Some facts:
1. Beginning a personal finance journey is hard. There’s so much to think about — let alone do.
2. Starting with a budget is the best first step you can take.
3. It’s one thing to build a strong budget — we’ve got 5 tips for that — it’s another thing entirely to stick to the budget you make.
So we’re back with 3 more tips. This time, it’s all about helping you commit to your budget.
You’ve got to be honest with yourself about your budget, or you’ll risk failing before you start. A realistic budget must account for expenses you need to pay every month (we in the industry call those “non-discretionary expenses”). Be detail-oriented with all your “needs,” because, well, you need to pay them.
It’s relatively easy to budget for needs that don’t change and occur regularly, like rent, internet, and phone bills. But there are two other categories of needs you should be thinking about:
1. Variable costs: How much you spend on some needs, like groceries, will change depending on how many cans of Olipop or bags of Goldfish you buy. The same is true for gas or, if you’re not using a car, Uber or public transportation.
2. Less frequent expenses: You might only pay renter’s insurance once a year, or car insurance once every three months. It’s easy to overlook these expenses, but it’s bad for your budget if you do.
Era can help on both fronts, helping analyze your spending habits to build a budget that’s realistic for you. Era brings AI to personal finance to give you a projection of variable expenses in the future or help plan for those less-than-frequent needs, like insurance, that you don’t want to forget. Here are some prompts to try:
“Era, based on the last 12 months, how much should I allocate in my budget for groceries every month? I’d rather have money left over than not enough, so estimate on the high end.”
“How much did I spend on insurance last year? Can you make sure I’m saving the right amount every month to make insurance payments when I need to?”
Having your needs down pat is the first step towards smarter budgeting.
While you need to have a detailed inventory of your necessary expenses and allocate the appropriate amount to each category, do the opposite for discretionary expenses (meaning, fun money! Going out to eat, buying books, going on vacation, or paying for an Orangetheory class).
Some people take a detailed approach, budgeting $X for coffee, $Y for eating out, $Z for weekend trips with friends, and so on. This adds complexity to a budget. If you overshoot your eating out budget, where does that money come from? How do you find the time to keep track of a budget with dozens of discretionary spending categories?
So, don’t do that. When you’re new to budgeting, keeping it simple will help you stick to it. Instead, try allocating a single amount for your discretionary expenses each month. It’s a lot easier for you to keep track of a single number, which gives you the freedom to choose if you’d rather get a new, cozy sweater or eat out a few times. Your budget doesn’t need to micromanage you.
This story should be familiar to anyone who has made a New Year’s resolution: You make a resolution to work out 3 times a week, say. You stick to it for the first few weeks of the year. Then you get sick, or have to travel, or encounter some other disruption that makes you miss your goal. After a few understandable interruptions, you might give up on your resolution altogether. At the end of the day, you might work out more consistently with no New Year’s resolution at all.
Your approach to budgeting should keep one, simple fact in mind — no one’s perfect. Give yourself a bit of grace.
Building buffers into your budget for both wants and needs ensures that when you deviate from your budget — whether it’s a blown tire or something you’ve really wanted to buy goes on sale — you’ll still be on track to hit your goal and stay on track.
With a strong plan for building a budget, these tips to sticking to it, and Era in your pocket, there’s no budgeting hurdle too big to overcome.
