Almost half of all Americans carry a balance on their credit card, month after month. If you’re among their ranks, you know that the combination of high prices and high credit card interest rates can make it challenging to pay that debt off in full.
Many cardholders have seen their interest rates creep up in recent years, in line with the Federal Reserve’s recent rate increases. That means interest payments are gobbling up a bigger share of credit card balances. And those credit card balances can be major. This kind of debt hit a staggering $1.12 trillion for the first quarter of 2024, according to data from the Federal Reserve Bank of New York.
But the situation isn’t hopeless, however. If you’re one of the cardholders who can’t pay credit card debt in full, here are five steps you can take to address it.
Step 1: Check your Credit Card Interest Rate
If you haven’t carried a credit card balance before, you may not be aware of what interest rate your credit card is charging. But it’s important to know exactly how much you’re getting charged so if you need to, you can budget for interest expense as well as your purchases.
The average credit card interest rate for all new card offers was 24.84% in mid-2024. (Depending on what type of credit card you have, your credit score, and your credit history, you may have a higher or lower interest rate than the average.)
With interest rates this high, it can be a real financial setback to carry a balance for an extended length of time, making only the minimum credit card payment. You may find that you are only paying interest and making little headway in paying off what you actually spent.
Recommended: What Is a Charge Card
Step 2: Understand How Your Grace Period Works
If you pay your credit card statement balance in full by the due date, a credit card grace period will usually take effect for the next billing cycle. That means you won’t owe interest on new purchases until the due date for the next billing cycle. If you pay that statement balance in full by the next due date, the grace period will continue into the next cycle, and on and on.
But, if you make only the minimum payment or a partial payment on the full statement balance by the credit card due date, you’ll get charged interest on the remaining balance and lose your grace period for the next billing cycle. This means you’ll owe interest on any purchase immediately. Even if you go back to paying the full balance, your grace period may not renew for several more cycles, depending on the specific terms of your credit card.
If you’re in a position where you can’t pay credit card bills and must move to partial payments, make sure you’re aware of the additional interest expense you’ll incur on the remaining credit card balance. Try your best to stop making new purchases with that card since interest will be charged on those purchases immediately.
Step 3: Look at Changing Your Due Date
If you’re feeling overwhelmed because many of your bills are due at the same time, talk to your credit card company about changing your due date. You might be able to move your credit card due date to a day of the month that works better for your budget, so the payments you owe are a bit more staggered.
While this switch might not help immediately to pay down credit card debt, it could offer some relief in the long run.
Recommended: How to Avoid Interest On a Credit Card
Step 4: Explore Ways to Pay Off Your Balance Faster
You may find that with higher interest rates and inflationary spending, you need a more efficient way to pay off your credit card debt, such as by refinancing credit card debt. Luckily, there are some options for how to pay off credit card debt, though keep in mind the best way to pay off credit card debt will depend on your financial specifics.
Balance transfer credit cards that offer a limited time low or sometimes even 0% interest rate can help — especially if you think you can pay the balance in full during the promotional low-rate period.
Another option you might consider is applying for a low-interest personal loan to pay off credit card debt in full. This could help you secure a lower interest rate, and by consolidating your credit card debt, you’d have fewer due dates to keep track of. Keep in mind, however, that there are pros and cons of personal loans to pay off credit card debt.
Recommended: Tips for Using a Credit Card Responsibly
Step 5: Consider Using a Budgeting Tool
If you’re finding it hard to make your credit card payments, that can be a signal it’s time to take a close look at your spending, perhaps with the help of one of the many online budgeting tools available.
Personal finance tools can help you understand just how much your cost of living has risen in recent months and make it easier to flag places you can cut back. Some can help to pinpoint fees you may be paying unwittingly or the automatic payments you’re making on your credit card that could get trimmed. Cutting these costs can then make it easier to pay off credit card debt.
The Takeaway
If you’re struggling with a credit card balance you can’t pay off, taking steps to pay off credit card debt faster and budget smarter can help. These can involve understanding your rate, changing your payment due date, and other moves.
Whether you’re looking to build credit, apply for a new credit card, or save money with the cards you have, it’s important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.
FAQ
What is a fast way to pay off credit card debt?
You might be able to use a balance-transfer credit card and pay down your debt during the 0% APR promotional period. Or you might consider securing a personal loan to pay off the debt. You would then pay off the personal loan, which could have a lower interest rate.
Can you change your credit card payment due date?
You may be able to change your payment due date. See if your card’s website or app allows this kind of shift, or contact customer service.
Do most Americans carry credit card debt?
According to recent data, approximately 49% of Americans carry credit card debt.
Photo credit: iStock/Sneksy
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Looking for a simple and effective way to save money? The envelope challenge might be just what you need. This popular saving method helps you set aside cash in an organized and manageable way. By using envelopes to allocate funds for different expenses, you can easily track your spending and boost your savings. Start one of these envelope challenges today and take control of your finances.
Why Use a Saving Challenge?
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Saving money can be tough, but using a saving challenge can make it easier and even fun. These challenges give you a clear plan and simple steps to follow, helping you stay motivated and reach your financial goals. Whether you’re saving for a big purchase, building an emergency fund, or just wanting to improve your money habits, a saving challenge can be a great tool. Learn how to start, stay on track, and see real results with a saving challenge that fits your lifestyle.
Various Money Saving Challenge to Try
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Get empowered with these popular money saving challenges. From the envelope challenge to monthly savings, become savvy with your finances.
To learn more: Top 20 Epic Money Saving Challenges Unveiled to Save Money
The 100 Envelope Challenge
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The 100 Envelope Challenge is a fun and creative way to save money. This popular challenge can be adjusted to fit different budgets and financial goals, making saving money easier and more enjoyable.
To learn more: The 100 Envelope Challenge: Easy and Fun Way to Change Your Life!
50 Envelope Challenge to Start Saving
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Looking for a simple way to save? Try the 50 Envelope Challenge and save $1275 using just 50 envelopes. This challenge helps you build savings step by step.
To learn more: 50 Envelope Challenge to Save $1275 and Follow Through!
Build Habits with 200 Envelope Challenge
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Challenge yourself with the 200 Envelope Challenge and see how much you can save in 200 days. It’s a great way to grow your wealth and build strong saving habits.
To learn more: 200 Envelope Challenge – A Spin to Save at Least $5K
Challenge to Save 10k in 100 Days
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The 10k in 100 Days Envelope Challenge is perfect for those looking to save big in a short time. Follow this guide and save $10,000 in just 100 days, setting yourself up for a better financial future.
To learn more: The 10k in 100 Days Envelope Challenge – Save to [Make it Work] for You
Alternative is 52 Week Money Saving Challenge
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Choose from different 52 Week Money Saving Challenges and save $1000, $2000, $5000, or even $10,000. Join the email list for your free printable and start saving today.
To learn more: Your 52 Week Money Saving Challenge + Free Printable
Tight on Funds? Try These Mini Saving Challenges
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Tight on time or money? These mini savings challenges are perfect for you. Use these free printables to include a simple money saving challenge in your budgeting tools and save more money easily.
To learn more: 15 Mini Savings Challenge Printables To Save More Money
Download Your Free Printables
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Download this free printable for the 100 Envelope Challenge and start saving money now. In 100 days, you’ll have saved a total of $5000, making it a great tool for building your savings.
To learn more: [Free Printable] 100 Envelope Challenge: The Best Money Saving Challenge
Most Popular: 100 Envelope Money Challenge
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The 100 Envelope Money Challenge is a favorite way to save money. It’s fun, easy, and can be tailored to your budget. Join many others in reaching your financial goals with this creative and effective challenge.
To learn more: The 100 Envelope Challenge: Easy and Fun Way to Change Your Life!
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Once upon a time, people had to fit their schedules around the limited “bankers’ hours” of bank branches. Today, it’s easy to take care of almost all of your banking needs without ever stepping inside a physical branch. As long as you have your smartphone and a wifi connection, you’re good to go.
The rise of mobile banking has boosted convenience without sacrificing the features you come to expect with a bank account. It’s no wonder that one recent survey found that 78% of respondents use their bank’s mobile app weekly and 62% said they couldn’t live without it. Read on to learn more about what’s available in the world of mobile banking — and what’s ahead.
Key Features of Mobile Banking Apps
Mobile banking apps offer tools that are increasingly becoming more personalized and sophisticated. While nearly every major bank allows customers to do some business on their website and/or through their mobile app, the exact mobile banking features will vary depending on the bank.
Here are a few of the most common mobile banking app features:
• Account opening and closing
• Bill pay, including instant payments
• Mobile check deposit
• ATM and branch locator
• Low balance notifications
• Transaction history
• Budgeting and planning tools
• Direct deposit
Check your bank or credit union’s app or website to see what mobile banking features are available to you.
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How Mobile Banking Simplifies Your Finances
Mobile banking can truly makes it much easier to monitor your checking account and other account balances so that you can keep your budget on track. You can quickly transfer money from your checking to your savings account to meet your financial goals, for example, or potentially automate that process so that a portion of your paycheck is funneled to your savings. You can also set up recurring payments to make sure bills are automatically handled on time.
As mentioned above, some mobile banking platforms include budgeting tools you can use to plan your spending and saving. Some also include the ability to save money in vaults, or subaccounts, that earmark funds for specific goals, such as vacations, holiday spending, or emergency funds.
Many banks have mobile banking account alerts that will notify you if your balance drops below a certain threshold. (This can help you avoid pricey overdraft fees.) You can generally customize these alerts, both by setting the amount that triggers the alert as well as indicating how you want to be notified.
You can also typically access options for sending money quickly to others, whether through an integrated payment platform or possibly via a wire transfer that is initiated on your phone.
There are, of course, both mobile banking pros and cons, but most people find that the benefits of using mobile banking apps outweigh any potential negatives.
Mobile Banking & Security
One of the biggest questions that many people have about mobile banking is whether mobile banking is safe.
It’s reassuring to know that most major banks and financial institutions follow state-of-the-art encryption, security, and fraud protection best practices, such as SSL (secure sockets layer) encryption and two-factor authentication (2FA). Additionally, many banks have a no-fault policy that says that you won’t be held liable for unauthorized transactions.
Also worth noting: Not all of the ways your account could be vulnerable are under the bank’s control. For example, hackers and scammers can be relentless when trying to gain access to checking and savings accounts. It’s smart to acquaint yourself with their latest ruses and follow best practices, like having a strong password that you don’t use for other sites as well as enabling 2FA.
Innovation & the Future of Mobile Banking
Mobile banking continues to evolve and innovate. Over the past decade, many people have adopted mobile wallets that allow them to store and access banking and credit card information instead of carrying around a physical card. You also are probably familiar with new forms of biometric authentication that are gaining ground, such as using facial or voice recognition to unlock your mobile account.
Cardless ATM withdrawals, which involve using your phone at a terminal vs. a card, is another new direction, and a growing number of banks are incorporating the latest AI and chatbot technologies to offer more personalized customer service while clients use their app.
Recommended: How Long Does It Take for a Mobile Deposit to Clear?
The Takeaway
Mobile banking provides convenience and security for bank users. It can simplify and speed up such banking tasks as depositing checks, bill payments, checking account balances, and receiving account alerts. The features of a mobile banking app will vary somewhat depending on the financial institution, so check with your bank or credit union to see what mobile banking features are available to you.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.
Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.60% APY on SoFi Checking and Savings.
FAQ
What are the key features of mobile banking apps?
Most mobile banking apps have a core set of features, such as account management, bill pay, account alerts, and mobile check deposits. Some banks may offer additional features, such as dashboards that track your earnings, spending, and savings, as well as vault bank accounts, which allow users to bucket their money into subaccounts.
How does mobile banking make saving easier?
Mobile banking makes saving easier in a number of different ways. You’re able to have more insight into your finances just by glancing at your smartphone. You can also set up automatic transfers from checking to savings on payday and often track your spending via the app’s dashboard. Establishing low balance alerts can also help you avoid pricey overdraft fees, which is another way to save money.
What security measures are in place with mobile banking?
Most major banks use industry-standard security best practices involving encryption, continuous authentication, and other features. It’s also wise to follow such security measures as not reusing your password, regularly monitoring your account, and setting up 2FA on your account.
How does mobile banking offer clarity about financial data?
Mobile banking lets you check your account balances, allowing you to get a better picture of your overall financial health, anytime and anywhere. Many mobile banking apps also allow you to track your spending and will alert you of upcoming payments that are due, which can also offer greater control and clarity.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.
SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.
As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.
SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.
SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.
Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.
Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Inside: In this guide, I reviewed all of the budget apps and compared features and costs to form the best budgeting apps list. Find the best budgeting apps to fit your needs.
The best way to become smart with your money is to actively manage your money.
Make a plan for your money. Some may call it a budget.
At Money Bliss, we like to call it a Cents Plan. This enables you to find financial freedom. Find that place Where Cents Parallel Vision. Today, there are many budgeting apps on the market.
To kick off the new year, I was determined to find the best budgeting app on the market. Guess what?
My list grew each week!! And still growing! There are so many choices.
There are money management apps. Personal finance apps. Budgeting apps. So many apps to choose from! Seriously.
Some are free budgeting apps. Others have a monthly fee. Some have one-time costs.
The key to any budgeting app (free or paid) is to learn to manage your money.
At the very bottom of the post, we will reveal the best budgeting apps available.
This post may contain affiliate links, which helps us to continue providing relevant content and we receive a small commission at no cost to you. As an Amazon Associate, I earn from qualifying purchases. Please read the full disclosure here.
Enjoy guilt-free spending and effortless saving with a friendly, flexible method for managing your finances.
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What is a Budgeting App?
A budgeting app is a tool that helps you manage your money and keep track of how much you spend.
There are many different types of apps, and some may be free while others cost money.
However, they all make managing your finances easy by tracking where your money goes each month as well as providing tools for saving cash flow or spending more efficiently on things like groceries or travel expenses.
The end purpose of a budgeting app is to make managing your money easy.
There are many apps out there that can help you with this, including some from big brand names like Mint which just announced it is shutting down, Acorns, and Quicken. This guide will provide a list of the best budgeting apps for 2024 so you can save time and money!
