Ah, the dreaded “b” word – budgeting. It’s the one quintessential step into adulthood that we know we should’ve taken a long time ago, but until recently, we were still avoiding at all costs.
At one point, budgeting felt like the most daunting task that we could ever put ourselves up to. Voluntarily putting an end to our monthly Amazon hauls and preventing ourselves from splurging on products we don’t need? Umm… no thank you!
But luckily enough, we’ve come to find out that budgeting doesn’t actually have to be as scary as it seems. And believe it or not, it doesn’t even require us to stop shopping all together. In fact, we’ve actually discovered that saving money can be broken down into these six simple steps. So if you’re ready to start saving, scroll on!
Step 1: Know your why
Making major money moves often requires major motivation. Of course, we know that putting an end to our habit of buying an overpriced latte every morning will save us money in the long run, but what’s actually going to convince us to do it? Before you jump head first into creating a budget, set forth some financial goals for yourself and think about what you’re actually trying to save for. Trust us when we say that making small, but significant, sacrifices in order to save money will feel super simple when you’re focused on the bigger picture – like owning your dream home, starting a small business, or jetting off on a luxurious beach vacation one day.
Step 2: Pay yourself first
Chances are this isn’t the first time you’ve been given the advice to pay yourself first. But it truly is one of the golden rules that financial experts always seem to share when they’re asked about how to save money, so we figured it was worth a mention! Here’s how it works. When payday arrives, start by putting about 20% of your paycheck into your personal savings account before you even think about taking care of your bills. While it may seem like your expenses should always come first, this concept all goes back to that “why” we talked about in step one. When you know you’re working towards your goals, giving up a big chunk of your change for day-to-day living expenses won’t seem so tough at all.
Step 3: Define what’s essential
Once you’ve calculated your monthly income, you’ll want to break it down into what can be saved and what needs to be spent. Of course, a big percentage of your paycheck will always go to paying your bills, but once you’ve set aside the funds for mandatory expenses like food and fuel, then you can decide what else is considered essential for you. Whether it’s a gym membership, or a monthly deep-tissue massage, whatever is left over after you’ve taken care of your cost of living should be spent on that. Our rule of thumb? 50% of your budget should always be allocated to your essentials.
Step 4: Create a buffer
Is it just us or do the most unforeseen and expensive emergencies always seem to occur at the least opportune times? Sometimes our car breaks down, we catch a bad cold, or we lose a job – we’ve all been there. While stressful situations like these are bound to occur, they don’t always need to catch us off guard. As long as you start saving now, you won’t have to scrounge up the pennies to pay for unexpected charges when they come up later. Think of it as your own personal insurance policy. Each month, simply set aside about 10% of your income to create a “buffer” that will be there waiting for you on a rainy day, just in case you need it.
Step 5: Add a “fun fund”
You didn’t think we’d forget to have a little fun along the way, did you? Of course we know that budgeting can be pretty bland and boring, but we were determined to find a way to make saving money a little less mundane. While we can’t deny that a percentage of your income does need to go to bills and buffers, we also know the importance of treating yourself every once in a while. So once all of your mandatory spending and saving has been said and done, don’t forget to set a bit of dough aside for whatever you think is fun. Whether it’s brunch with your best friends, tickets to a virtual concert, or yes, even a bit of online shopping – anything is fair game. We recommend allocating 10% of your budget to this fund, but if you find yourself with a bit less than that left over, that’s okay too!
Step 6: Put it into action
Once you’ve decided what percentage of your income you’d like to spend and save, you’ll want to find a way to keep track of it all. The good thing is that there are plenty of templates on Pinterest, as well as many mobile apps that are made to help you streamline and simplify your budget.
One app that we’ve been loving in particular lately is mint. Not only is it one of the most trusted and best-known finance management apps out there, but it also makes it really easy to keep track of your monthly spending all from the palm of your hand. It automatically syncs your bank accounts and credit cards to automatically keep tabs on your income, purchases and savings – so all you need to do is download it and you’ll be well on your way to saving like a pro!
Xo, The Pretty Little Hangers Team