Did you know that only 57% of adults in the United States are financially literate? A good portion of Americans are struggling to manage their finances and inflation isn’t helping the cause.
If you are a beginner budgeter, you might find the process of saving more difficult. Luckily, we created this guide to help.
Keep reading to learn how to budget money for beginners.
1. Reduce or Eliminate Debt
The best answer to how to budget money for beginners is to reduce or eliminate debt. Keeping up with debt payments while trying to save is not an easy task.
Add up how much you spend on your debt each month and you’ll see how this is affecting your ability to budget.
The money you save from paying interest on your debt can be allocated into a savings fund.
If you don’t have the means to eliminate debt completely, consider debt consolidation plans. For one, stop using your credit cards. You can also consider taking out a low-interest personal line of credit to consolidate debt.
Once you are able to reduce or eliminate debt, your savings goals become more realistic. If you don’t already have savings goals in mind, now is the time to create them.
Setting savings targets and building a timeline makes the process of saving easier and more rewarding.
For example, if you plan to buy a house in the upcoming years, plan to save for a 20% down payment. This target will help you achieve weekly or monthly goals.
2. Cut Down Expenses
By adding up your yearly expenses, you can see where most of your money is going. Having this information right in front of you allows you to identify places where you can cut down expenses.
Annualizing your spending shows you how much your expenses are really adding up. If you spend $25 a week on Starbucks, you are wasting over $1,000 a year.
Cut down these unnecessary expenses and consider cutting down on necessities as well. If your grocery budget is high but you find yourself wasting a lot of food, just imagine how much money you are wasting throughout the year.
Save money on groceries by meal planning and taking note of what you have in the pantry before visiting the store. Add to your everyday savings by packing your lunch for work instead of spending $10 on lunch every day.
If you want an extra tip on how to save money on groceries, buy generic brands. We promise it won’t hurt.
Another area a lot of people find that they can cut down on is automatic subscriptions. Most people pay for multiple subscriptions at a time and don’t realize they pay for ones they don’t even use.
Take a look at your subscription list to find out where you can cut down. If you can’t live without your subscriptions, consider paying for them yearly because it slashes the amount you’d spend paying monthly.
3. Spend Unexpected Income Wisely
It’s easy to get excited and treat yourself when you receive a work bonus, tax refund, or inheritance. Take a second to really think about how you could be spending this unexpected income wisely.
If you still have debt, use the funds to pay off credit card balances and loans. If you are debt-free, build an emergency fund with some or all of the unexpected income.
You can also use the money to start saving for retirement, it’s never too early to do so! One of the ways to save is through investments.
As the inflation rates go up, the stock market goes down. However, you can find solutions like private credit funds that combat the inflationary and recessionary economy.
If you are investing for the long game, now might be a great time to allocate your funds. While the stock market is down, you can buy in at lower prices and watch your money build up once the economy gets back on its feet.
Although it’s difficult when you are in the moment to be responsible with a large sum of cash, you will be thanking yourself in the future. Taking care of your responsibilities brings you one step closer to financial freedom.
4. Try a Spending Freeze
Another lesson on how to save money involves not spending money! Who would have thought?
Try not to spend money on nonessential items for a week or even a month. Take inventory of what you do have to make it easier to stop spending.
When you take inventory of what you own, you might come across items you don’t use anymore. Make extra cash by selling items you don’t need. Have a yard sale or sell items online through different marketplaces.
This might help keep you busy during your spending freeze so you aren’t tempted to buy more things.
You can also prep meals with the food you already have. Avoid going to stores where you tend to impulse buy items.
Consider opting for online delivery to ensure you aren’t tempted by items you don’t need in the store. Don’t worry, a lot of them offer free delivery!
5. Automate Your Savings
Another answer to how to save money fast is automating your savings. Most banks offer automatic transfers between your checking and savings accounts.
You can decide when, how much, and where to transfer money. You can even decide to split your direct deposit amount in half. This ensures that a portion of every paycheck goes straight into your savings account.
Savings accounts are essential for reaching short and long-term financial goals.
You can also opt for a certificate of deposit (CD) that locks your money for a fixed period of time at a high rate. This is typically higher than rates from a savings account.
For long-term goals, use FDIC-insured individual retirement accounts (IRAs) or 529 plans. Both are tax-efficient accounts for savings.
How to Budget Money for Beginners
Learning how to budget money for beginners is simple, but implementing these practices is not. These five steps are great places for beginners to start.
With these strategies, you will reach financial freedom faster. Check out the other financial articles on our blog for more tips.