Quick Answer
The preferred budget apps are YNAB, Empower, and Quicken.
What to Look for in Budgeting Apps
In order to find the best budgeting apps, you need to know what features and functions you are looking for.
The best budgeting apps are often the simplest and focus on ways to make saving a breeze.
They can help ease financial uncertainty by providing tools that allow users to save more money over time.
What’s more, how can you tell what to look for in a good budgeting app?
1. Ease of use
The best budgeting apps are easy to use and do not require manual entry. Different ways of creating a budget include handwriting it out, using a spreadsheet, or logging into an app or software program.
You want to find something that is easy for you to use. Even better, if you find the app fun to use!
2. Budgeting Capabilities
There are many types of budgeting apps; thus, each person will have budget apps they prefer over others. At the end of the day, you need something that will work for you over the long term.
Some have basic features that simply allow users to view their own spending, while others provide a number of tools for managing finances and saving money. Users should choose an app based on what they want as well as the capabilities it offers.
Many budget apps let you define your categories to track.
3. Saves Time
When you have an automatic budgeting app, it tracks how money moves in and out of your bank account automatically with ease. In addition to this, the updating process takes place automatically as well which saves more time for individuals who need it most!
Saving time with the least favorite tasks like budgeting is a win-win!
You want your budgeting app that makes managing your money a breeze.
4. Focus on Financial Goals
You need a budget app that helps you work towards your smart financial goals. This is important.
You want your budgeting app to help you with achieving your financial goals.
5. Synchronization
Synchronization is the process of returning data to a master database from one or more secondary databases. You want the budget app to synchronize accounts automatically.
Most offer automatic synchronization but may lack a feature that allows for a reconciliation of accounts such as bank accounts.
Many budgeting apps can synchronize from desktop to mobile. In addition, you can have multiple users on the same platform.
6. Price
Budgeting apps range in price from free to about $150 per year.
The app that has the most features and options is Quicken, especially given its price point.
Spending $5 a month to manage your finances is cheaper than overdraft fees and the lack of saving money.
7. App ratings
Many financial experts and personal finance gurus agree that a budget is necessary to take control of your money.
Look for budgeting apps that have at least 1,000 reviews in both the App Store (for iOS) and on Google Play (for Android), as well as a rating of 4 stars (out of 5) or higher on both platforms.
That will tell you the longevity of the app and user appeal.
8. Security
Specifically, are budgeting apps secure? Are there any security features in place to protect your data? This is a huge feature you need to verify your personal information will be intact.
On my budgeting apps, financial information is safe because they need to go through vigorous testing and pass banking regulations. There are certain vulnerabilities inherent to operating online in the cloud.
9. Additional Features
Most budgeting apps go beyond basic budgeting. Some offer advice on debt and investments, while others identify unnecessary expenses.
Most apps can track your spending and organize your expenses into categories.
The savings apps will automate savings, suggestions to save money, bill alerts, access to credit scores, and investing features.
All of the apps have a different feature set, so it’s important to find what you’re looking for.
Good Budgeting Apps will Help, But First – You Must
Before we dig into the list of good budgeting apps, we must discuss key points first.
In order to be successful, with any type of budget app, you must understand three key areas.
1. Uncover your Money Situation
You can’t hide under the sheets or with your head in the sand and expect changes.
To be successful with money, you must be active with your personal finance situation.
Take time to understand your vision. Figure out where you stand in building a foundation to the Money Bliss Steps to Financial Freedom. Understand where the pits of money are spent every month.
Not sure, where to start? Stick around here at Money Bliss; we have many resources to help you!
Must Read Help:
2. Budgeting Apps Won’t Change Habits
While personal finance or money management apps keep you on track, they are incapable of changing habits.
You have to make changes.
Just because the budget app tracks your usage on the credit card doesn’t mean that you should have spent that money. So, be willing to make changes in your spending habits and those emotional purchases to achieve financial freedom.
You must learn to manage your money.
Related Readings:
3. Still Need Paper & Pen
The first thought is “Wait, I wanted to get away from paper and pen.” Yes, that is the goal for most individuals.
However, it is key to know your net worth over time.
Also, you never know when your favorite budget app will go away. (Ugh!) Personally, I don’t like to be pessimistic, but technology is rapidly changing, and being able to adapt is key.
Keep tracking your personal finance numbers toward financial freedom in a separate place.
Okay without further ado, the full list of budgeting apps on the market.
YNAB
Enjoy guilt-free spending and effortless saving with a friendly, flexible method for managing your finances.
Pros:
Comprehensive approach to budgeting, helping you plan monthly budgets based on your income.
Offers expert advice, making it suitable for those who require an in-depth, forward-thinking budgeting strategy.
Superior synchronization skills make it the winner in this area.
YNAB has extra features like goal setting for budgeting, shared budgeting tools for partners.
Option to manually add and upload transactions from accounts each month.
YNAB prioritizes user privacy.
Start 34 Day Free Trial
Full List of Budgeting Apps with Free Trial
The budget apps we selected for this section offer a free trial for users to test out before signing up.
Budget apps are typically inexpensive and start with a free trial.
1. YNAB (You Need a Budget) – A proven method that has helped hundreds of thousands of people break the paycheck to paycheck cycle, get out of debt, and live the life they want to live. YNAB is best for serious budgeters.
2. Simplifi – Manage your money less in 5 minutes each week. Reach your money goals with confidence! Introducing Simplifi by Quicken, the personal finance app that gives you something to look forward to.
3. Tiller Money – Your financial life is in a spreadsheet, automatically updated each day. Track all your accounts in one place, always know where your money goes, and confidently plan your financial future.
4. Rocket Money – Rocket Money is your automated financial assistant and budget tracker designed to put you back in control of your money. Truebill lets you easily track bills, cancel unwanted subscriptions, and proactively request refunds on your behalf, putting real money back in your pocket!
5. Qube Money – The cash envelope system made easy. They invented digital cash envelopes. Real-time financial awareness without the hassle of tracking expenses, updating spreadsheets, and carrying cash.
6. HoneyMoney– HoneyMoney increases your awareness about your money habits. Being fully aware of your money naturally changes how you spend it. Great way to use cash flow budgeting. Plus uses “envelopes” to budget.
7. Qapital – Free, easy way to save money. Get $5 for your first Goal if you sign up here.
8.Money Patrol – MoneyPatrol actively monitors and analyzes financial transactions, and then alerts insights about the trends, patterns, and anomalies observed.
9. Wallet– Wallet is designed to help you get your finances under control from day one, giving you ongoing insight into your financial situation, and helping you stay in control for the long term.
10. Every Dollar– EveryDollar follows the zero-based budget approach recommended by Dave Ramsey, a top personal money-management expert. Create daily and monthly budgets and track your expenses to manage and save money.
11. Expensify – Expensify is the perfect tool for anyone who needs to keep track of receipts and automate expense management.
12. Cost Track – Expense Tracker – Cost Track allows you to: use your money wisely, keep track of your personal and family budget, and quickly enter your income and expenses.
13. Easy Spending – It is a simple and convenient finance tracker that provides the most powerful and convenient daily money management for iPhone and iPad, that neatly tracks all your cash flow between different accounts that you can budget.
Making Your Budget Work for You:
Full List of Free Budgeting Apps
The budget apps we selected for this ranking are completely free! Free budget apps are good options for users who don’t want to pay monthly or a yearly fee. Just to note, the list of free apps is dwindling with each update.
Finding the best budgeting app the best ones do simple things well.
Free apps are not always better than paid ones.
Typically, the free versions of budget apps provide basic features. Plus there are many free budget apps available on the market.
1. Empower– Empower is the best app for investors. This is one of my favorite ways to analyze investment accounts. See all of your accounts in one place, which helps to see spending. Free budgeting app to use. Read myEmpower Review.
Empower Personal Wealth, LLC (“EPW”) compensates Money Bliss for new leads. Money Bliss is not an investment client of Personal Capital Advisors Corporation or Empower Advisory Group, LLC.
2. PocketSmith – Manage your budget and forecast your finances. There are paid levels of access but you can still get basic options for the casual budgeter.
3. Zeta – AskZeta is a financial planning platform designed to help couples manage their finances collaboratively. It provides tools and guidance for setting joint financial goals, budgeting, and navigating major life events to build a secure financial future together.
4. Honeydue – A financial app designed for couples, facilitating shared money management. It allows partners to track and manage their finances collaboratively, providing insights into spending, budgeting and shared financial goals.
5. GoodBudget – Envelope budgeting for the modern world.
6.Fudget – The budget planner you can actually use.
7. Wally – Personal Finance – It helps you compare your income to your expenses, understand where your money goes and set and achieve goals.
9. CountAbout – CountAbout is an online personal finance solution that surpasses the security and ease of use of the other popular commercial solutions on the market while offering complete privacy, zero advertising, and no selling of your personal data.
10. Daily Budget Original – Daily Budget calculation, planning & saving for big spending, basic categories for expenses, backup.
11. Spending Tracker – The simple fact is, by tracking your spending you will be able to stick to a budget and therefore SAVE MONEY.
12. Money Monitor – You can track and organize all your transactions, accounts, budgets, bills, cash flow, and payees in Money Monitor by easy operation but with powerful functions.
13. Money Box – Set your money goals and track your personal savings with this app. Take control of your saving goals and spend cash wisely.
14. Dollarbird– Track and forecast your money as easily as adding events to a calendar! Dollarbird helps you make sense of your financial situation, plan ahead and manage your money together with those who matter.
15. NerdWallet – Whether you want to maximize credit card rewards, earn extra cashback, track your credit score or make budgeting easier, it’s all here.
Budgeting Resources:
16. Buddy – Designed for simplicity and efficiency, helping users easily manage their finances. With intuitive features, it enables users to track expenses, set budget goals, and gain insights into their spending habits for better financial management.
17. Banktivity – Banktivity puts you in the driver’s seat of your finances so you can do both.
18. PocketGuard – With all of your financial accounts in one place, PocketGuard helps you stay on top of your finance and make better financial decisions.
19. Budget Saved – Personal Finance – Budget Saved helps you save money by grouping expenses based on need or want. You input an expense, save it as a need or want, and then you can look back to see which purchases were really necessary. With this information, you can see exactly how much you can save.
20. Albert – Money Management – Combining human guidance with cutting-edge technology, Albert is an intuitive app that automates your financial life — so you can be free to enjoy it. Build savings, meet bills, end the overspending cycle and develop your financial IQ, right from the palm of your hand.
21. Expense IQ – Expense IQ (formerly EasyMoney) is your ultimate money manager app that combines an expense tracker, a budget planner, a checkbook register, integrated bills reminder, and more rolled into one powerful personal finance app!
22. Prism– Never miss a bill or pay late fees again! We automatically track your bills & send due date reminders, for free. See your income, account balances, & monthly expenses at a glance.
23. Coin Keeper– Download CoinKeeper — the handiest way to plan and manage your finances, created especially for smartphones and tablets.
24. Mobills– Mobills is a budget planning app that allows you to create a custom monthly budget that will help you take control of your money. You are able to manage your money, track your spending, and achieve your financial goals all in one place.
25. iSpending – iSpending helps you to track your income and spending. You can add transactions under different categories, such as income, food, and entertainment.
26. Receipt Box – The Receipt Box is a quick app that is conducive to developing a good habit of tracking spending. It indeed performs well on this one.
27. BUDGT – BUDGT will help you keep track of your Expenses in a very simple way and tell you how much money you can spend each day, taking in account what you have already spent during the current month.
Full List of Paid Budgeting Apps
A budgeting app is a type of software that helps you track your money to manage your finances. There are several different ways you can use them, including getting paid upfront or by monthly fee.
Some apps offer discounts for people who pay monthly, but this is not always the case. If an app doesn’t have the capabilities you need to better manage your budget, it’s not worth it.
App users want budget capabilities and prefer to handle bill paying on their own schedules.
1. Quicken– Quicken personal finance and money management software allows you to manage spending, create monthly budgets, track investments, retirement and more. Read my Quicken Review.
2. Moneyspire – The budget feature is very user friendly and can rollover amounts. All of the reports you need at your fingertips. Also, you can move your data from many of the top budgeting apps and Quicken.
3. PocketSmith – Manage your budget and forecast your finances.
4. MoneyDance – Moneydance is easy to use personal finance software that is loaded with all the features you need: online banking and bill payment, account management, budgeting and investment tracking.
5. CheckBook Pro – An easy & quick way to manage your daily finances, Checkbook Pro keeps track of your credit card charges, cash expenditures…etc.
6. HomeBudget – HomeBudget is an integrated expense tracker designed to help you track your expenses, income, bills due and account balances. It offers support for budgeting and allows analysis of your expenses and income, including charts and graphs.
7. Pennies – Keep track of your spending and save money with Pennies, the award-winning budgeting app for iPhone, iPad and Watch.
Enjoy guilt-free spending and effortless saving with a friendly, flexible method for managing your finances.
Start Your Free Trial.
Budgeting Apps Off the Cloud:
Due to security concerns, many budgeters prefer to keep their financial information off the cloud.
Here are the best budgeting software that are off the cloud. And if you want, they can be synced.
1. Quicken– Personally, I have used Quicken – pretty much since it was developed. Way before budgeting apps were even a thing and the cloud didn’t exist. Quicken is great for tracking how your money is being spent. Their internal budget feature is not user-friendly and has quirks. However, the cash flow reports are awesome to compare spending. The #1 reason I still recommend Quicken is because of its long history.
Read my Quicken Review.
2. Moneyspire – For those frustrated with Quicken, Moneyspire is your choice. The budget feature is very user-friendly and can rollover amounts. All of the reports you need are at your fingertips. Also, you can move your data from many of the top budgeting apps and Quicken. Start a free trial here.
3. Tiller Money – Tiller is the only tool that automatically updates Google Sheets and Microsoft Excel with your spending, transactions, and balances each day.
4. Banktivity – Get full control of your personal finance situation with Banktivity. Has all the bells and whistles you would come to expect for personal finance budgeting software. There is the ability to connect to the cloud if you prefer. Only for Mac Users.
