10 Quick Tips to Budget and Manage Your Money Better: The U.S. Household Budget

So many people ask themselves how to budget money more effectively, particularly when they face economic challenges or hardships. A widely publicized 2013 survey by Gallup found that only one in three Americans prepares a detailed household budget.

Fewer than 30% of surveyed Americans said they make long-term financial plans which outline savings and investment goals.

For those who did say they focused on making budget plans, they relied primarily on computer-based or online financial programs, as opposed to accountants or financial planners, at a comparison rate of 32% to 24%.

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All of this research shows one startling fact: Americans who say they budget their money or use household budget planner software platforms are actually in the minority.

Some possible reasons for this include the strains associated with economic issues or the rise of banking technology that makes it easier to keep close tabs on your spending in real-time without the need for a traditional budget plan. Many Americans are also still underemployed years after the Great Recession, and they may feel as if budgeting isn’t a realistic possibility for them.

Regardless, even with easier banking tools, learning how to properly manage your money and making a budget plan are still imperative to long-term financial stability and security.

The Benefits of Making a Budget Plan

Regardless of your age, income or financial standing, learning how to manage money through the creation of a detailed budget is an incredibly valuable way not just to watch your spending but to also find more creative ways to save and invest your money.

  • Budgets give you control over where your money is going. You may feel as if you’re not making enough money to pay your bills or save, but if you gain perspective and a sense of control over your money, you may find that you have more than you think.
  • Creating a foundation for managing your money also sets you up to create goals and meet them. Whether it’s purchasing a home or planning for retirement, financial goals are essential and often aren’t going to be met without a substantial budget in place.
  • Some of the most unnecessary expenses many people pay for each month are late fees and interest rates on bills, loans, and credit cards. With the use of a budget, you can organize your finances in a way that allows you to avoid late fees and penalties as well as high, unnecessary interest rates.
  • If you’re part of a couple or a family, a budget can be a good way to create smoother communication and cultivate shared financial goals to reduce potential friction and disagreements.
  • If you are in debt, essentially the only way you can get out of this costly and stressful situation is to decide how you will pay it off, which can be implemented through the creation of a budget.

10 Smart Ways to Manage Money More Effectively

As many advantages may come with following a budget, you might be asking yourself how to manage money in a way that’s realistic for your life. You need solutions that are simple, attainable and are going to be easily tailored to your unique needs and lifestyle, right?

It’s with those goals in mind that we created this guide, featuring ten easy methods to determine the best way to manage money, regardless of your income, assets, age or financial goals.

1. Gain an Accurate View of Your Financial Situation

Thinking about finances, including your income, bills, and debt, can be a scary thing for  most of us. It can be disheartening to take a real look at where we’re spending our money, and we may even discover our output is greater than our input. It can also be a bit of a reality check to look into our debt and how much it is that we really owe.

Unfortunately, without doing a full audit of your finances, you’re never going to learn how to manage your money.

To begin the process of learning how to make a budget plan, start by assessing your current standing. Look at not only your monthly and yearly income but also your bills, discretionary spending, debt, loans, and savings.

Income is a critical part of this picture because so many employees and self-employed people don’t have an accurate view of what they earn. You need to deduct the amount of your salary or income going to taxes. Simply using your yearly salary figure as your earnings isn’t correct because it doesn’t represent your take-home pay.

If you’re a freelancer or contractor, this can become even more challenging. You may make $45,000 a year, but you’ll have to pay a significant chunk of that in taxes each year. It’s easier for people who have their taxes withheld to really see their true earnings.

You may also consider using this as a time to check your credit, to make sure there are no mistakes and understand your standing there as well since this is an important aspect of a full financial picture.

2. Track Your Spending

Before you start the process of learning how to make a budget plan, it’s a good idea to track how you spend your money for a few months.

Using a tool like Mint or another finance app can make this easier, and you can group your spending into simple categories that will give you a more comprehensive picture of where your money is going. This perspective is incredibly useful when you sit down and get to work creating your budget and longer-term financial plan.

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There are so many ways we spend money, many of which we don’t even think about. For example, think of how much you’re spending on that morning cup of coffee or having lunch out with friends instead of bringing food to work. It’s these small spending issues that can either sabotage your monthly budget or your longer term financial plans.

Tracking your spending is a lot like keeping a diary. Today’s consumers are lucky to have so many digital and software solutions at their fingertips to make this simpler and easier.

3. Define Your Goals and Priorities

The next step on the path to greater financial stability and security is to create a framework for how to budget your money. This framework should focus on your personal goals and priorities.

Perhaps what’s most important to you is to pay off high-interest debt quickly or to build a larger savings nest egg.

Whatever it may be that you want to achieve, having clearly-defined objectives will help you in managing your finances and creating short and long-term plans.

The more specific you can be with your goals, the better off you’ll be when it comes to building a budget. For example, simply saying you want to “save more” might not really give you a good budgeting starting point, whereas saving 15% of your income each month is a better guideline.

