We often mistakenly think that managing your budget is something complicated . That requires spending hours peeling your receipts and browsing your bank statements.
However, things have changed a lot.
Today, there are plenty of quick and easy ways to create and manage your monthly budget . Among other things, budgeting apps and software make the task even more accessible to everyone. And above all much easier.
In truth, managing your money well has never been easier.
In this article, we present different techniques and tips to manage your budget like a pro.
1.Track all your expenses, without exception
Let’s be honest : you certainly very regularly make small expenses that seem almost insignificant to you.
Whether it’s a sandwich or a coffee to take on the way to work, a nail polish in a color you haven’t yet, a last round at the bar before going home…
And at the end of the month, when it’s time to save… you’re almost left with nothing. And you wonder where all your money went.
This phenomenon is so common that it even now has a name: the latte factor , or “milk coffee factor” in American.
This is a popular strategy for setting aside large sums of money by reducing or eliminating small, invisible (and often not very useful) purchases that drain your budget each month.
Chances are, if you’re not following a budget yet, you won’t even realize how much these many small expenses are costing you year-round.
The best way to find these unnecessary expenses? Keep a monthly budget, and especially analyze your expenses each month .
- Group each of your expenses into categories (which most budget management software allows you to do).
- Identify how much you spend in each of these categories.
For example, you may realize that you spend “only” €9.80 in cafes each week… Which actually amounts to €42.14 per month, and €505.68 per year. The cost of a short weekend for two in Europe.
Warning : the purpose of this method is absolutely not to deprive yourself of everything. Quite the contrary. But it’s about identifying the expenses that are of little or no importance to you , but which nevertheless empty your bank account every month.
Choose the right system to manage your budget
There are four basic ways to create, track, and manage your budget.
Each has its advantages and disadvantages. Everything will depend on your preferences and organizational habits.
- The paper/pen version with an account book or a Kakebo . With this method, you simply list in writing on a suitable medium all your income and all your expenses. In the digital age, this method has lost some popularity, but it can be particularly suitable for those who prefer the physical to the virtual.
- Spreadsheet : The most popular spreadsheet software is Microsoft Excel. But today there are other options like Numbers or Google Sheets. This is to create a spreadsheet on which you will keep your accounts and track your daily expenses.
- The budget application : the budget applications, quite recent but increasingly complete and powerful, allow you to manage your accounts and your finances directly from your smartphone.
In any case, the goal is to find the system that suits you best – not the one that is necessarily the most popular.
And take the time to experiment with different methods if one of them doesn’t work for you. Everyone has the right to make mistakes: the goal is to keep moving forward.
3.Automate your finances
Rent, telephone, utilities… Like everyone else, you probably have several monthly bills to pay. But do you pay for them all automatically?
If you have to pay your bills manually every month, this has two main disadvantages.
Not only does it take up your time, which you would surely prefer to dedicate to something else (unless you have an unwavering passion for manual payment of invoices…).
But it also takes too much of your mental energy. Enough enough to put you off managing your personal finances (spending 30 minutes managing my budget after spending an hour paying my bills? No thanks!)
According to David Bach, author of the best-selling The Automatic Millionaire , automating your finances is the best decision you can make for your money.
Take a moment to ensure that:
- Each of your bills is paid automatically
- But also to set up an automatic transfer to a savings account each month after receiving your pay. It’s generally recommended that you set aside about 20% of your salary each month for your savings goals. But the main thing is to start somewhere. Even 4% is still better than zero.
4.Regularly review your financial situation
One of the most important parts of budgeting is evaluating your progress and adjusting your needs over time.
Categorizing your expenses just to tell ourselves that our monthly budget is in place makes no sense. And it won’t benefit you.
So at the end of each month (or each week for the most committed among you), take a moment to analyze how you spent your money.
The objective is also to draw lessons not to be repeated for the following month.
To make sure you stick to it, set a date in your calendar ahead of time, such as the first Sunday or the last day of each month.
5.Staying realistic: an essential part of managing your budget
When you first compare your budget with your actual expenses, you’ll probably be surprised to find out the truth about how you spend your salary each month.
But if you realize you’ve unknowingly spent more than $100 in total on fast food, it’s probably unrealistic to tell yourself that you’ll stop eating out altogether overnight.
Instead, try to limit or gradually reduce your spending in the categories that contribute the least to your happiness or the achievement of your goals.
To use our example, next month, set a fast food budget of €50, and do everything to stick to it.
Being honest with yourself is the only way to progress, set realistic goals, and ensure a secure financial future.
6.Allow yourself (exceptionally) some deviations
The problem with trying to impose too strict a budget too quickly? It’s getting way too hard to stick with.
Sooner or later, you may become frustrated with having to deprive yourself just to achieve your goals. And you end up thinking that budgets don’t work and giving up managing your expenses altogether.
Do not forget to leave room in your budget both for small pleasures for which you can crack from time to time, but also for the deviations which could tempt you.
I personally budget €50 every month for “unforeseen expenses” that come to my rescue in these situations.
And above all, as long as you also reach your savings goals, don’t feel guilty about using them!
7.Manage your budget with your partner
Budgeting while in a relationship can be quite difficult.
It’s not always easy to go from decades of managing your money alone to having to balance your spouse’s needs with your own.
Even if you decide to each manage your money on your own and not have a joint account, it is essential to discuss personal finances and budget with your partner.
Whether it’s in your lifestyle, the amount of your rent or your long-term goals, money is underlying many stages of a couple’s life. It is essential to prepare for it to avoid tensions and financial errors that can cost you dearly.
8.Use the 50/30/20 method
Very popular to guide the management of personal finances, the 50/30/20 rule is a method that allows you to build your budget by dividing your expenses by “broad categories”.
The main advantage is that this method encourages you to regularly put a certain percentage of salary on your side for your savings goals.
The distribution of your salary is then done as follows:
- 50% is used for basic expenses : housing, essential bills, groceries and other mandatory expenses.
- 30% is used for desires/pleasures : shopping, lunches or dinners out, hobbies, holidays, outings… and other non-essential expenses.
- 20% is used for savings : financial goals, savings, investment (PEA, life insurance ), emergency fund , etc.
- You will then of course have to categorize your expenses more specifically within each of these 3 major groups.
- Here too, be careful: this is a guide to the ideal distribution of your expenses. Not a model to necessarily be taken literally.
- The goal is above all to understand the balance between spending pleasure and saving to put aside.
9.Define personal and relevant categories
Some categories of expenses will be common to almost everyone: rent and utilities, food, savings…
Then come the long-term expenses, which also often come out for the majority of us: medical expenses, gifts, clothes…
On the other hand, some categories will necessarily be more rare and personal . For example, the improv classes I take each month are a subcategory of my “Hobbies” budget. Two people will therefore never have exactly the same budget.
It is very important to spend time creating specific categories that will best reflect your actual expenses.