5. MoneyDance – Moneydance is easy-to-use personal finance software that is loaded with all the features you need: online banking and bill payment, account management, budgeting, and investment tracking.
6. QuickBooks – QuickBooks is most like Quicken. It is the preferred software for most bookkeepers. The features are very helpful, but the price is significantly higher.
Expense-tracking budgeting apps
Expense-tracking budgeting apps are becoming more popular as they allow users to connect to financial accounts. They track transactions and group them into categories, making the best ones based on expense tracking systems.
Some of the top expense tracking budgeting apps include:
Simplifi: Quicken has introduced a new personal finance management solution. It is simple, smart, and intuitive money tracker tool that ensures users can keep track of their income and expenses in real-time.
YNAB (You Need A Budget): YNAB helps to reverse this pattern by living off last month’s income during current month.
Pocket Expense: This app is easy to use and has a clear interface for users who are not tech savvy. With Pocket Expense, you can input your income and expenses, set a budget, and track your progress.
Spendee – Understand your finances better with Spendee, the FREE budgeting app that tracks your spending, optimizes your budget, and helps you save money. This user-friendly app with good features for recording income and expenses as well as the ability to plan future budgets. It also lets you set goals and track progress.
Quicken: Quicken is a personal finance software application that can be installed on Windows, Mac or Linux computers and allows users to organize financial information in order for them to make financial decisions.
Learn where to load your Cash App card.
Investment/retirement planning budgeting apps
Investment/retirement planning budgeting apps are becoming more popular with consumers as the retirement age is being pushed back.
These types of apps allow users to keep track of their investments and review performance, ensuring that they’re on track to retire at the desired time.
There are numbeous different investment portfolio management tools, but most are designed for average investors looking to make changes or work towards long-term goals. Many double as budgeting apps also enable tracking expenses alongside investments in order to ensure that you’re on track to reach your goal.
Empower – read my Empower Review
Quicken
Betterment
Wealthfront
Stash
Apps to Help Save Extra Money:
Looking for easy ways to save extra money?? These budgeting apps will do just that.
1. Acorns: Invest Spare Change: This app rounds up any purchase made with a credit card to the nearest dollar and invests it in an exchange traded fund. They have four different investment portfolios from conservative, balanced, growth, and aggressive.
2. Tiller: This app automatically transfers money from any account you connect to it (like your checking or savings) into a fund of your choice every time you make a transaction.
3. Trim – Trim negotiates your cable, internet, phone and medical bills, finds and cancels unwanted subscriptions, can help you lower APRs and bank fees and more.
4. BillShark – Billshark is the easiest way to lower your bills, cancel unwanted subscriptions, and lock in the best rates for insurance.
Which Budgeting App is right for You?
Budgeting apps are becoming more popular as consumers try to make better financial planning decisions.
Budgeting apps help people with the ability to track spending, create budgets, and save money for retirement or other goals.
Budgeting apps must be paid for because they can be used across all devices and have a variety of features that can really help users save time and money.
As you can tell in this post, there are plenty of options to find your favorite budget apps.
Each of these apps can improve money management.
However, you must be able to make the changes necessary to stay within your means. That is up to you. Don’t try it and give up after a month. Stick with it. Show perseverance.
In the end, you will be happy you are stuck with using a good budgeting app.
Apps That Have Shut Down or Changed
These are budgeting app that have been on our list previously. But, when we recently updated the post, realized they are no longer offering the same services.
Mint: Personal Finance & Money – Mint is a free money management and financial tracker app that helps you get ahead and stay ahead. – Mint app shut down in 2024.
Firstly (formerly Honeyfi: Couples Finances) – The first app to help couples team up on everyday and long-term finances.
Opurtun (formerly Digit) – Digit analyzes your spending and automatically saves the perfect amount every day, so you don’t have to think about it.
mvelopes (merged with EveryDollar) – Everyone knows that cash will keep you on budget. Here is a digital option for your cash envelopes. Your first month free is to check out the budgeting system.
Olivia– Whether you identify as someone who is living paycheck to paycheck, or you’d just like to get smarter with your money in general, you’ve come to the right place! I am here to help YOU become the MASTER of your money.
Your Money Wallet – YourMoneyWallet lets you see all your accounts in one place, understand your spending, monitor your everyday spending, and see all your money transactions in a beautiful well crafted design.free
Joy – Money App– Joy is the brand new money app that will change the way you spend and save money to help you find more happiness in your life.
Advent – Budgeting Made Simple – Advent makes budgeting and tracking expenses super easy! With a very minimalistic design, you can easily maneuver around quickly.
Rolling Budget– Rolling Budget is a personal finance tracker that keeps track of your day-to-day expenses, travel, and fuel costs. Track where your money goes, plan your expenses, and create a budget that works for you!
Best Budgeting Apps
There are many apps available to help people manage their budgets.
The best app for you will depend on the type of budget you want to create and how often you want to make changes. All of these apps are mobile-friendly and work across multiple devices. They also offer additional features like budgeting tasks, reminders, and spending plans.
You can find all of these for iPhone or Android.
You can save time and money by using a good budgeting app.
This is your personal finance journey.
The ultimate goal with any budget app is to learn to manage your money. Not have your money manage you.
Now, make sure you are doing these habits to be successful with budgeting.
Which are your favorite budgeting apps?
Keep on Budgeting:
Know someone else that needs this, too? Then, please share!!
Did the post resonate with you?
More importantly, did I answer the questions you have about this topic? Let me know in the comments if I can help in some other way!
Your comments are not just welcomed; they’re an integral part of our community. Let’s continue the conversation and explore how these ideas align with your journey towards Money Bliss.
Inside: Learn how many months it usually takes for your budget to start working effectively. Plus explore successful budgeting strategies.
Learning to budget can often be a challenging process, but its benefits are irreplaceable. Initially, it might feel overwhelming, as it involves accounting for every small expenditure, adhering to a fixed financial plan, and exercising self-control.
The frustration often emerges from unexpected expenses or changes in income, like getting a raise or having to make a new car loan payment.
However, this ongoing process ultimately fosters financial discipline, enables goal-setting, offers a clear financial picture, and encourages proactive handling of money matters, making the frustration worthwhile.
According to experts, it could take up to three months to adapt to a new budget.
This post may contain affiliate links, which helps us to continue providing relevant content and we receive a small commission at no cost to you. As an Amazon Associate, I earn from qualifying purchases. Please read the full disclosure here.
The Essential Role of Budgeting
Financial budgeting plays a critical role in managing resources efficiently, informing financial goals, prioritizing initiatives, optimizing financing opportunities, and offering flexibility in various situations.
These reasons make it a highly regarded tool in business and personal finance.
Defining Financial Budgeting
Financial budgeting is a systematic approach to managing your finances by mapping out your income and expenditures over a designated period.
This process provides a framework to guide your financial decisions, which aids in achieving your monetary objectives.
It’s essentially an overview of your financial position, goals, and cash flows.
How many months does it usually take for your budget to start working as a budget should?
As per our expert opinion, it typically takes around three months for a budget to start functioning effectively.
When starting a new budget, it’s normal not to see results immediately.
This time frame allows for adjusting to new spending habits, dealing with unexpected costs, and instilling a sense of discipline and control over your finances. Remember, budgeting requires patience and commitment.
Practicing Efficient Budgeting Techniques
Now, the key to being successful is having a few budgeting tricks up your sleeve.
I can guarantee you that budgeting is actually freeing. This is how you do it!
The Process of Getting One Month Ahead
Getting one month ahead in your financial budgeting means living off last month’s income.
In this practice, you pay November’s bills with October’s income, for example, essentially preventing you from spending money you haven’t earned yet.
To set up this process, create a monthly budget, determine your income and expenditures, establish your spending goals, and ensure your income exceeds your spending. More than likely, you will have to save money to get one month ahead of bills completely. YNAB can help you with this.
YNAB
Enjoy guilt-free spending and effortless saving with a friendly, flexible method for managing your finances.
Pros:
Comprehensive approach to budgeting, helping you plan monthly budgets based on your income.
Offers expert advice, making it suitable for those who require an in-depth, forward-thinking budgeting strategy.
Superior synchronization skills make it the winner in this area.
YNAB has extra features like goal setting for budgeting, shared budgeting tools for partners.
Option to manually add and upload transactions from accounts each month.
YNAB prioritizes user privacy.
Start 34 Day Free Trial
Familiarizing with Zero-Based Budgeting
Zero-based budgeting is a method where every penny of your income is allocated to different categories, from necessary and discretionary spending to savings and debt payments.
You start each month with a fresh budget, balancing out your expenses and income to zero. This approach demands meticulous attention to detail and is best suited for individuals with a fixed income and predictable expenses.
Executing the Envelope Method
The envelope method involves assigning an envelope (physical or digital) to each spending category, such as grocery or utilities, and putting cash into each envelope for planned expenditure. Once the cash in an envelope finishes, it means you’ve exhausted your budget for that category.
This method, as per expert suggestion, instills discipline and curbs overspending, making it an ideal choice for cash-driven individuals. Connecting this method with digital tracking systems is possible with the cashless envelope system to cater to those using debit or credit cards.
12 Effective Strategies to Make Budgets Work
These strategies not only allow the allocation of resources efficiently, but also help set realistic financial goals, prioritize projects based on their potential cash flow, and explore optimal chances to reach financial independence.
Moreover, having a budgeting plan in place also ensures flexibility to adjust to unanticipated financial challenges, contributing to long-term wealth creation.
1. Determine Goals and Objectives
Start your budgeting process by clearly defining your financial goals and objectives. Are you aiming to buy a new home, fund your education, or build an emergency fund?
Whatever aspiration you have, short- or long-term, incorporating them into your budget amplifies your drive and focus on achieving them.
This goal-driven strategy aligns your budgeting with your needs and wishes, creating a financial roadmap toward your envisioned milestones. Consider these smart financial goals to get you started.
2. Better Planning, Fewer Surprises
Planning your budget effectively requires a thorough consideration of all personal budget categories.
Also, incorporate both short and long-term financial goals into your budget by prioritizing them, such as purchasing a home, taking a vacation, or furthering your education. Regularly reviewing and adjusting your budget accordingly, based on changes in income or unexpected expenses, can also ensure you stay on track.
Utilizing a variety of budgeting tools, like spreadsheets, apps, or budgeting software, can simplify this process and help keep you accountable.
Quicken
Personal finance and money management software allows you to manage spending, create monthly budgets, track investments, retirement and more.
I have used this platform for over 20 years now.
Pros:
Birds-eye view of your complete financial picture.
Conveniently download your spending activities, and automatically categorize them (Quicken connects to over 14,000 financial institutions).
Track investments with it’s features like portfolio analytics, retirement goals, and market comparison.
Cons:
Little complex to use at first, the learning curve is moderate.
Yearly subscription-based model to use the platform.
Save 40% on New Memberships
Our Review
3. Reduced Financial Stress through Budgeting
A successfully implemented budget significantly reduces financial stress by providing an accurate picture of your financial health.
With a well-defined budget, worries about overspending, living from paycheck to paycheck, or falling into debt diminish. Monitoring and updating your budget will allow you to feel more confident and secure about your financial standing, paving the way to monetary stability.
4. Deciding When to Review Your Budget More Frequently
An effective budget is not a set-and-forget one; it requires regular check-ins and updates. A bill calendar is very helpful.
A recommended starting point is a monthly review. However, when first starting out, you will need to review your budget monthly until you find it working for you.
Other situations may need more frequent check-ins according to changes in income, financial goals, or unexpected expenses.
5. Spot Potential Room for Improvement
Budgeting provides a realistic view of your spending patterns, allowing you to identify areas of improvement.
Upon reviewing your budget, you might notice unnecessary expenditures or categories where expenses consistently exceed budgeted amounts. Such insights help you re-evaluate your spending habits and update your budget accordingly.
This phase coupled with a no spend challenge involves being brutally honest with yourself, taking into account your needs, wants, and financial realities.
6. Analyze Your Expenses and Income
Critical examination of your income and expenses is crucial for successful budgeting. Begin by calculating your total income, then list and categorize your monthly expenses into fixed and variable.
Pinpointing the difference between the totals can highlight whether you’re living within your means.
If your income surpasses your spending, consider investing the surplus.
Conversely, if your expenses outnumber your earnings, think about ways to increase income or decrease spending.
7. Set Limits for Your Budget Items
Setting reasonable spending limits for your budget categories ensures financial discipline. Check each category of spending—groceries, entertainment, or personal care, for instance—and contemplate areas you can cut back.
Ask around to see how much others are spending in certain categories in your neighborhood.
Remember, your budget should be flexible and realistic to your lifestyle, ensuring you don’t feel deprived. Embed small “wants” into your budget to keep the whole process enjoyable and sustainable.
simplifi
Manage your money less in 5 minutes each week.
Reach your money goals with confidence!
“The easiest, most comprehensive way to both see where your money is going and plan for future expenses.”
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8. Create a System for Tracking Your Expenses
Creating an efficient system for tracking expenses is vital to maintaining control over your finances. This could be a simple spreadsheet, a manual ledger, or budgeting apps on your smartphone.
Tally every cent spent, dividing your expenses into their respective categories—rent, food, clothing, utilities, etc.
This way, you get a detailed insight into your financial habits and can identify potential areas for savings. The method isn’t as important as its thoroughness in ensuring no expense gets overlooked.
9. Track Your Spending with a Spreadsheet
Spreadsheets are an optimal resource for tracking spending. You can utilize an online template, like Tally, or make one yourself from scratch.
As you spend, record each transaction under the fitting category. This real-time monitoring can help spot overspending, analyze spending habits, and adjust budgets as needed.
So, if you’re a whiz with Excel or Google Sheets, tracking expenses this way might be your best bet.
Tiller Money
Your financial life in a spreadsheet, automatically updated each day.
Tiller is the fastest, easiest way to manage your money with the unlimited flexibility of a spreadsheet.
Update your finances in one place, so you can take control of spending, optimize cash flow, and confidently plan your financial future.
Pros:
Tiller automatically updates Google Sheets and Microsoft Excel with your latest spending, balances, and transactions each day.
