this type of budget, consider YNAB.
50/30/20 budget – This budgeting method is best for people who generally don’t have problems with their money. If you are out of debt or well on the way, have conservative spending habits, and don’t need strict spending limits, this is a big time saver when budgeting. The basic idea here is to allocate 50 percent of your income to basic living needs, 30 percent to discretionary expenses, and 20 percent to savings and investments.
Stop working for your money and make it work for you
People with credit card debt, student loans, and other high-interest debt work hours every week just paying interest. Avoiding debt and keeping your spending in check are important to your financial health. If you build a budget and stick to it, you should be on track to personal finance success.