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How to Budget and Save Money

"Save more money" is a very normal goal for a New Year’s resolution. But if you aren’t rolling in disposable income, it can be tricky to figure out where to pinch the pennies that will pay off in the long run. Setting a budget – even a loose one – is the easiest way to have a few extra dollars to tuck away each month.

Setting a budget you can live by

Living on a budget doesn't mean never leaving the house. Everybody lives on some sort of budget (or suffers the pains of credit card debt consolidation); it's all a matter of understanding your means.

Know your expenses

If someone asked you, “What are your expenses per month?” could you even ball-park it? Chances are, you’d forget your groceries. Or your gas money. Or heating bill…. It helps to write everything down.

  1. In a special Budget Binder or a document on your computer, tally all the expenses you have each month. These are things that you are required to pay (like rent and food and bills), not fun extras (like lattes or concert tickets).
  2. Schedule the projected expenses that pop up year after year: birthday presents, family reunions, Back Street Boys/New Kids On the Block double-headlining reunion tours.
  3. Budget around the savings you already have, be it a college fund or emergency money.

These expenses are the moneys you don't get to touch. The income you have left over is what you get to spend and save.

What to spend, what to save

The amount of money you decide to save will depend on how much you want to adjust your current lifestyle to attain your savings goal. For some, cutting down on daily Starbucks in favor of at-home brews could contribute an extra $20 every week to their savings. Others might have more conservative goals, like setting aside one dollar a day. Others still may commit to a total life makeover, and limit their extra spending to just $30 a week.

How to cut down, but still have fun

A lot of the time, extraneous spending happens without us really knowing it. A daily cup of coffee, a stop by the vending machine, ordering take out, catching a movie: these things seem small, but add up quickly! Writing down everything you spend (down to the penny) over a several-month period can help show just how much you're spending on things you don't "need" (although the daily coffee is debatable). Don't feel like carrying around a pen and paper? Try leaving your credit cards at home once in a while and limit yourself to the cash you have in your wallet. Sometimes, just seeing the physical paper bills disappear will have you rethinking that candy bar instead of drinks out with your friends. And don't forget: out of sight, out of mind. Many employers have the option to enter a certain amount of your paycheck straight into your savings account. Talk about adjusting that amount to slightly higher than it is now. Chances are, you won't even know you're missing it.

Where should you put your savings?

Having extra money in your savings account is never a bad thing. But also consider a few areas of your life that could use some extra help:

  • Start paying off any outstanding credit card debt.
  • Consider investing a portion of your extra savings in a 401(k) or IRA account.
  • Put your money towards a specific goal: paying off your mortgage, a really great family vacation, or a charitable donation.

Photo credit: Shutterstock / wavebreakmedia

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Logan Abbott's picture

Logan Abbott is a personal finance and credit card expert with over 5 years of experience writing about each topic. He is a graduate of the USC Marshall School of Business, and also contributes to other online finance publications. He has been quoted in the New York Times, San Diego Union Tribune, TheStreet, and more.

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Kyle's picture

Great tips. I especially love the "leave your cards at home" tip. I did this all the time when I was trying to get out of debt, it really does work!