No more tedious data entry, CSV files, or logging into multiple accounts.
You can customize everything and finally track your money, your way.
Try Tiller Free
10. Budget for Emergencies
Budgeting for the unexpected is an essential aspect of sound financial planning. Financial emergencies don’t knock before they occur; therefore, creating a buffer in your budget helps you face them without plunging into debt.
As an expert, we suggest an emergency fund of one month of income or at least $1000. Then, start a rainy day fund with three to six months of expenses.
Having these funds built into your budget ensures you’re financially covered for challenging situations such as job loss, medical emergencies, or sudden home repairs.
11. Talk to Your Family About Your Budget
Talking to your family about your budget ensures everyone understands and works towards your financial goals. This discussion becomes especially crucial if you’re budgeting for a household.
I always provide my family with an overview of the budget, explaining how it works and how we can achieve our goals. Being open about your financial plan can foster greater accountability, and cooperation to achieve shared financial objectives more seamlessly.
12. Look for Ways to Make Money
Increasing your income can be an effective strategy to make your budget work better, rather than solely focusing on cutting expenses.
By finding ways to earn more money, for example by taking a part-time job, freelancing, selling unused items, or investing, you add flexibility to your budget and reduce the pressure on spending.
Moreover, the additional income could be directed towards savings, debt repayment, or funding your personal goals as identified in your budget plan.
Financial Budgeting FAQs
Starting a budget begins by assessing your total income, followed by identifying and categorizing your expenses.
Once done, subtract your expenses from your income to understand your financial standing.
Next, set your financial goals—short term and long term.
Then, allocate your earnings across different categories, maintaining a balance between savings, expenditures, and other aspirations.
Review and adjust this plan periodically to ensure it aligns with your financial landscape.
Budgeting should ideally start as soon as a person starts earning money. It’s never too early to begin planning where your money should go, and late starters can still benefit significantly.
Budgeting is a lifelong practice that guides you to live within your means, handle emergencies smoothly, and achieve your financial goals efficiently. It’s an indispensable tool for ensuring monetary success and stability.
Successful Budgeting as an Essential Life Skill
Successful budgeting is undeniably an essential life skill. It not only helps you live within your means but also provides a clear direction towards your financial goals.
Mastering this skill early on can lead to effective financial decision-making, lesser financial stress, and a more secure way of life.
There will be fluctuations in your budgeting, so you can start to forecast your budget. It also reinforces the value of discipline and planning, offering improved self-management and positive monetary habits.
Ultimately, progressing from just surviving to thriving financially is the goal, and disciplined budgeting is a tool to get you there.
This is just one step towards becoming financially independent.
Know someone else that needs this, too? Then, please share!!
Did the post resonate with you?
More importantly, did I answer the questions you have about this topic? Let me know in the comments if I can help in some other way!
Your comments are not just welcomed; they’re an integral part of our community. Let’s continue the conversation and explore how these ideas align with your journey towards Money Bliss.
Inside: Are you finding yourself struggling to cover unexpected expenses? This guide will teach you how to create a financial plan and budget that will help you avoid costly surprises.
Life is full of surprises, and not all of them are pleasant. Sometimes, these surprises come in the form of unexpected expenses, hitting when one least expects them.
This can leave you devasted financially. Over the years, we have been slapped with unplanned costs and left scrambling.
However, you can successfully navigate through the rollercoaster ride of money management.
The key is knowing “What are unexpected expenses?’ Along with the knowledge equips you to avoid or mitigate them.
This post may contain affiliate links, which helps us to continue providing relevant content and we receive a small commission at no cost to you. As an Amazon Associate, I earn from qualifying purchases. Please read the full disclosure here.
What are Unexpected Expenses?
In the realm of personal finance, unexpected expenses are costs you haven’t foreseen or budgeted for. They strike out of nowhere, leaving you scrambling to balance your finances.
These expenses differ from other cost categories such as fixed expenses (weekly, monthly, and recurring costs like rent) and variable expenses (those that do not happen regularly but vary in cost like groceries).
The crux lies in not being able to anticipate these unplanned expenses, making them disruptive to financial plans.
What is an example of unplanned spending?
Unplanned spending often occurs when there’s an unforeseen event that demands immediate financial attention.
Picture this scenario: You take your car for a routine inspection; however, the car fails the inspection due to a defective part that needs immediate repair. Initially, you hadn’t allocated funds for this, but now you have to deal with this unforeseen cost – a classic case of unplanned spending.
Common Examples of Unexpected Expenses
Unforeseen financial events can leave many unprepared and struggling, adding unnecessary stress. This section will delve into examples of typical unexpected expenses that individuals often encounter, providing key insights into how to efficiently incorporate these into your financial plan.
By understanding and preparing for these unexpected expenses, one can effectively mitigate the surprise factor they pose, promoting a healthier and more secure financial state.
We have overcome many times and you can too!
1. Medical Emergencies and Healthcare Costs
Medical emergencies are prominent examples of unexpected expenses. Even with health insurance, costs can amass, thanks to high deductibles, co-payments, and therapies not covered by insurance.
One factor is paying for the medical costs, but the other weighing factor is loss of income when dealing with medical emergencies or critical diseases like cancer.
Overcome this by:
Contributing the max each year to your Health Savings Account (HSA). This way you have a bucket of money just for medical expenses.
Look into short-term disability insurance that can cover part of your lost wages while you can’t work.
2. Automatic Home or Vehicle Repair Needs
Home and vehicle repairs often sneak up as unexpected expenses. Time, accidents, natural disasters — all can cause wear and tear that demands immediate repair. The consequences of ignoring these repairs can be hefty.
Similarly, significant home repairs such as fixing a faulty HVAC system or leaky roof can set you back by thousands of dollars.
Overcome this by:
Be proactive with routine maintenance. Take care of your house and car before problems escalate.
Save the same amount each month for home and vehicle repairs separately.
Personally, we save $100 monthly for car repairs as one is a beater car. This amount will be increased to $350 to start saving for a new car. Conversely for home repairs, we keep a minimum of $1000. This amount will fluctuate depending on when we last did a major repair. Since we just replaced our HVAC, our funds are lower.
3. Natural disasters
Natural disasters, such as hurricanes, earthquakes, wildfires, and floods, lead to unexpected spending. The impact of these events can cause significant damage to homes, cars, and other property, leading to repair and replacement costs.
Furthermore, these situations might also necessitate expenses for emergency supplies, temporary shelter, and other necessities. For instance, Hurricane Katrina inflicted a staggering $196.3 billion in damage, illustrating the overwhelming cost of such unpredictable events.1
Overcome this by:
Make sure you have proper insurance whether it is renter insurance or flood/wildlife insurance. Also, make sure you have the proper amount of insurance. As highlighted by the Marshall Fire where most people were underinsured. 2
Storing cash on hand at home in case of an emergency. A cushion of money will always be helpful.
4. Increase in Bills
Monthly bills are a constant in our lives, but what’s not constant is their amount. Landlords may raise the rent when leases are up for renewal, utility companies could increase their rates, and insurance premiums may also inflate periodically.
All these scenarios lead to higher monthly expenses. For example, the U.S. energy costs per household rose by 13% in 2022 reaching the highest percentage increase since it was measured. 3
Being unprepared for these increases can cause significant financial strain.
Overcome this by:
Get one month ahead on your bills. Then, you will start building a cushion. Also, known as aging your money – thanks to YNAB.
Be proactive and realize that with inflation high. All of your bills will likely increase in cost.
YNAB
Enjoy guilt-free spending and effortless saving with a friendly, flexible method for managing your finances.
Pros:
Comprehensive approach to budgeting, helping you plan monthly budgets based on your income.
Offers expert advice, making it suitable for those who require an in-depth, forward-thinking budgeting strategy.
Superior synchronization skills make it the winner in this area.
YNAB has extra features like goal setting for budgeting, shared budgeting tools for partners.
Option to manually add and upload transactions from accounts each month.
YNAB prioritizes user privacy.
Start 34 Day Free Trial
5. Overlooked Taxes
Overlooked taxes pose another source of unexpected expenditure.
A higher than expected tax bill can indeed surprise and unbalance your budget. This happened to my friend when she started her own fitness coaching business.
Uncertainties in estimating the exact tax amount, mathematical errors in filing, or an overlooked quarterly tax payment often culminate in an escalated tax bill. An audit from the IRS, though it may find no additional taxes owed, can lead to expensive fees from a CPA or tax attorney.
Overcome this:
Use a tax calculator to know what your estimated tax payment due.
Understand the common reasons you may owe higher taxes this year.
6. Pet Emergencies
Pet emergencies can bite a large chunk out of your budget without warning. For instance, if your cat suddenly starts having seizures or your dog gets hit by a car, the medical costs associated can spiral rapidly.
Emergency vet care can range between a few hundred dollars to several thousand dollars. For instance, a poisoning can range from $200-$3000. 4
Overcome this by:
Prevention methods like pet insurance can help you manage these costs effectively.
Decide in advance the maximum you are willing to spend on emergency vet care.
7. Delayed payments
Delayed payments may not be an external expense, but the repercussions can be just as financially challenging. This affects your income stream, potentially leading to difficulty in managing your financial obligations.
For example, if an employer goes bankrupt, salaries might be delayed or even indefinitely withheld. According to research, late payments can cost businesses $3 trillion globally, affecting both personal financial planning and business operations.5
This is a highly stressful situation.
Prepare yourself financially by:
Aging your money. By getting one month ahead of your bills, you can scrap through a delayed payment. YNAB coined this term.
Start saving for a large rainy day fund.
Raisin
Simply select one of the high-yield savings products offered by their network of federally insured banks and credit unions to begin your savings journey.
You can open a free Raisin account in just a few minutes!
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8. Gifts and Special Occasions
Commemorating special occasions can lead to unexpected expenses. Life events such as birthdays, weddings, baby showers, and retirements, traditionally require gift-giving.
While typical gift giving on Christmas or birthdays should be part of your planned variable expenses. Saying yes to being a bridesmaid can definitely set you back a few thousand dollars. These are costs that we often fail to factor into our budgets.
Overcome this by:
Setting aside money monthly to cover gifts and special occasions.
If saying yes to a special event will hamper your finances, then you may have to politely decline the invitation.
9. Unexpected Travel Costs
Unexpected travel costs can significantly impact your budget, particularly when they arise from unplanned events such as attending a funeral or a wedding. The costs of last minute travel can vary widely depending on the destination, distance, and mode of transportation.
To manage these expenses, consider driving or taking public transportation for shorter trips, exploring less expensive lodging options, and creating a meal plan that limits dining out.
Overcome this by:
Setting aside a regular amount in a travel fund can help prepare for these unexpected costs that tend to crop up every year.
Decide if taking the unplanned trip is something you can feasibly manage with your current financial situation.
10. What You Forget to Budget for
Some subtle but regular expenses often sneak past our budget plans. This is why we have a full list of budgeting categories so hopefully, you don’t miss anything!
Consider online subscriptions and memberships: Many services offer free trials, but the charges kick in if not canceled. Other overlooked budget items may include pet care, parking fees, and toll fills—small amounts that may seem insignificant but can considerably dent your budget over time.
Overcome this by:
Review your checking account and credit card bills to see all of your expenses for the past year. Write down those unexpected expenses that came through.
Now, make a plan for how to spend your money in advance with your findings.
This helps you prepare for unexpected expenses
Here are simple tips to make sure you employ the habits of a financially stable person.
Tip #1 – Building an Emergency Fund
Building an emergency fund is a fundamental strategy to brace for unexpected expenses. This fund acts as a financial buffer, providing the economic security to cover unexpected costs without tapping into monthly budgets or savings aimed at other goals.
As a starting point, aim to save $1000 and then work your way up to save a month’s paycheck. Start small and build over time – every penny set aside helps to mitigate future financial stress.
Tip #2 – Properly Utilizing Sinking Funds
Sinking Funds are a sagacious tactic to prepare for larger, infrequent expenses. They allow you to systematically and gradually save up for anticipated financial obligations such as vacations, holiday gifts, car maintenance, etc.
By assigning a specific amount to save each month, by the time the need arises, you’ll have a pool of money ready. With platforms like YNAB, creating sinking funds becomes easier, letting you monitor your progress month by month.
This is how we have less frequent unplanned costs than we did in our 20s.
Tiller Money
Your financial life in a spreadsheet, automatically updated each day.
Tiller is the fastest, easiest way to manage your money with the unlimited flexibility of a spreadsheet.
Update your finances in one place, so you can take control of spending, optimize cash flow, and confidently plan your financial future.
Pros:
Tiller automatically updates Google Sheets and Microsoft Excel with your latest spending, balances, and transactions each day.
No more tedious data entry, CSV files, or logging into multiple accounts.
You can customize everything and finally track your money, your way.
Try Tiller Free
Tip #3 – Saving for the Larger Rainy Day
Beyond smaller emergency funds and sinking funds, saving for the ‘larger rainy day’ is a crucial tactic to avoid financial duress caused by unexpected expenses. This refers to padding your savings to cover larger, more substantial financial shocks that might require more than just a few months’ worth of expenses.
It may take time to build such a fund, but even a small contribution each month can result in substantial savings over time.
Tip #4 – Pick up a Side Hustle
One way to strengthen your financial resilience against unplanned expenses is to start a side hustle. This could mean picking up extra shifts at work, selling handcrafted items online, or using skills like photography or writing for freelance work.
With the rise of the internet, making money online is really easy and simple to get started. We have a few side hustles to shield against unforeseen costs.
Tip #5 – Budget Properly and Stick to It
Budgeting is an essential line of defense against unexpected expenses. By tracking your income and comparing it against both predictable and variable expenses, you can calculate how much money can be saved each month.
Regular budget check-ins help ensure you’re staying on track, steadying your financial footing.
Quicken
Personal finance and money management software allows you to manage spending, create monthly budgets, track investments, retirement and more.
I have used this platform for over 20 years now.
Pros:
Birds-eye view of your complete financial picture.
Conveniently download your spending activities, and automatically categorize them (Quicken connects to over 14,000 financial institutions).
Track investments with it’s features like portfolio analytics, retirement goals, and market comparison.