Other goals and objectives could include prioritizing or consolidating your debt and making a plan to pay it off or spend less frivolously.

4. Segment Your Must-Have Spending Areas

There are some areas that, no matter how much you budget, can’t be cut back on. For example, you can’t likely reduce the amount of money you’re spending on a house or car payment unless you’re planning to downsize.

Collect all these expenses and segment them to begin the foundation of making a budget plan. These are the first things that need to be accounted for in any financial plan since they can’t be avoided.

5. Look at Your Spending Diary for Places That Can Be Reduced or Eliminated

What’s important with this step is to understand that you need to manage your money in a way that’s realistic. You can’t suddenly say you’re going to cut out all extras and discretionary spending from your life because that’s not attainable, and it’s not likely the lifestyle you want to have.

What you can do is look for those areas where you could cut back, or find places where some spending could be eliminated without having too much of an impact on your life.

Work to create a sense of balance between spending money on the things you enjoy and cutting back enough to create a sound financial plan.

You may likely find you’re spending in places that aren’t even extremely important to you, so those become obvious areas for cutbacks.

The idea of managing your money is similar in some ways to a diet. Moderation is key. Otherwise, you’ll fall off the wagon quickly. Self-deprivation is not a good long-term strategy, so keep this in mind as you are making a financial plan.

6. Set up Automation Wherever Possible

When it comes to learning how to budget money, we have an advantage because we’re in the digital age. It’s much easier than in the past, when you had to keep track of everything with pen and paper and balance your checkbook each week.

Take advantage of automation features that make budgeting simple and effortless.

Set-up automatic deductions from your primary checking account each week to go into a savings account so that it becomes a completely thoughtless process, which removes a lot of the pain from saving. You can utilize a similar strategy with paying bills.

Automate your bill pay wherever possible, as long as you’ll always have enough in the account from which costs are being deducted from to cover payments. This will help you avoid late fees, stay organized, and it’ll be mentally easier.

7. Make It Mobile

Most of us consider our smartphones or tablets to be a pivotal part of our lives, so why not make these devices an essential part of managing your finances?

Your tablet or smartphone can be one of your greatest tools in your arsenal of financial resources. You can use your mobile device to access spending and budgeting apps that not just help you stay organized but can also give you alerts at pivotal moments; for example, if you’ve spent over a pre-defined amount in a day or if your bank account dips below a certain level.

Mobile-based spending apps can also be great for providing you a view of your finances when you’re on-the-go, and they can even be used as a way to automate your savings and bill pay.

When your finances are always available right at your fingertips, you’re more likely to make better budgeting and spending decisions.

8. Create Short-Term Milestones

Ultimately learning how to manage money is about long-term planning, but a healthy budget also includes elements of short-term objectives. If you create short-term objectives, either on a weekly, monthly or bi-monthly basis, it’s more manageable, and you’re more likely to achieve not only these milestones but also more likely to meet your larger future goals.

You could set a short-term goal of spending less on groceries or eating out less often. Perhaps your near-term goal is to lower the cost of your utilities or to cut one unnecessary splurge.

Whatever it is, realistic and manageable short-term goals are an important part of learning how to budget your money.

9. Use Cash

Using cash may seem like an outdated model, but it’s effective when it comes to managing your money. In fact, some financial planners and experts even say using cash is the best way to manage money because it forces you to really look at what you’re spending, and it can also be easier to limit yourself from making extravagant or unnecessary purchases.

You can allot yourself a certain amount of cash when you leave the house to run weekend errands and leave your credit and debit cards at home. That means you’re forced to spend only the amount of money you’ve set aside for that day or week which eliminates the temptation to go overboard – something that can come with the use of debit cards and, especially, credit cards.

If you can’t afford to buy something with the cash you’re carrying, then either give yourself time to think on it and decide whether or not it’s a worthwhile purchase or, perhaps, you can live without it altogether.

As an interesting side note, if you do find yourself using a debit card, there are some apps and tools, like Acorn, which can make it a good way to save money because it rounds up the change on your purchases and invests that money.

You can opt for daily, weekly or monthly investment amounts, which are the ultimate in effortless investing and savings.

10. Don’t Be Afraid to Alter Your Budget

When you learn how to manage your money, it’s important to realize your budget isn’t set in stone forever.

Rather, it’s a framework from which to build the basis of financial health, but it can be altered as needed.

You may find your spending needs increase or decrease from one month to the next, or your budget may have to be shifted to account for an unexpected emergency expense.

It’s okay to view how you manage your money as a fluid concept, as long as the fundamentals of your budget are strong and in line with your goals.

You’ll make adjustments as you go, and that’s okay. The top priority of learning ways to manage money should be proper planning, realism, and smart spending habits. As long as you have those elements in your financial plans, you’re likely to find success in achieving your goals.

Paving the Way for a Better Financial Future

Despite the shocking number of Americans who either don’t have a financial plan or don’t know how to budget money, it’s a crucial element of sound decision-making.

It’s our hope that the tips above are easy to follow and offer versatile ways on how you can start managing your finances better and creating a budget.

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