You can probably give a lot of reasons why budgets haven’t worked for you in the past. You’re busy. You have an aversion to spreadsheets. You don’t have time to log all your purchases. You don’t want to deprive yourself of that daily latte no matter what those so-called “experts” say. (Good news: You don’t have to.)
Sound familiar? Then you’ve been thinking about budgeting all wrong.
“Every individual’s goal is to be happy,” says Terrance K. Martin, director of financial literacy programs at the University of Texas-Pan American. “If you can frame money as a medium of exchange to buy things that make you happy and put it in real terms that matter to you, that forces you to act and take control of your finances.”
Martin’s not suggesting you start “happily” swiping your Visa whenever you want and calling it budgeting. He’s talking about reframing your whole approach to spending and saving so you direct more money toward purchases and experiences that bring you joy and less toward those that don’t. (You’d be amazed at how much you’re probably spending on stuff that doesn’t up your happiness quotient.)
How to put that into practice? Try these steps to build a budget you’ll actually want to follow this year.
1. Make room for what matters most.
If you don’t tailor your spending plan to your own preferences and priorities, it won’t work. It’s that simple.
Yes, you need to account first for your must-have monthly expenses—your rent or mortgage, groceries, and utilities. And don’t forget non-monthly bills, like insurance or taxes, and financial goals—such as building an emergency fund, contributing to an investment account, and paying off debt.
After that, think hard about the things and experiences that make you happy. It could even be that daily latte, if it brings you joy to sit and sip it in Starbucks every day. Or it might be giving some of your money away.
That’s a top priority for Philip Olson, a certified financial planner based in Austin, Tex., with Ameritas Investment Corp. “My wife and I give to charity more than anyone we know—not because we’re such amazing people, but because it’s in the budget,” he says.
And don’t forget to factor in fun. “You have to have a reasonable amount of spending money in your budget,” says Shanda Sullivan, an Oklahoma-based certified financial planner at Sullivan Financial Strategies. “Otherwise, you’re going to bust it.”
It’s all about tailoring your plan to reflect the way you want to spend your time and money. “You have the power to decide where your dollars go and what dreams you can go after,” Olson says.
2. Cut out what doesn’t.
Here’s where you have to be vigilant. A lot of us are losing a lot of money each month simply out of laziness or because we didn’t plan ahead.
Did you forget to cancel that “free” trial after the 30 days was up and you started getting charged? Or the auto-renewing subscriptions to magazines you don’t read or could get online? Are you paying fees for out-of-network ATM withdrawals because you don’t feel like walking an extra couple of blocks? Spending money on expensive (and not especially good) airplane meals because you forgot to pack a snack? Or running out to a convenience store for household items that cost twice as much because you forgot to stock up?
When was the last time you checked the fees you were paying on your bank account? (There are lots of free or low-fee checking accounts out there.)
Are there gym memberships you’re not using but still pay for? Are you still paying for cable even though 90 percent of what you watch is on Netflix or Hulu?
Be merciless. Cut out every expense that is not giving you real value for the money you’re putting into it, and you can start directing that money toward purchases that do.
3. Don’t sweat the small stuff.
Make smart choices about big items in your budget, and don’t obsess over pinching pennies. After all, if you’re spending 50 percent of your take-home pay on rent, cutting out coffee isn’t going to help much anyway. Bonus: Minimizing major expenses—like transportation, housing, or utilities—leaves more wiggle room for the occasional unbudgeted splurge.
Taking aim at the big expenses may mean finding a roommate, opting for a cheaper car, or spending a few hours calling up service providers to negotiate better rates on your heftiest bills.
One exception on small stuff: Those seemingly “small” fees you get charged on bank or investment accounts and related services like using out-of-network ATMs. They can add up fast. So hit your bank’s ATMs or get cash back at grocery or drugstores that offer it for free, and look for low-fee accounts. You can compare accounts on sites like Bankrate.
4. Know where your money goes.
Once you’ve put together a personalized spending plan, decide how you’ll track your monthly progress.
“Seeing your expenses—and not just in your head—is pretty sobering,” Olson says. This is how you’ll know if the budget you’ve laid out is realistic, or if it could use some tweaking to better align with your priorities.
Online budgeting tools and apps like Mint, Level Money, You Need a Budget, mvelopes, Wally, Billguard, and Dollarbird make this exercise pretty painless by allowing you to link bank accounts and credit cards and tracking your spending for you.
Of course, you could also just boot up Excel or go old school with a pencil and paper. After all, it matters less how you make your budget than that you stick to it.