Cons:
Little complex to use at first, the learning curve is moderate.
Yearly subscription-based model to use the platform.
Save 40% on New Memberships
Our Review
Tip #6 – Regular Review of Financial Plans
Regularly reviewing and updating your financial plans can serve as a preventative measure against unexpected expenses. Consider changes in income, expenses, and lifestyles, and adjust your savings and spending plans accordingly.
Tip #7 – Utilizing Digital Banking Features for Money Management
Digital banking tools have revolutionized financial management and can be part of a robust strategy to avoid unexpected expenses.
Features such as instant account balance checking, transaction alerts, set-and-forget savings transfers, budgeting tools, and proactive spending categorization help you grasp where your money is and how it’s being spent.
Tools to Ward Off Unexpected Expenses and Not Go into Debt
Unexpected expenses are inevitable, yet going into debt to cover these costs can lead to financial strain due to accumulated interest and fees.
Here are crucial steps in preventing unexpected expenses from turning into debt.
Dealing smartly with Credit Cards options
Credit cards can serve as a lifeline during a financial crunch but should be employed judiciously.
To smartly deal with unexpected expenses, consider options like 0% or low-interest credit card offers – these are particularly useful if you can pay off the balance during the introductory period. But tread with caution: high-interest rates can cause difficulties if you can’t pay off the balance in time.
Profit from Asking for a Paycheck Advance
In times when emergency expenses arise, asking for a paycheck advance can help. Some employers offer this as part of their policy to assist employees dealing with abrupt financial needs. A salary advance allows you to ‘borrow’ from your future earnings and repay the amount through future pay deductions.
Budgeting apps like Chime not only help in tracking expenses, but they also enable early access to your paycheck, up to two days before payday. This feature ensures you avoid running short of money at the end of the week or month, allotting you ample room to plan, track, and adjust your spending and savings.
Chime
Chime offers mobile and online financial services with an award-winning app that allows you to manage your money on-the-go!
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Exploring Personal Loans for Emergency Situations
Personal loans are a convenient option during urgent monetary needs. They are unsecured loans and therefore don’t require collateral.
However, they’re typically accompanied by relatively high-interest rates. Consider using online prequalification tools for personal loans to determine if you’re eligible and view potential interest rates.
Explore different lenders, but be wary of the terms and conditions to make sure you don’t invite more financial trouble.
Which of the following is true regarding unexpected expenses?
Unexpected expenses are costs that are not anticipated or planned for, such as sudden car repairs or medical emergencies.
To efficiently manage unexpected expenses, it’s recommended to make them a part of the monthly budget. A suggested approach is to analyze past “unexpected expenses”, then estimate their costs and timing, which can provide an estimate of how much should be saved each month.
While basing future expenses on past ones only furnishes savings guidelines, this method can prevent an unexpected expense from turning into a severe financial emergency.
Planning for unexpected expenses by setting aside money from each paycheck can protect individuals from unforeseen financial difficulties.
Understanding what types of unexpected expenses might occur can help in the development of strategies to handle them successfully, reducing the impact of any unpleasant financial surprises.
Yes, all of the statements above are true.
What is not true about unexpected expenses?
Unexpected expenses are entirely out of our control.
Unexpected expenses can be completely avoided.
These unanticipated costs only occur irregularly or infrequently.
You can’t prepare for unexpected expenses.
All of these statements are not true. While the occurrence of these expenses might be unexpected, they’re not entirely unpredictable. Many times, they are the result of poor financial planning or management as they are often unforeseen costs that were not anticipated or included in a budget.
Frequently Asked Questions (FAQ)
It’s advisable to aim for at least 3 to 6 months of living costs for an emergency fund. This acts as a buffer to cover unexpected expenses and offers financial security during unexpected life events like job loss or serious illness.
However, the “right” amount to save varies depending on your personal situation, lifestyle, and financial obligations. Always remember: saving something is better than saving nothing; start small and increase gradually as your income allows.
Financial experts generally advise having an emergency fund equivalent to three to six months of monthly expenses. This guidepost factors in expenses such as food, housing, utilities, transport, healthcare, and other necessities.
However, if you are in a volatile occupation or the sole breadwinner of the family, aiming for a larger fund may be prudent. Whichever your situation, remember it’s not about reaching the benchmark overnight; the key is consistency in saving.
Managing urgent financial liabilities without incurring debt hinges on proactive financial planning.
Building an emergency fund: Start small and deposit to accumulate enough to cover at least three to six months of essential expenses.
Proper budgeting: Maintain a budget, ensuring you live within your means and regularly contribute to savings.
Insurance coverage: Adequate insurance coverage can help circumvent the financial impact of medical emergencies or catastrophic events.
Extra income: Consider a side hustle for additional income to bolster your budget and increase your savings.
Plan Ahead to Avoid Unforeseen Expenses
While unexpected expenses are an inevitable part of life, their financial stress isn’t.
Through effective planning and budgeting, you can cushion their blow, ensuring they don’t throw you into financial turmoil. Around here at Money Bliss, we strive for our readers to have less stress with money.
No matter how well you plan, unexpected costs can still arise from time to time. They can happen quite regularly, which is why it’s crucial to include them in budget planning.
By setting aside a portion of each paycheck in a savings account, you can be better prepared for such costs when they arise.
Remember, every dollar saved is a step towards greater financial stability, helping you to navigate life’s uncertainties with confidence and peace of mind.
Now, make sure you are financially sound.
Source
NOAA.gov. “Costliest U.S. Tropical Cyclones.” https://www.ncei.noaa.gov/access/billions/dcmi.pdf. Accessed December 1, 2023.
Colorado Public Radio. “Most people who lost homes in the Marshall Fire were underinsured, Colorado insurance regulators say.” https://www.cpr.org/2022/05/02/most-people-who-lost-homes-in-the-marshall-fire-were-underinsured-colorado-insurance-regulators-say/. Accessed December 1, 2023.
U.S. Energy Information Association. “U.S. residential electricity bills increased 5% in 2022, after adjusting for inflation.” https://www.eia.gov/todayinenergy/detail.php?id=56660. Accessed December 1, 2023.
BetterPet. “Average emergency vet costs: what to expect.” https://betterpet.com/emergency-vet-costs/. Accessed December 1, 2023.
Mastercard. “Your real-time guide to real-time payments.” https://www.mastercard.com/news/perspectives/2023/real-time-payments-what-is-rtp-and-why-do-we-need-instant-payments/. Accessed December 1, 2023.
Know someone else that needs this, too? Then, please share!!
Did the post resonate with you?
More importantly, did I answer the questions you have about this topic? Let me know in the comments if I can help in some other way!
Your comments are not just welcomed; they’re an integral part of our community. Let’s continue the conversation and explore how these ideas align with your journey towards Money Bliss.
Inside: Do you find it difficult to stick to a budget, despite trying your best? If so, you’re not alone. Budgeting can be a tricky task, but by understanding flexible vs variable expenses, you will better manage your money.
Creating a budget is a fundamental step in shaping your financial well-being, and understanding how your expenses fit within this budget is essential.
These are expenses that can be easily modified or eliminated when monetary constraints arise, thus playing a significant role in stabilizing your financial health.
This post may contain affiliate links, which helps us to continue providing relevant content and we receive a small commission at no cost to you. As an Amazon Associate, I earn from qualifying purchases. Please read the full disclosure here.
What is a flexible expense?
A flexible expense is a budget item you can adjust or modify as per your financial situation. This wiggle room inherent in such costs is not vital for survival, unlike the rigidity of fixed costs such as rent or health insurance.
You can manage these flexible expenses depending on your financial goals or constraints, making them an important part of budget planning.
Fixed Expenses
Variable Expenses
Flexible Expenses
A fixed expense is a cost that remains constant and is paid at regular intervals, such as mortgage payments, car insurance, or cell phone bills, making it predictable and crucial for budgeting purposes.
A variable expense is a cost that changes over time, fluctuating based on individual decisions and circumstances, encompassing both essential spending like groceries and discretionary purchases like movie tickets.
A flexible expense is a non-essential cost in your budget that you can adjust, reduce, or eliminate to save money, encompassing diverse categories like vacation spending, beauty treatments, electronics, dining out, and entertainment services.
What is an example of a flexible expense?
There are countless opportunities for flexible spending, some of which we might not even realize. Common examples include:
Vacations: A sunny beach holiday might be highly appealing, but not always financially feasible. There are alternative, less expensive options such as a staycation.
Beauty treatments: Items like haircuts, manicures, and massages fall into this category.
Electronics: The urge to upgrade to the latest smartphone or tablet model is understandable, but if your current device works fine, that’s an expense you can postpone.
Food and dining: While we all need to eat, the amount spent on eating out, or grabbing a latte on the go can be adjusted.
Entertainment: Expenses here include streaming services, cable television, concerts, or movie outings. There are plenty of free things to do that don’t cost money.
Remember, the trick lies in distinguishing between what you need and what you want.
Distinguishing fixed expenses from flexible expenses
The main difference between fixed and flexible expenses lies in their ability to change.
Fixed expenses, like your rent, or more specific elements such as a lease payment, represent costs that you’re obligated to cover regularly. They’re usually consistent in amount and include items such as utilities, phone bills, insurance premiums, and car payments. Handling these sensibly is crucial as postponing or canceling these could lead to severe consequences.
On the flip side, flexible expenses vary and can be adjusted or cut out entirely depending on your financial situation. These can range from dining out and entertainment costs to clothing purchases and vacation expenses. By taking control of your flexible expenses, you can ensure financial stability, even when incomes fluctuate.
Flexible Expense List Questions to Ask
Are you incurring this expense out of necessity or is it more of a luxury or desire?
Do I have control over the total amount spent on this expense or is it a constant obligatory payment?
Can this expense be eliminated or reduced without drastically affecting your lifestyle or basic needs?
Does this expense vary from month to month or can it be controlled based on your financial situation?
If you were to face financial constraints, could this expense be readily cut back or postponed?
If you answered yes to these questions, then you have a flexible expense.
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Which budgeting method works best for flexible expenses?
Choosing the best budgeting method varies greatly depending on your financial habits, goals, and discipline.
Regardless of the budgeting method you choose, remember that flexible expenses are the last thing that you prioritize in your budget.
Option #1 – Envelope System
The “Cash Envelope System” works well for many, where you allocate a specific amount of money for each flexible expense category in separate envelopes. You only spend what’s set aside in each envelope, assisting in keeping variable and flexible costs in check.
The envelope system allows you to save in advance for flexible expenses you want like a vacation or new car or even new clothing.
Option #2 – Pay Yourself First
Alternatively, the “Pay Yourself First” budget prioritizes savings. Something we like to do around here at Money Bliss.
Right after receiving your paycheck, you immediately transfer a designated amount into your savings or investments. The remaining money is then divided among your fixed, variable, and flexible costs.
Option #3 – Zero Based Budget
Lastly, the “Zero-Based Budget” is a method where every dollar you earn is allocated to a particular expense category, leaving you with a zero balance at the end of the month.
This 3 layer system starts with your fixed expenses, then moves to variable expenses. If you have money left over, then you can work on including those fun money flexible items or a deposit into savings account.
In essence, the best budgeting technique is one that fits your needs and aids in achieving your financial goals.
YNAB
Enjoy guilt-free spending and effortless saving with a friendly, flexible method for managing your finances.
Pros:
Comprehensive approach to budgeting, helping you plan monthly budgets based on your income.
Offers expert advice, making it suitable for those who require an in-depth, forward-thinking budgeting strategy.
Superior synchronization skills make it the winner in this area.
YNAB has extra features like goal setting for budgeting, shared budgeting tools for partners.
Option to manually add and upload transactions from accounts each month.
YNAB prioritizes user privacy.
Start 34 Day Free Trial
YNAB vs Mint
How do you budget for flexible expenses?
Budgeting flexible expenses may seem daunting initially, but with a systematic approach, it becomes manageable.
Here are the steps to follow:
Calculate Your Income: Identify your total monthly income after taxes, this is your starting point.
Identify Your Monthly Expenses: Take your bank and credit card statements; evaluate your spending habits to identify your expenses. Start with your fixed expenses as those are priority. Then move to variable and flexible expenses as your budget allows.
Set a Budget: Employ the 50/30/20 rule (or any other method that works best for you) to divide your income between essentials, flexible expenses, and savings.
Track Spending: Regularly monitor your spending against the budget set.
Adjust and Control: After monitoring, make necessary adjustments to control your expenditures.
Consistency: Continually follow these steps for a few months, change gets easier over time, and so will managing flexible costs.
Budgeting, especially flexible budgeting, allows for financial adaptability, enabling companies to seize unexpected opportunities or navigate emergencies without severe monetary strain.
How tracking your spending can help
Learning to recognize your overspending by diligently tracking can offer an enlightening picture of your financial habits. It aids in understanding where your money is being utilized and exposes any neglected ‘financial leaks’. A no spend challenge can help you pinpoint these issues.
Planning and then tracking your spending is crucial in forming an effective budgeting strategy. This is where a calendar can come in handy.
Tracking can be achieved manually via saving receipts, noting down amounts, or through digital means such as online budgeting tools or apps like YNAB or Tiller Money. With regular tracking, you can regulate your spending. Thus, ensuring you stick to your set budget, and make informed future financial decisions.
Tiller Money
Your financial life in a spreadsheet, automatically updated each day.
Tiller is the fastest, easiest way to manage your money with the unlimited flexibility of a spreadsheet.
Update your finances in one place, so you can take control of spending, optimize cash flow, and confidently plan your financial future.
Pros:
Tiller automatically updates Google Sheets and Microsoft Excel with your latest spending, balances, and transactions each day.
No more tedious data entry, CSV files, or logging into multiple accounts.
You can customize everything and finally track your money, your way.
Try Tiller Free
Tips and tricks for handling flexible expenses in your budget
Optimizing your budget while dealing with flexible expenses need not be a daunting task. Here are some tips to help:
Prioritize Savings: Always try to prioritize savings. One of our money saving challenges can help you.
Use Sinking Funds: This is money set aside to be used at a future time for a specific purchase.
