8 Budgeting Tips for Healthy Finances

Creating a budget may help you find balance between paying for essentials and creating space to purchase the things that make you happy.

Are you ready to take control of your finances and start building a healthy budget?

In 2018, a survey from the Certified Financial Planner Board of Standards (CFP Board) found that 62% of consumers who have a budget feel more in control of their lives.¹ This feeling of extra control makes sense—the budgeting process requires digging into spending habits and establishing boundaries for that spending.

And while the term "budget" is often synonymous with those limits, creating a balanced budget that incorporates your wants and goals may help you define your spending (and saving) priorities and place you on a path to a better financial future. Is that actually restricting or is it in fact freeing? Well, that’s up to each individual.

If you’re game, let's review some tips to help you create a strong budget.

Key Takeaways

• Budgeting effectively could make your finances more manageable and help you achieve financial success.

• Budgets should accurately reflect your financial situation and goals.

• Including unexpected expenses and discretionary funds may make it easier to keep your finances on track in the long run.

What Is a Budget and Why Is It Important?

A budget helps you manage money by tracking income, expenses, and spending effectively.

Creating a budget teaches you a great deal about your spending and saving habits. It helps you see where you spend money and gives insight on potential changes that may help you reach your financial goals, whether it’s saving for a home, establishing a nest egg for retirement, or preparing for your child’s education.

At a minimum, having the discipline of a budget could help you stay out of unnecessary debt that may be mentally and financially draining.

Tips for Budgeting Effectively

Check out our budgeting tips that may help you manage your money better, reach your goals, and create a secure financial future.

Tip 1: Find Your Starting Point

Start with two actions: establish your financial goals and track current money flows.

Setting clear financial goals can help create a roadmap for your finances. They also help you prioritize how you’re spending money, which is an important input for budgeting.

Begin by tracking your expenses and spending. This means documenting all your transactions and income. Understanding how much money you have coming in and where it’s going helps you create a realistic budget.

Tip 2: Identify Needs and Wants

Identifying and organizing your expenses helps allow you to meet your basic needs before you spend money elsewhere.

There are always some expenses you can't avoid in life, often called needs or fixed expenses. Some examples include:

• Rent/Mortgage

• Utilities

• Groceries

Then, there is also the obligation to repay debts. As they are paid off, those payments could be reallocated toward other priorities. Common debt payments include:

• Credit cards

• Loan repayments (auto, student, etc.)

After you get through your necessary expenses, layer in your financial goals, which may include:

• Creating an education fund

• Saving for a down payment on a house

• Building retirement savings

Finally, include any expenses in your budget that help you live your richest life. They may include:

• Vacation (hint: a vacation fund is a great way to save for this)

• Dining out

• Streaming services

• Sports and hobbies

This structure helps give you room to pay down debt, cover current expenses, treat yourself occasionally, and save for the future.

Tip 3: Create an Initial Framework

Based on the information you’ve collected about your income, expenses, goals, and wants, it’s time to create a realistic action plan.

Create a framework for a budget that accurately reflects your financial situation and includes your income, fixed expenses, and debt payments.

While it may be tempting to include that potential raise or ignore those splurge purchases because you promise that next month will be different, but doing so is likely to set you up for disappointment, and potentially debt.

After establishing this initial framework, layer in your goals and wants based on the amount you have left after your fixed expenses.

Tip 4: Automate Your Savings

Our 2023 annual survey on goal setting found that 58% of people want to save more money in 2024.² Saving is often the first step toward accomplishing your financial goals. One of the easiest ways to do this is by utilizing automatic transfers from your checking account to a high-rate savings account to put your savings on autopilot.

Tip 5: Factor in Fun

We often think of budgets as a way to limit our spending. In reality, we should use them to help manage our money effectively and direct money towards things that bring us joy.

Set aside money in a specific account for fun things, like dining out or traveling. This way, you may be able to enjoy these activities without worrying about your budget or feeling restricted to the essentials.

Tip 6: Expect the Unexpected

Besides the priorities we mentioned, it's smart to have an emergency fund available. This might sound obvious, but it’s important to set some money aside for unexpected expenses that could pop up. We promise you’ll be glad you did when that emergency vet or car repair bill arrives.

Make growing your emergency fund part of your budget until you have enough to cover a crisis. The general rule of thumb is to have enough savings on hand to cover three to six months of expenses.

Keep these funds in a dedicated savings account separate from your other savings goals. This helps reduce the temptation to spend them for other purposes but makes them accessible when you need.

Tip 7: Revisit Your Budget Regularly

Regularly reviewing your budget is important to ensure it aligns with changes in your goals and finances. Sometimes we may feel tempted to set our budget and leave it as is. However, making adjustments as needed may help you stay on track and reach your financial goals faster.

Review your financial plan when you encounter major changes, like getting a higher salary or setting a new financial goal.

Tip 8: Nobody’s Perfect — Give Yourself Grace

It’s okay to occasionally veer off course. With a strong budgeting plan in place, the periodic misstep shouldn’t destroy your progress.

Sometimes, when people miss a milestone or lose sight of their goals, their impulse is to ditch the plan altogether. We’ve all been there. Instead of throwing your goals out the window, learn from the experience and move on.

Remember, this is a lifelong journey. Not only do you deserve to enjoy your life, but celebrating the financial wins, both big and small, helps motivate you for the long term.

Final Thoughts

A budget doesn’t have to feel restrictive or be a chore. Focus on what you gain by implementing a budget – achieving your goals faster and having peace of mind that you’re helping to make smart choices with your money. Plus, building in opportunities to reward yourself along the way may help you stay on track.

And if things don’t go as planned? The comeback always outshines the setback.