Money is like the ocean. You can have fun with it and play, but you always need to keep a healthy respect for it and know its power. If you play too hard and forget where you are, it can easily sweep you away (there’s a reason it’s called drowning in debt!). But if you enjoy it wisely, you can have all the fun you want and keep your head above water. If that metaphor sounds scary, well, good. As I said, we need to respect the power of money. Good or bad, it is important. Luckily, just like adults can learn to swim, it’s never too late to learn good financial habits and develop a healthy relationship with money. Just think of this article as your YMCA camp swim instructor!
This article should not replace professional financial advice, and if you are in debt or a serious financial situation, you must acknowledge it and find help. However, if you know the basics and just need a boost, read on for some simple tips I’ve found useful for staying on-budget, saving, and, most importantly, leading a healthy and well-balanced financial life.
1. Budgeting Basics
Most of us know how to make a basic budget of income and expenses (if you don’t, I recommend the tools at LearnVest). The key to having a budget you can stick to is to over- and underestimate appropriately. Some expenses, like housing or car insurance, will remain the same each month and should be represented accurately in your budget. There are other expenses, though, that change, like utility bills and food. It is important to overestimate these expenses. That way, you won’t be surprised by the utility bill that comes after a July heatwave and in winter months you’ll end with a surplus.
I also find it helpful to underestimate income. Some people have jobs that vary in income (waiters, freelancers, small business owners). Underestimating income here is so important, because there will be some months where things are slower. You want to make sure you’re living within your means every month, not just the months you make the most.
For those with jobs that pay the same amount every month, it can help to round to a lower number. For instance, if my paycheck is $1127, I’d count that as $1100. I like this for two reasons: it’s easier to deal with nice round numbers, and if I stick to my budget each month (which I should because we’re creating realistic budgets here!) that’s an automatic $54 extra each month I can put straight into my savings account.
2. Negotiate the Negotiable
Not everything in our budget is negotiable. Rent or mortgage will likely be the same each month, as previously discussed. However, there are many line items that vary, and likely have a little more room than you might think. Gas, for instance, groceries, dinners out—all of these can be tweaked. Overestimate these costs to make sure your budget is sound, then experiment with different ways to cut back. Try meal planning and grocery shopping efficiently (Americans waste a lot of food, which also means wasted money). Or perhaps you can rearrange your schedule, or carpool sometimes, to save on gas costs. If you experiment with different tweaks, eventually you’ll find the ones that work so well you don’t even notice you’re “sacrificing.”
3. Rank What’s Important
Every budget article ever brings up coffee, as though a daily Starbucks is single-handedly ruining the American budget. It’s true that coffee adds up quickly in both money and calories, but some of us just need our coffee, OK!!!! You can have your coffee and drink it too, as long as you prioritize. In the coffee example, switch to home brew if you can, but if you don’t want to, just reprioritize. Eat dinner out two fewer times per month and boom—that covers your coffee habit. On the other hand, if dining out is most important, figure out where else you can scale back. Prioritizing what’s important will make your budget easier to stick to, because you’re still getting what you want.
4. Embrace the Extra
It’s possible that you have more income than you actually think. If you get paid every other week instead of twice a month, that means you actually get 26 paychecks each year instead of 24—which means twice a year you basically get a bonus! If you’re single and work for a company, odds are you’ll get a tax refund each April. Whether it’s $150 or $1500, that’s more extra money to save. If your job provides an incentive plan and you get a year-end bonus…well, you can see where I’m going with this.
5. Never Underestimate Saving
Over 40% of Americans live paycheck to paycheck, and about half save less than 5% of their income. Don’t be one of these people! The importance of saving cannot be overstated. You should be sure to give savings it’s own line item in your budget, because it should never be an afterthought. Build up a good cushion in a bank account and then think about investing everything else. And of course, do not forget about retirement! It is never too early to start planning for retirement. It may seem like a major downer to think about when you’re 24, but your 64 year old self will worship you for planning ahead.
6. Find Your Little Tricks
In addition to small budget tweaks, there are a ton of little tricks you can use to find extra cash in your budget. My personal favorite is the $10 bill. I never spend a $10 bill. If I get one back from breaking a 20, it goes straight into a jar in my closet. Ten dollar bills are small enough that it’s not a huge sacrifice, common enough to make a difference, but not so common that you’ll be putting all your cash away. Over a couple of months these tricks can add up in a big way. After 6 months I had about $200 socked away that I didn’t even notice siphoning off. When you reach a certain amount, roll it into savings, put it towards a vacation or buy a nice bottle of wine—just don’t spend it all at once!
Budgeting doesn’t have to be a bummer. Just like practicing swimming, over time it will become second nature and you’ll be able to manage your money without agonizing over it. You should revisit your budget every couple of months to make sure it still fits your life, but making tweaks, reigning in when necessary, and adjusting numbers will become easier. Over time, you’ll manage to learn the major lesson: how to have a healthy relationship with your money and enjoy it without stress. Just keep swimming!