Control Impulsive Spending: Limit frequent shopping trips, reduce eating out, and avoid buying unnecessary gadgets.
Substitute Luxuries with Alternatives: Option for budget-friendly alternatives like watching movies at home instead of the cinema, or cooking at home instead of dining out.
Utilize Budgeting Tools: Make use of budgeting apps or financial management tools that can track spending and help maintain your flexible expenses.
Practice Mindful Spending: Stay aware of your financial goals and make purchasing decisions that align with those goals.
Utilize Discounts: Seek opportunities for discounts that can contribute to these savings. For instance, some car insurance companies provide a discount for annual payments rather than monthly.
Remember, the goal isn’t to eliminate flexible spending entirely. But to strike a healthy balance that aligns with your long-term financial health.
Quicken
Personal finance and money management software allows you to manage spending, create monthly budgets, track investments, retirement and more.
I have used this platform for over 20 years now.
Pros:
Birds-eye view of your complete financial picture.
Conveniently download your spending activities, and automatically categorize them (Quicken connects to over 14,000 financial institutions).
Track investments with it’s features like portfolio analytics, retirement goals, and market comparison.
Cons:
Little complex to use at first, the learning curve is moderate.
Yearly subscription-based model to use the platform.
Save 40% on New Memberships
Our Review
FAQ
By tracking and managing these expenses, you can have more control and insight into your finances as this is where most unmindful spending happens.
It enables you to understand better where your money goes each month and helps avoid unnecessary spending. When you curtail these expenses, you free up money that can be used to pay off debts, save for future goals, or invest.
Therefore, skillful handling of flexible expenses allows you to maintain a well-rounded and healthy financial state.
Rent generally falls under the category of fixed expenses rather than flexible ones as it is typically a set amount due regularly.
Ready to Solidify Your Budget with these Examples of Flexible Expenses
Conclusively, budgeting with flexible expenses is an essential skill for effective financial management and becoming financially stable.
The key lies in balancing your needs and wants, recognizing and eliminating unnecessary spending while prioritizing necessities. Making use of budgeting tools, like the 50/30/20 rule, can also be advantageous and strategic.
Remember, it’s crucial to be aware not only of your income but also of where your money is spent, as gaining control over your flexible expenses can help avoid financial strain and achieve your financial goals. Always strive to adapt your spending habits to best fit your financial situation.
Now, learn how to handle unplanned expenses.
Know someone else that needs this, too? Then, please share!!
Did the post resonate with you?
More importantly, did I answer the questions you have about this topic? Let me know in the comments if I can help in some other way!
Your comments are not just welcomed; they’re an integral part of our community. Let’s continue the conversation and explore how these ideas align with your journey towards Money Bliss.
Inside: Are you struggling to keep up with your variable expenses? Whether it’s groceries, gas, or rent, managing these costs can be daunting. This guide will teach you how to budget for variable expenses and reduce the strain they put on your wallet.
Understanding and effectively managing your variable expenses is a crucial aspect of maintaining financial health.
These are expenses that fluctuate on a monthly basis, such as groceries, fuel, and entertainment. Their inconsistency can make budgeting a challenging task.
For many people, this is where they give up on budgeting because variable costs can sway too much for the average budgeter to know what to do.
Around here at Money Bliss, we know those who efficiently manage their variable expenses tend to fare better in achieving their financial goals. Furthermore, it empowers you to anticipate, plan and manage costs better, and avoid unnecessary financial stress.
Our focus here will be on explaining how variable expenses can make notable changes to your personal budget and offer strategies to manage them effectively.
This post may contain affiliate links, which helps us to continue providing relevant content and we receive a small commission at no cost to you. As an Amazon Associate, I earn from qualifying purchases. Please read the full disclosure here.
What is a Variable Expense?
A variable expense is a cost that changes from month to month.
Unlike fixed costs that are paid at regular intervals and may endure only slight fluctuations, variable expenses undergo a higher degree of fluctuation depending on consumption or quantity used. These expenses can comprise costs such as groceries, entertainment, and fuel for your car.
What primarily distinguishes a variable expense is its potential to vary from one period to the next, making it an important calculation in accounting for a comprehensive monthly budget.
Knowing the intervals of these variable costs can enhance the accuracy of your budgeting, turning this challenging aspect into an opportunity to reduce costs.
What is an Example of a Variable Expense?
Variable expenses typically entail a high degree of personal discretion and vary substantially between individuals. While one person may see dining out as a variable expense, for another, it may be a rare treat. Either way, it is still an example of variable expenses.
Here are a few typical examples:
Groceries: You decide what food to buy, and it depends on your food preference, the number of people at home, and special dietary needs.
Gasoline: This expense is dependent on how much and how far you drive.
Utilities: Electric, water, and gas bills fluctuate based on usage.
Clothing: The cost can vary each month depending on how often and how much you choose to buy, such as seasonal shopping, special occasions, or replacing worn-out items.
Gifts: Costs can fluctuate depending on the occasion, person, and your personal budget for the period, making them unpredictable and potentially impacting your monthly budget plans. Especially for Christmas gifts.
Entertainment: Costs such as movie tickets, concerts, or amusement parks may vary depending on your social life.
Repairs: Costs for home and car repairs are unpredictable and can markedly vary. Essentially, any expense that is not fixed (like rent or car payment) can be considered a variable expense.
Taxes: Yes, even your taxes are variable based on your income.
Don’t forget to use a savings account with one of the popular money saving challenges.
Difference between Fixed and Variable Expenses
Understanding this difference is a significant step toward setting realistic savings goals
Fixed expenses are constant costs that remain the same each month, like rent, insurance premiums, car payments, or childcare. They’re predictable, making them easier to incorporate into your budget without unexpected surprises.
On the contrary, variable expenses fluctuate month-to-month and include items like groceries, utilities, gas for your car, or entertainment. The unpredictability of these costs can cause potential challenges in budgeting and limit the consistency of your financial output.
Nevertheless, variable expenses often present more opportunities for saving.
You have greater control over these costs, giving you a chance to limit expenditure and prioritize savings.
How to Budget for Variable Expenses
Personal budgeting is an essential tool. Despite variable expense’s unpredictability, it is possible to plan for these expenditures by applying practical tactics and strategies.
From using budget apps to examining previous spending patterns, this type of budgeting enables you to maintain control over your finances and make adjustments as necessary.
50/30/20 Budget: An Effective Approach
The 50/30/20 budgeting approach is a simple yet effective method that can help you manage both fixed and variable expenses.
This method suggests you divide your after-tax income into three categories: 50% on necessities, 30% on wants, and 20% on savings or debt repayment.
By categorizing this way, you ensure your most critical outlays (the necessities ) first. You then allocate your income towards discretionary spending (your wants), and finally squirrel away a portion for savings (hopefully 20%) or paying off debts. This budget calculator strategy can serve as a foundation to guide your spending, helping you to stay on top of your finances.
Quicken
Personal finance and money management software allows you to manage spending, create monthly budgets, track investments, retirement and more.
I have used this platform for over 20 years now.
Pros:
Birds-eye view of your complete financial picture.
Conveniently download your spending activities, and automatically categorize them (Quicken connects to over 14,000 financial institutions).
Track investments with it’s features like portfolio analytics, retirement goals, and market comparison.
Cons:
Little complex to use at first, the learning curve is moderate.
Yearly subscription-based model to use the platform.
Zero-Based Budget
A zero-based budget is a technique where you make a budget from scratch or “zero” and allocate every dollar of income towards different categories of expenses until they sum up to zero at the end of the month.
This budgeting strategy, very popular due to the budgeting app, YNAB, can be a rewarding technique that solicits justifying every expense’s worth as you give every dollar a job.
Distributing money toward fixed costs is usually shoo-in, but budgeting for variable costs can be tricky because you won’t know how much you’ll spend on them. The solution is to estimate as closely as possible.
The beauty of a zero-based budget is that it ensures your money is purposefully allocated, leaving no room for unexplained spending especially when used with sinking funds.
YNAB
Enjoy guilt-free spending and effortless saving with a friendly, flexible method for managing your finances.
Pros:
Comprehensive approach to budgeting, helping you plan monthly budgets based on your income.
Offers expert advice, making it suitable for those who require an in-depth, forward-thinking budgeting strategy.
Superior synchronization skills make it the winner in this area.
YNAB has extra features like goal setting for budgeting, shared budgeting tools for partners.
Option to manually add and upload transactions from accounts each month.
YNAB prioritizes user privacy.
Envelope Budgeting System
The envelope budgeting system is a successful method for managing variable expenses. By dividing your income into envelopes assigned to different categories like entertainment, groceries, or transportation, control over fluctuating costs is established.
With each paycheck, you determine a specific amount for each category and stuff that envelope with cash. By strictly adhering to this limit, you thereby avoid overspending.
This hands-on approach provides an exact idea of available cash and creates a stronger sense of financial accountability. In fact, recent data indicates that the envelope system has successfully helped many people stay within their budget, primarily by making expenditures more tangible and easier to track.1
What is most likely the reason variable expenses should be planned after fixed expenses?
When preparing a budget, it’s typically suggested to plan for fixed expenses first before variable expenses.
The primary reason is that fixed expenses are generally non-negotiable costs that are essential to your daily life and take up much of your budget. These costs are predictable and regular, making them easier to budget for.
Variable expenses, on the other hand, tend to fluctuate and often include discretionary spending like dining out, shopping, or entertainment. This category, despite its variability, carries a certain upside as you possess more control over these expenses than your fixed ones.
By planning for fixed expenses first, you ensure to cover your essential needs before budgeting for lifestyle choices and discretionary spending, which can flex more easily around your remaining income.
Tiller Money
Your financial life in a spreadsheet, automatically updated each day.
Tiller is the fastest, easiest way to manage your money with the unlimited flexibility of a spreadsheet.
Update your finances in one place, so you can take control of spending, optimize cash flow, and confidently plan your financial future.
Pros:
Tiller automatically updates Google Sheets and Microsoft Excel with your latest spending, balances, and transactions each day.
No more tedious data entry, CSV files, or logging into multiple accounts.
You can customize everything and finally track your money, your way.
Tips to Control Variable Expenditures
Managing and controlling variable spending is an essential aspect of sound financial planning.
Honestly, the more proactive you are in monitoring the continuous changes in variable expenses and introducing strategies to suppress any unnecessary hikes, the faster you will reach your goals.
This section will provide insights into various effective methods to control variable spending, as well as the behavioral adjustments needed for successful implementation.
Tip #1 – Save on fixed and variable costs
Everyone wants to save money and here are a few tips on reducing both fixed and variable costs:
Fixed costs: Considering these costs are more constant, savings can usually only be achieved by longer-term changes. This could be refinancing your mortgage for a lower rate, negotiating a lower car insurance premium, or switching to a cheaper phone plan.
Variable costs: Changes in habits can lead to significant savings. For instance, cooking at home instead of dining out, carpooling or using public transport to save on gas, or unplugging electronics when not in use to save on utilities.
By scrutinizing both types of costs, you can identify opportunities to cut back and increase your savings over time. Being frugal green is a huge topic! Remember, the little things can add up!
Tip #2 – Set expense limits and find ways to save
Budgeting requires discipline, and setting limits on your variable expenses is a big part of that. You can do this in three ways:
Start by reviewing your spending patterns: examine your transaction history to identify areas of overspending. Once you’re aware of these, set spending limits that align with your financial goals. Drawing from my experience, I can assure you that awareness of overspending areas, followed by setting spending limits, can significantly align with your financial goals.
Consider taking part in a no spend challenge. Personally, that is when I realized I spent a lot of money on things that didn’t matter to me in the end.
Adopt practical money-saving habits like adopting DIY approaches (e.g., home repairs, sewing, cooking), utilizing coupons and cash backs, shopping secondhand, or carpooling.
Remember, you have control over your variable expenses, and setting restrictions doesn’t mean depriving yourself. It just means making informed decisions and prioritizing your spending according to your financial goals.
Tip #3 – Use Sinking Funds
A sinking fund is an effective money management strategy that can help handle variable costs. It’s a fund where you regularly set aside a certain amount of money for a specific expense. For instance, you might establish a sinking fund to cover property taxes or unexpected costs (but they will happen) like car maintenance, vet bills, or holiday gifts.
When the time comes for these expenses, you won’t have to scramble to find the money because you’ve already collected a fund over time.
This approach can ease financial stress and prevent unplanned debts, making sinking funds an excellent remedy to unexpected variable expenses. For us, this is when we maximize the placement of our hard-earned money across multiple bank accounts.
FAQs about Variable Costs and Budgeting
While all expenses matter, we generally advise budgeting for fixed expenses first. These are critical costs that typically stay constant month-to-month, like rent or mortgage payments, insurance, and fixed utilities.
Allocating money toward these essential costs first ensures that you’re covering your necessities. Once you’ve accounted for these, you can then budget for variable expenses which are discretionary and fluctuate based on personal usage.
Thus, it helps you realize your spending habits and identify areas where you can cut back if needed.
Yes, entertainment is typically considered a variable expense. These costs vary month-to-month based on your discretionary spending habits.
For instance, your spending on concerts, movies, dining out, or subscriptions can fluctuate based on your lifestyle, events, or personal choices. Remember, since entertainment costs are discretionary, they can often be trimmed when looking to make budget adjustments.
Ready to Master your Variable Budgets?
Understanding the ins and outs of variable expenses and strategizing accordingly can empower you to manage your money more effectively.
By distinguishing between your fixed and variable expenses, budgeting effectively, and identifying potential savings, you’re setting yourself up for financial success.
Whether you’re using the 50/30/20 budget approach, a zero-based budget, or sinking funds, the goal is to ensure your money is being used wisely. It’s all about creating a balance that nurtures a comfortable lifestyle while paving the way toward your future financial goals.
So review your inconsistent costs, implement new financial strategies, and take control of your variable expenses.
The key takeaways is a well-planned budget is not just beneficial for controlling spending, but also integral to your financial freedom.
Source
Ramsey Solutions. “How to Budget With the Cash Envelope System.” https://www.ramseysolutions.com/budgeting/envelope-system-explained. Accessed November 28, 2023.
