As the new year approaches, you’re likely looking for ways to improve your life. If you’re like many people, you’re making a list of resolutions and on that list might be “save more money.” According to a YouGov America poll, saving money was one of the top four resolutions for 2021.
The key to saving money is creating and staying on a budget. The best tips for sticking to a budget can vary depending on your life stage and financial situation. If you’re looking to improve your financial situation in 2022, here’s how to make and keep your budget.
If you’ve never made a budget before, the first thing to do is get to know the different types of budgets out there and to choose a method that works for your income, financial goals, and personality. The 50/30/20 budget is a popular “starter” budget. Using the method, you spend 50 percent of your take-home pay on needs, such as housing, food, and utilities. Thirty percent of your income goes toward “wants,” such as your daily take-out coffee or your monthly Netflix or Spotify subscriptions. The rest, 20 percent, goes toward savings or debt repayment above the minimum due.
Some prefer the bucket method. Using it, you set up separate bank accounts for each of your spending categories, such as home, utilities, and groceries. You deposit the amount you need into the accounts monthly. Once the money is gone, you’re done spending in that category for the month.
When making a budget for the first time, have a goal in mind. What do you want to accomplish with the budget? You could save for a down payment, pay off your debts or save more for retirement, for example.
Whether you’re still in college or just landed your first real job, you’re never too young to budget. In fact, the earlier you start budgeting, the more likely you are to develop strong money habits.
As a young adult, you’re likely focused on paying off student debt and starting to build your future. Even if retirement seems far away, try to incorporate saving for it into your budget. Even setting aside a small amount, such as $50 or $100, monthly when you’re young can make a big difference as you get older. At this stage in life, you might be used to living cheaply. Keep it up, even as your income grows.
Budgeting tips for singles overlap with budget tips for one-income families. With just one breadwinner in your household, you might need to stretch to make ends meet. Take a close look at how you spend your money to see if there are things you can cut back on. It’s also critical to focus on saving when you have a single source of income.
Start building an emergency fund, if you haven’t already. Your emergency fund can cover income if you lose your job. It can also cover any unexpected expenses you might face, such as a car repair, child’s medical bill, or pet’s veterinary care. Having three to six months’ worth of income in your emergency fund is ideal, but you might want to set aside more if you rely on a single income source.
If you plan on retiring in 2022 or have recently retired, you’ll likely need to make changes to your spending habits. The first thing to do is know your retirement income. You might have income from your savings, a pension, and Social Security.
Ideally, your expenses won’t be more than your retirement income. If you’ll be pulling from retirement savings, try to limit the amount you withdraw to more than 5 percent of the total, at least during the first few years.
No matter your age or household situation, if you’re on a tight budget, you might have to make some cuts to your spending. Review your expenses carefully and look for ways to cut back. Focus on the big items in your budget, such as housing and transportation. Reducing your housing payment by $100 a month means you save $1,200 annually.
Once you’ve cut the big-ticket expenses, look at the smaller ones. Consider canceling subscriptions you don’t use or cutting back on non-essentials. Make specific goals, such as cooking dinner at home at least four times a week or bringing your lunch to work daily. Look for ways to do the things you love for less money. You might be able to cut out a gym membership if you start running in a nearby park or doing yoga to YouTube videos.
How you shop affects your budget. For example, you can cut back on your grocery spending in a few ways. Try shopping at a discount grocery store, such as Aldi. Make a list of what you need before you shop and stick to it. Use the sales flyers to plan your purchases so that you don’t pay full price for anything.
When shopping for clothing or household items, look for gently-used products first. Consignment shops and thrift stores can help you get the things you need for less. Also, check to see if there’s a buy-nothing group in your area. Once you join the group, you can get, gift, or swap items with your neighbors.
