A new year can be a great time to think about your budget. Whether you’re trying to make up for holiday spending, follow up on a New Year’s resolution, or just want to take a fresh look at your finances, the budget can be a great place to start.
This month, Compass is sharing some tips to help you get started. But we also want to hear from you! Keep reading to find out how you can get your favorite budgeting tips and techniques featured in the next newsletter.
Tip #1: Know the two types of budgets.
The basic formula that makes up your budget is simple: Income – expenses = savings. However, it can be useful to think of two different kinds of budget.
- One kind of budget is the “now” budget. This tells you how you are using your money currently. Your “now” budget should be a realistic picture of your income and your expenses at this moment in time.
- The other kind of budget focuses on your financial goals. Your “goals” budget paints a picture of how you hope to be spending money in the future.
Remember that these two budgets can influence each other! They’re equally important, and eventually, you want your “now” budget to match up with your goals budget.
Tip #2: Track expenses.
Tracking expenses is essential to creating your “now” budget, but it can be a hassle. Here are some ways to make it easier.
- Focus on the problem areas. Tracking every single expense can seem impossible for busy people. If this is true for you, try focusing on the “problem areas:” the areas where you’re really not sure how much you spend, or areas you think you might like to change.
- Find your method. The same expense tracking strategies won’t work for everyone! Some people like to save receipts, while others like to write expenses down in a notebook. People who always use their debit card might like to sit down and look at their bank statements at the end of the week. Some people might like the convenience of a budgeting app such as Mint. If you have questions about different methods, your financial coach would be more than happy to help!
Tip #3: Be strategic.
If you decide to cut some expenses, you want to get the most bang for your buck. Think about your priorities, and look for resources to make things easier. Different people will find different expenses to be important!
- Be specific and realistic. At Compass, we try to avoid setting budgeting goals that are vague or unrealistic. For instance, “I'm going to save money” is a vague goal, and “I’m never going to buy coffee again” might be an unrealistic goal. A more useful goal might be something like “I will start buying coffee three days a week instead of five, and I’ll make it at home the other two days.”
- Know what resources are available to help you with your budget. There are a number of resources that can help you save money or manage expenses. One example is budget billing. Your utilities company likely offers a service called “budget billing” or “balanced billing.” This service lets you regulate your monthly gas or electric payments, so that your payment is the same each month. This can help you plan expenses and avoid high winter bills.
But budget billing is only one example! As always, you can ask your coach if they know any resources that might help you manage expenses.
Tip #4: Think of savings as a fixed expense.
If your budget has reached the point where you have money left over at the end of the month, it’s time to think about savings. You can think about savings as just another fixed expense in your budget, like your rent or your cell phone bill. Just like it’s important to pay your landlord or your phone company, it’s important to pay yourself! After all, it’s your money.
Do you have a favorite budgeting strategy that you’d like to share with other Compass families? We’d love to feature it in next month’s newsletter! Here’s how to submit:
- Email your budgeting tip here.
- Use the subject line “Compass Connect Submission”
- Tell us if you would like to include your first name, or keep it anonymous.
- Click send!