Know someone else that needs this, too? Then, please share!!
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More importantly, did I answer the questions you have about this topic? Let me know in the comments if I can help in some other way!
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Inside: Fixed expenses are a vital part of any budget, and understanding how to account for them is essential to staying on track. This guide will teach you about fixed expenses and how to use them in your monthly budget to keep expenses under control.
Budgeting is the cornerstone of financial stability.
Whether you want to or not, it will take away the stress of money.
A budget is a practical tool that enables you to plan your spending and savings, ensuring a fair share of your income goes towards critical expenses. It also gives you more control over your money, reducing stress and enabling you to meet your financial objectives.
This is something you want, right?
In this post, we will uncover information specifically related to fixed budget expenses.
This post may contain affiliate links, which helps us to continue providing relevant content and we receive a small commission at no cost to you. As an Amazon Associate, I earn from qualifying purchases. Please read the full disclosure here.
Decoding Your Expenses – Fixed and Variable
Understanding expenses forms the bedrock of effective budgeting practices. There are two key types of expenses to consider: fixed and variable.
Fixed expenses are those that remain constant every month, such as rent or car payments.
Variable expenses, on the other hand, fluctuate monthly based on usage or consumption, like groceries, utilities, or gas.
Balancing these two types of expenses forms a significant part of personal budgeting.
What is A Fixed Expense?
A fixed expense is a cost that remains typically constant and is paid at regular intervals. These intervals may be weekly, monthly, quarterly, or annually.
Given their consistency, they contribute to financial predictability and ease of budgeting.
What is an Example of a Fixed Expense?
Here are common fixed expense examples that cover a wide spectrum but predominantly include costs required to maintain a basic standard of living. Here are some examples:
Rent or mortgage payments: This encompasses the regular cost of housing.
Insurance premiums: This could be for your car, health, life, renters, or homeowners insurance.
Loan payments: Regular installments for obligations like student loans and car loans belong to this category.
Utilities: Though they may fluctuate occasionally, regular payments like water, gas, and electricity are often treated as fixed costs.
Subscriptions: Recurring payments for services such as gym memberships or streaming platforms.
Savings: For disciplined budgeters, fixed contributions to saving accounts can be considered a monthly fixed expense. This is how Money Bliss readers save so much money!
The list can extend to include other less common fixed expenses, such as alimony, child support, or back tax payments, depending on personal circumstances.
YNAB
Enjoy guilt-free spending and effortless saving with a friendly, flexible method for managing your finances.
Pros:
Comprehensive approach to budgeting, helping you plan monthly budgets based on your income.
Offers expert advice, making it suitable for those who require an in-depth, forward-thinking budgeting strategy.
Superior synchronization skills make it the winner in this area.
YNAB has extra features like goal setting for budgeting, shared budgeting tools for partners.
Option to manually add and upload transactions from accounts each month.
YNAB prioritizes user privacy.
What is a periodic fixed expense?
A periodic fixed expense is a cost that is regular and predictable but does not occur monthly. These expenses still retain the characteristics of fixed expenses.
They may be caused by quarterly, semi-annual, or annual payment terms and require careful budgeting and planning. Examples include annual subscriptions, car insurance paid semi-annually, or yearly property taxes.
It’s essential to account for these expenses in your budget, dividing the total cost by the number of months until payment to ensure you’re adequately prepared when they’re due.
How to Budget for Fixed Expenses
Budgeting is a crucial financial activity as it helps manage income effectively and ensures all necessities are covered.
Most people use the zero based budget or the biweekly budget as a starting point.
1. Start With Fixed Expenses in Budgeting
Starting with fixed expenses in the budgeting process is essential, as they make up the majority of one’s budget and are typically consistent for longer periods.
When writing out your budget, prioritize fixed expenses such as housing costs, insurance, and childcare. You can use our personal budget categories to find out which expenses you shouldn’t forget.
Upon allocating your income for the month, ensure these bills take precedence over discretionary spending to avoid budgeting errors.
Quicken
Personal finance and money management software allows you to manage spending, create monthly budgets, track investments, retirement and more.
I have used this platform for over 20 years now.
Pros:
Birds-eye view of your complete financial picture.
Conveniently download your spending activities, and automatically categorize them (Quicken connects to over 14,000 financial institutions).
Track investments with it’s features like portfolio analytics, retirement goals, and market comparison.
Cons:
Little complex to use at first, the learning curve is moderate.
Yearly subscription-based model to use the platform.
2. Prioritizing Between Fixed and Variable Expenses
Prioritizing between fixed and variable expenses can often feel like walking a tightrope.
The first step is budgeting for your fixed expenses. Since they make up the majority of your budget and are for longer periods of time, it’s crucial to ensure these costs are taken care of first.
Next, plan for your variable expenses. These costs fluctuate every month and can be adjusted easily.
Finally, you will account for flexible expenses.
As always, don’t forget to save and invest, as this will help with financial sustainability and wealth development.
3. Tools and Techniques for Efficient Budgeting
Today’s digital landscape offers myriad tools and techniques for efficient budgeting, which is great news for you!
Apps and digital tools can facilitate the tracking of expenses in real-time, thus making it easier to discern patterns and identify savings opportunities. Using a line-item budget can help you dig into where your money is going and plan every dollar you earn.
Here are our favorite budget apps.
Regularly reviewing and updating your budget can help you stay on top of changes and future uncertainties.
Tiller Money
Your financial life in a spreadsheet, automatically updated each day.
Tiller is the fastest, easiest way to manage your money with the unlimited flexibility of a spreadsheet.
Update your finances in one place, so you can take control of spending, optimize cash flow, and confidently plan your financial future.
Pros:
Tiller automatically updates Google Sheets and Microsoft Excel with your latest spending, balances, and transactions each day.
No more tedious data entry, CSV files, or logging into multiple accounts.
You can customize everything and finally track your money, your way.
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How do I determine whether a cost is fixed or variable?
Determining whether a cost is fixed or variable often comes down to its consistency and its correlation with a factor such as output, usage, or time.
Fixed costs remain constant over time or within certain activity levels; examples include rent and insurance premiums. They do not fluctuate with changes in production or the number of goods sold.
Variable costs, on the other hand, fluctuate in direct proportion to levels of spending, such as groceries or gas.
Understanding this difference can help with accurate cash flow forecasting and effective financial management.
Strategies to Save on Fixed Costs
Now, the key is to try to lower your fixed expenses as much as possible. This will make the biggest difference in your budget.
For example, if your rent for a one bedroom apartment is $1850, maybe you move in with a roommate, and your rent is lowered to $800 per month. That is a savings of $1050, which you can save for a down payment on a house.
Ways to Curb Fixed Expenses
Optimizing your budget often entails finding ways to reduce your fixed expenses. Several strategies can help achieve this:
Renegotiate Your Bills: Reach out to service providers to negotiate lower rates for services such as insurance premiums, Internet, phone service, and more.
Refinance Your Loans: If interest rates have decreased, consider refinancing your mortgage or student loans to lower the monthly payments.
Downsize Your Living Situation: One major way to cut costs is to find a smaller or cheaper place to live.
Cancel Unused Subscriptions: Regular payments for services you don’t use, like gym memberships or streaming platforms, can silently drain finances.
Automate Savings: Regular, automated transfers to a savings account can enforce discipline and consistency in managing money.
Remember, while these strategies can help you cut costs, each individual’s circumstances are different, so personalized considerations should be made.
Which fixed expense would be most difficult to change if money is needed for car payments?
Car payments are a real struggle for most people. Right now, the average car loan is between $516-725 per month depending on a used or new vehicle. 1
As such, your largest fixed expenses are usually the most challenging to change.
If you require more money for car payments, the most difficult expenses to alter would likely be your mortgage or rent payments. Reducing these costs often necessitates significant lifestyle changes, such as moving to a cheaper home or obtaining a roommate.
Other difficult-to-change fixed expenses could include insurance or student loan payments, depending on the terms of your loans or policies.
It’s important to have an emergency fund set up for unforeseen repairs like these to avoid having to drastically change your lifestyle.
Practical Tips for Achieving Financial Stability
Achieving financial stability often boils down to effective management and strategic planning. Here are some practical tips:
Pay Your Bills on Time: This reduces unnecessary fees and interest costs. If this is a challenge, setting up automated payments may help.
Save Regularly: Aim to set aside a certain percentage of income on a regular basis. Automated savings plans are a useful tool for this.
Prioritize Spending: Distinguish between your wants and needs to help prioritize your spending.
Get Insured: Protect yourself from large, unexpected expenses by ensuring appropriate coverage on insurance.
Stay Informed: Regular budget reviews and financial check-ups can help you stay on track and adjust your plans as necessary.
Remember, financial stability is a journey, not a one-time achievement. It requires consistency and patience. So, celebrate your small financial victories along the way!
YNAB
Enjoy guilt-free spending and effortless saving with a friendly, flexible method for managing your finances.
Pros:
Comprehensive approach to budgeting, helping you plan monthly budgets based on your income.
Offers expert advice, making it suitable for those who require an in-depth, forward-thinking budgeting strategy.
Superior synchronization skills make it the winner in this area.
YNAB has extra features like goal setting for budgeting, shared budgeting tools for partners.
Option to manually add and upload transactions from accounts each month.
YNAB prioritizes user privacy.
Start 34 Day Free Trial
YNAB vs Mint
Frequently Asked Questions
Yes, rent is considered a fixed expense. It is a recurring cost that typically stays constant, regardless of changes in your income, spending, or other factors.
The rental or lease agreement specifies the monthly rent expense, which does not change until the lease period ends or is renegotiated.
If fixed costs become variable costs in a personal budget, it can add some unpredictability to your expenses. For instance, if you have a variable-rate mortgage, your payments may change due to the mortgage agreement.
To restore control, consider opening separate savings accounts for each variable expense category, turning these unpredictable expenses into ones that can be anticipated and budgeted for each month.
Fixed costs refer to expenses that do not change with fluctuations in your budget. They are incurred regularly and remain relatively constant, independent of your spending.
These costs are critical expenses necessary to live your life and cannot be quickly modified or eliminated.
Does This List of Fixed Expense Examples Help You?
In conclusion, examining and reducing your fixed expenses can be a transformative step toward achieving financial stability.
Contrary to popular belief, fixed costs are not immutable. With diligence and thoughtful consideration, you can explore cheaper alternatives for health insurance premiums, cell phone plans, and other consistent expenses.
Lowering your fixed costs enables automatic, consistent savings which can then be directed towards settling debt or securing your future. The beauty of this approach lies in its subtlety as this won’t feel like an imposition on your lifestyle.
Therefore, understanding and managing your fixed expenses can indeed play a crucial role in your journey to financial soundness.
It’s not just about making frugal decisions, rather it’s about making smart ones that can reap substantial benefits in the long run.
Now, do you have the traits needed to be financially stable?
Source
LendingTree. “Average Car Payment and Auto Loan Statistics 2023.” https://www.lendingtree.com/auto/debt-statistics/. Accessed November 27, 2023.
Know someone else that needs this, too? Then, please share!!
Did the post resonate with you?
More importantly, did I answer the questions you have about this topic? Let me know in the comments if I can help in some other way!
Your comments are not just welcomed; they’re an integral part of our community. Let’s continue the conversation and explore how these ideas align with your journey towards Money Bliss.
Inside: Are you struggling to make ends meet on a low income? This guide will teach you how to budget money effectively on a low income, so you can live a comfortable life without having to skimp on important expenses.
Let’s face it… Navigating through the budgeting on a low income can often feel overwhelming.
The fear of insurmountable bills, the anxiety associated with rising living costs, and the overall foreboding nature of budgeting often make for a persistently stressful experience.
However, it is crucial to understand that you are not alone in this journey. I have been in your spot as well as many Money Bliss readers.
Regardless of how daunting the budgeting task may appear, we truly believe that with the right guidance and adherence to solid financial principles, you are capable of achieving financial peace of mind.
This process will simply require patience, persistence, and strategic planning. This guide aims not only to shine a light on the struggles of budgeting with a low income but also to offer a beacon of hope.
This post may contain affiliate links, which helps us to continue providing relevant content and we receive a small commission at no cost to you. As an Amazon Associate, I earn from qualifying purchases. Please read the full disclosure here.
How to Budget Money on a Low Income
While it’s true that budgeting with a low income can be tough, proper money management can make it doable.
When you have less disposable income, it leaves you with less leeway in your budget. That’s why you have to be accountable and meticulously plan your spending to ensure financial stability.
So, let’s dig in and you can find success.
Step #1 – Figure out Your Monthly Income
Developing an effective budget starts with understanding your monthly income.
Here’s a step-by-step guide:
List out all income sources: This includes all your regular paychecks, part-time jobs, side hustles, social security, child support, or any other form of income you have. If your income is irregular, say from commissions or seasonal work, it’s advisable to base your budget on your lowest monthly income.
Account for taxes and deductions: To get an accurate picture of your disposable income, you need to factor in taxes and deductions from your earnings. You need to make sure you understand the difference between gross pay and net pay.
Include irregular income: If you occasionally get money from gifts, or sporadically earn from passive income sources like investments, be sure to include these too. As these are inconsistent, it is best to fund discretionary spending with this money.
Personally, I recommend using your net income with budgeting. This will give you an accurate budget that you can truly follow.
This knowledge is powerful when it comes to effective budgeting.
Step #2 – Define your bills and Expenses
Knowing how much you spend and what you spend your money on is another crucial step in budget planning.
The key is to define ALL your bills and expenses. Here are the personal budget categories that cover almost everything you can think of.
Now, you must do the following:
Identify your fixed costs: These are basics that you have to pay monthly and remain fairly constant, such as rent, car payments, and student loans.
Consider flexible costs: These expenses vary from month to month. Examples include groceries, transportation, electricity, water, and gas bills.
Remember periodic costs: Some costs only appear annually or semi-annually. For instance, insurance premiums, car registrations, and property taxes. It’s important to set aside money each month to cover these expenses when they arise. A sinking fund is great for these expenses.
Account for daily spending: Beyond fixed and flexible bills, consider your day-to-day expenses like shopping, subscriptions, and entertainment. Be honest about the little expenses. It’s often the small, frequent purchases that can derail a budget.
Prepare for unplanned costs: Finally, remember to budget for unexpected expenditures such as car repairs or medical bills.
By defining and categorizing your bills and expenses, you can see where your money is going and better manage your spending.
Step #3 – Reach a Zero Budget
A zero-based budget is a strategy that requires you to assign every dollar you earn to a specific expense or savings category, with the goal of having your income minus your expenses equal zero by the end of the month.
Write down your income: From the step before, you already know your total monthly income.
Subtract your expenses: Subtract the total of your monthly expenses (including savings) from your total monthly income. If you’ve correctly accounted for your income and expenses, the result should be zero. This is what it means to have a “zero-based budget”.
Balance the budget: If your income and expenditure don’t balance, adjust your variable expenses and other discretionary spending until they do. This can involve cutting back on nonessential overspending, like takeout meals or unnecessary purchases.
Allocate every dollar: With your budget balanced, each dollar should now have a purpose, whether it’s paying bills, going into savings, or providing for your daily needs.
Many people struggle to hit a zero based budget on the first try. It is common for your expenses to be higher than your income. Thus, a no spend challenge may help you identify what is important to actually spend your money.
Reaching a zero-based budget equips you with a clear picture of your financial status.
Thus, it allows you to use your money purposefully and prevents unnecessary spending. This way, even with a low income, you can still meet all your needs and work towards your financial goals.
What do you do if your budget shows your expenses are more than your income?
When your monthly spending exceeds your monthly income, immediate attention is needed to prevent worsening financial issues. Before panic sets in, consider taking the following steps:
Analyze your budget: Reevaluate and scrutinize your budget. There might be necessary adjustments overlooked or expenses incorrectly categorized. This will give you a clearer understanding of where your money is going.
Prioritize essential expenses: Allocate money to necessities like housing, food, utilities, and debt repayments first. Other less necessary expenditures, like entertainment and dining out, can be reduced or eliminated.
Reduce expenses: After prioritizing, identify areas where cuts can be made. Impulse buys, unnecessary subscriptions, or expensive habits might need to go.
Increase your income: Consider part-time jobs, side hustles, selling unused items, or picking up freelance work to bring in more money.
Seek advice if debt is weighing you down: As a last resort, you may look at ways to lower your interest rate on your debt. These strategies like debt consolidation or restructuring could help make your situation more manageable.
Remember, this situation, while stressful, is not permanent. With careful planning and disciplined execution, you can turn this around and regain financial stability.
Taking Control of Your Budget When Income Doesn’t Cover Your Expenses
Now, this is where you need to learn to manage your money wisely. You are in control of where you spend your money.
Many truly believe with a higher income all of their financial problems go away. From my research, most people end up with bigger money problems, the same spending habits, and still living paycheck to paycheck even with a higher income.
So, let’s reign in what you can do today to make your budget feasible.
1. Prioritize Essential Bills and Expenses. The key is to identify which expenses are truly essential to your livelihood. All remaining expenses, like entertainment or eating out, should be considered secondary and only met after the primary expenses have been satisfied.
2. Participate in a No Spend Challenge. A No Spend Challenge not only helps you save money rapidly but also makes you cognizant of your spending habits, helps identify non-essential expenses, and guides you towards a minimalist, sustainable lifestyle. Start with a no spend month.
3. Reduce your Housing Expenses. Housing costs can be one of the most significant expenses. Look at ways to downsize, negotiate rent, refinance your mortgage, or get roommates. Or even housesit permanently.
4. Be Cognizant of Bad Spending Habits. Some examples include impulse purchases, expensive convenience, not comparison shopping, or paying too much. By becoming aware of your spending habits and making conscious choices, you can break the cycle of unnecessary spending and start saving money with the penny challenge.
5. Skip the Expensive Coffee Shop. Choosing to forgo your daily coffee shop run can result in surprisingly significant savings. Implementing just this one change could save you over $600 a year!
6. Use Public Transportation to Save Money. The costs of owning a car – gas, maintenance, parking, and insurance – can quickly add up. So, look for public transportation as an alternative or even cycling, carpooling, or walking.
7. Take Advantage of Free or Cheap Entertainment. When living with a low income, entertainment expenses can quickly eat into your budget. Good news for you! There are plenty of things to do that don’t cost money.
8. Cut Back on Grocery Spending. By implementing simple strategies such as meal planning, cooking at home, cutting down on processed food and reducing waste, you can maintain a healthy diet while significantly reducing your grocery bills. Don’t forget to use those discounts and coupons!
9. Stick to Your Shopping List. Preplan your purchases before stepping into a store. This is a powerful tool in curbing those impulse purchases which can inflate your expenses substantially.
10. Start Meal Planning. Meal planning is a practical and economical way to manage your food budget. By planning your meals for the week, you can control your grocery spending and eliminate waste.
11. Stockpile Goods That Will Stay Stocked Up Long Term. Remember, the goal of stockpiling is to save money, not to transform your home into a supermarket. Purchase enough to last a few months and focus on items that you’re certain to utilize. Here are the best foods to buy when broke.
12. Pack Your Own Lunch and Skip Eating Out. With an average meal out costing around $10, you could easily save $200 a month by packing lunch from home. Over a year, that’s $2,400 in savings!
13. Drink Water and Avoid Processed Foods. Shifting dietary habits can be a significant change, but your commitment to a healthier lifestyle can reap both health and financial dividends. It’s an investment in a life of wellness and economic sustainability.
14. Take Advantage of Discounts when Shopping. Remember, the goal of shopping with discounts is to spend less on what you need, not to buy more than you need. So, make sure to use coupons wisely, shop sales, buy off season, and use Cashback apps like Rakuten and BeFrugal.
15. Avoid Impulse Purchases. By avoiding impulse purchases, you give your budget room to breathe and create an opportunity for savings. This makes a significant difference over time, especially when money is tight.
16. Apply for Discounts on Utilities and Services. Many utility companies provide low-income home energy assistance programs. The same is true for internet service. Contact your service providers to check your eligibility.
17. Get Free or Discounted Goods Through Charities. Charities, faith, professional, and local organizations often offer grants for people experiencing financial hardship. Utilizing them can be a lifetime as they help you stretch your budget further and provide necessary support in times of financial struggle. Don’t be afraid or too proud to ask for help when you need it.
18. Get Outside. Reconnecting with nature can provide you with cost-free entertainment and a sense of tranquility that’s hard to find elsewhere.
19. Avoid Unnecessary Expenditure. While each person’s definition of “unnecessary” may differ, the key to budget management is curbing expenditures that don’t add substantial value to your life. A common culprit could be brand-name goods or late fees.
20. Start the Practice of Saving with a Mini Savings Challenge. The Mini-Savings Challenge can pave the way to a habit of saving regularly, even on a tight budget. Essentially, this challenge consists of setting aside a small amount of money each day or week, gradually increasing the amount over time.
21. Show Gratitude. While it may seem less directly related to finance, practicing gratitude is indeed integral to efficient budgeting and financial wellness. Remember, financial success isn’t just about making more money. It’s also about appreciating what you have and recognizing the steps you’re taking towards your goals.
Inciting Additional Income Avenues
Okay, this section is how you take a low income and increase your money. While cutting back spending is helpful, creating more money will help you to reach money success faster. This will take the strain off.
1. Look for Ways to Earn Extra Income
Boosting your income, no matter how minimal the increase, can help cover necessary costs and elevate your financial standing.
Here are some ideas using your current job:
Work Overtime: If possible, consider getting more extra hours at your current job. Earnings from overtime or extra shifts can be significant.
Negotiate a Raise: If you’ve been with a company for a while and demonstrated your worth, it might be time to discuss a raise. Prepare well for this conversation with evidence of your productivity and value.
Every extra dollar earned can be put towards savings, paying down debt, and creating better financial stability.
2. Leverage Side Hustles for Extra Money
Side hustles have become an increasingly popular way to earn extra money online in your spare time. They allow for flexibility and can be a great supplement to your current income.
Start a Side Hustle: These can be a great way to make use of spare time to earn extra cash. This could be anything from driving for a rideshare company, offering freelance services, tutoring, delivering food or groceries to selling homemade goods online.
Sell Unused Items: You probably have items in your home that you no longer need. Selling anything from clothes to electronics or furniture can be a good source of income.
Passive Income: From writing an eBook to renting out a room in your house or investing in stocks, creating passive income streams can provide extra money over time.
Remember to choose a side gig that fits your schedule, interests, and skill set. Not only could it bring in extra money, but it could also turn into a passion project, making the work feel less like a chore.
3. House Sit for Extra Income
House sitting can be a viable option for those looking to generate extra income, especially if you’re flexible with your time and location. It typically involves looking after someone’s home (and sometimes their pets) while they’re away.
Not only is house-sitting a way to earn money, but it can also offer a free place to stay. Hello – you just lowered the biggest expense in your budget. However, remember that taking care of someone else’s home is a huge responsibility, so only take on tasks you’re confident you can handle.
Get started by building your profile on Trusted Housesitters.
4. Items You Don’t Need Anymore
Selling items you no longer need or use can both declutter your home and add to your income. It doesn’t just have to be big-ticket items; even small routine household items can yield returns.
While this may be difficult to do, look for items in good condition that you and your family no longer need or use. If you have extra baby stuff, you can rent it on BabyQuip for extra money.
Remember, while selling items won’t provide a consistent income, it can be a great one-time source of extra cash especially if you have these highly popular flipping items in your house.
Baby Equipment Rentals with BabyQuip
Have you heard about BabyQuip? They are the #1 baby equipment rental service offering clean, safe, and insured baby gear.
Whether you are traveling or just don’t want to purchase, this is a great idea to check out.
Learn More
5. Pick up a Part-time Job
When you’re on a limited income, picking up a part-time job can be a reliable way to supplement your earnings. You are trading your time for money.
Many of these jobs that pay weekly offer valuable experiences, skills, and possibly even room for growth and advancement. Remember to save and plan for any taxes due as a result of your increased earnings.
Smart Use of Technology in Budgeting
Taking advantage of personal budgeting tools can make managing your finances easier. They can help track expenses, create a budget, and set saving goals. Here are some popular options:
You Need a Budget (YNAB): YNAB helps you create a budget and live within your means, educating you on effective money management along the way.
Simplifi by Quicken: This app crunches the numbers to show how much money you have for day-to-day spending after accounting for bills, goals, and savings.
Empower: This free tool offers a comprehensive financial dashboard that includes budgeting features and investment tracking.
Tiller Money: If you want a more manual approach, you can use Google Sheets or Excel to create a customizable budget spreadsheet.
Remember, the best tool is the one you use consistently. Try a few options to see which one best meets your needs and preferences. Every tool has its pros and cons, but all aim to help you control your finances effectively.
Empower Personal Wealth, LLC (“EPW”) compensates Money Bliss for new leads. Money Bliss is not an investment client of Personal Capital Advisors Corporation or Empower Advisory Group, LLC.
Our Top Pick
YNAB
Enjoy guilt-free spending and effortless saving with a friendly, flexible method for managing your finances.
Pros:
Comprehensive approach to budgeting, helping you plan monthly budgets based on your income.
Offers expert advice, making it suitable for those who require an in-depth, forward-thinking budgeting strategy.
Superior synchronization skills make it the winner in this area.
YNAB has extra features like goal setting for budgeting, shared budgeting tools for partners.
Option to manually add and upload transactions from accounts each month.
YNAB prioritizes user privacy.
Start 34 Day Free Trial
YNAB vs Mint
Access Paychecks Early with Digital Banking Apps
With the rise of digital banking, access to innovative financial tools like early direct deposit has become more accessible, even for those with low incomes. These services can be crucial lifelines between paychecks or in case of emergencies.
Here are a few platforms that offer such services:
Chime: Once you set up direct deposit with Chime, you may get your paycheck up to two days earlier than at a traditional bank.
Current: Current, a mobile bank account, provides users with paychecks up to two days in advance.
Varo: Varo also offers early direct deposit for its users, helping you gain access to your money more quickly.
Clair: Clair’s on-demand pay solution lets you advance a portion of your paycheck before payday. This can be particularly helpful when navigating financial crunches.
It’s important to note that while accessing your paycheck early doesn’t give you extra money, it does provide more flexibility in managing your finances and can help avoid overdraft fees or high-interest loan options in times of need. As with any financial tool, it’s essential to use early paycheck access wisely and not rely on it for regular spending.
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FAQs
Saving money on a low income can seem challenging, but a few strategic changes and smart habits can make it achievable.
Engaging in a money-saving challenge can be a motivating way to encourage disciplined saving, helping you to creatively manage your finances and significantly boost your savings plan over time.
Remember, the key to saving on a low income is to stay consistent, patient, and adaptable in your approach.
Surviving on a low income budget can be challenging, but strategic planning and careful spending can help you manage your finances effectively.
The focus as Dave Ramsey likes to say is on your four walls – food, utilities, shelter, and transportation.
Remember that it’s okay to adjust your budget as you go. Circumstances change, and so should your budget. Review your budget regularly to ensure it’s still working for you and adjust as needed.
Budgeting when you’re broke might seem like an uphill battle.
The key is to make sure you stick to your budget and track your spending consistently. Don’t hesitate to reach out to local charities, government programs, and non-profit organizations for assistance.
Remember, being broke is often a temporary situation, and even small steps towards better budgeting can compound into big changes over time. Try to stay positive and focused on your financial goals.
Now, How do you Survive on a Low Budget?
Surviving on a low income involves careful planning, budgeting, and making the most of available resources. While it may seem challenging, it is indeed possible.
Every small step you take towards frugal living, such as sticking to a budget, reducing unnecessary expenses, or earning extra cash, can lead to considerable savings in the long run.
Remember, it’s also important to invest in yourself – whether that’s asking for a raise at work, learning a new skill, or starting a side hustle.
The journey of living on a low income can be tough, but it also offers an opportunity for creativity and gratitude for the essential things in life. With a positive mindset, some patience, and careful budgeting, you can not only survive but thrive, even on a low income.
The goal isn’t to just get by but to build a financially stable future.
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