If improving your financial situation and focusing on personal finance is one of your goals for the new year, then our list of budgeting challenges will help you get off to a great start. Whether you’re looking to save money every month or adjust your spending in certain areas, personal budgeting is an easy way to aid money management and help you reach your financial goals.
If you don’t know where your money is going, then chances are some of it is winding up in places you’d rather not spend it. Whether you’re paying more than you should for high-interest credit cards or streaming subscriptions you rarely use, understanding where your money goes is key to halting unnecessary spending. That’s where making a budget and sticking to it comes in.
First, track all of your spending for a month. Then, once you have all the necessary information, make a budget. Identify major budget categories, and decide how much of your income you want to dedicate to each: housing (rent or mortgage; probably your biggest expense), food, transportation, utilities, clothing, leisure/entertainment, miscellaneous, and don’t forget savings.
The goal of the 30-day budgeting challenge is to have a working budget and a general sense of where you need to reduce spending by the end of that time.
Food can be a big expense. Buying prepared meals costs more than cooking at home, and eating at a restaurant or ordering in cost even more: as much as five times the price of home cooking. The standard restaurant markup on a can of soda in 2020 was 1,150%, and you’ll pay about 350% more than the base cost for a restaurant’s pasta dishes.
Try creating a grocery list for all your purchases so you can track what you buy. Is any food going to waste? Has canned food been sitting in your pantry for months? Are perishables going bad before you can eat them? Try these tips as part of your budget challenge:
Paid subscriptions, many of which you may have forgotten, can eat into your available cash. Companies love to sign you up for free trials that convert into regular payments after a month or two. Be careful what you sign up for, read the fine print, and purge what you’re not using.
To do this challenge, make a list of all the subscription services you’re using and how much they cost. Identify which ones you use the least (or not at all), and those that cost the most, but are rarely used.
Check to see the last time you used each subscription and if it’s living up to your expectations, then keep an eye out for overlapping content. If you want to keep it, see whether you can save money by bundling it with another service or services. For example, Disney offers a bundle of Disney+, Hulu, and ESPN+.
Utility costs range greatly based on location. In 2021, power cost more than 34 cents per kilowatt hour in Hawaii and more than 23 cents in Alaska, but just over 10 cents in Utah and Washington State. Hot summers and cold winters can drive up cooling and heating costs, but you can often reduce your utility bills with a little determination and a few phone calls.
You might not be aware of it, but you can compare utility costs to get the lowest rate.
Try calling your power company and asking about the energy providers they use. Then, compare the prices from those providers directly and choose the lowest rate. Saving on Internet service is just as easy—research the current speed you have, then compare it to what you need and downgrade if possible. You can use the same process with other utility providers, such as cell phone service and cable.
People often pay more than they need to by purchasing brand-name items or choosing the first (or most convenient) option rather than comparing prices. Looking for deals and clipping coupons, but only for necessities you’d be purchasing anyway, is a great way to trim the fat on your budget.
Try taking this attitude: anything on your shopping list that can be purchased with a coupon should be purchased with a coupon. Brand loyalty can take a backseat. For example, if there’s a really good coupon for laundry detergent, consider buying the coupon detergent instead of what you normally use.
You can make the process easier by installing apps that automatically search for coupons while you’re online. Try this challenge for 30 days to see how it works; you can keep going if it benefits you.
Late payments hurt your credit score, but late fees can also add up. It’s important to make payments on time, and to keep tabs on your bank account to ensure you avoid overdraft fees.
If you struggle with paying bills on time, you can create better habits by using budgeting apps and/or setting up automatic payments for your monthly bills. You can be sure you’ll have enough money to cover those payments by timing them to fall after you receive your paycheck (if you get paid bi-weekly, see if you can tie some payments to each paycheck).
This strategy can also help you improve your credit and make progress toward becoming debt free by paying off student loans and paying down credit card debt faster, since many such payments can be set to autopay.
“Retail therapy” is widespread. One study found that 62% of shoppers had purchased something to cheer themselves up, and 28% had done so to celebrate. However, it can also create problems if you’re running up credit card bills or spending money on things that aren’t in your budget.
You can reduce unnecessary spending or overspending by creating a monthly allowance. If you decide to try this challenge, choose an amount of time (90 days works well), then select a reasonable allowance. This money can be used for whatever you want—movies, purchases, dining out, etc.—but only as long as it remains within the allotted amount.
Once your allowance is gone, you can’t spend any money outside of essential need categories. If you have any leftover allowance money at the end of the month, it can go right into your savings account.
Americans started saving more money during the COVID-19 pandemic, in large part because they couldn’t spend money outside the house. Still, as of July 2021, more than half of Americans had less than three months’ worth of emergency savings available.
This challenge works if you’re struggling with unnecessary spending, but also if you’re working to pay off debt so you can become debt free. The strategy behind this challenge is to choose an amount of time (90 days also works well here) and eliminate any spending outside of your essential need categories: food, living expenses, and bills.
Whatever money you would usually budget for miscellaneous or personal categories is transferred instead into a savings account or emergency fund, or can go toward paying off debts.
Have you ever bought clothes, shoes, or accessories you don’t end up wearing for whatever reason? Maybe you get them home and they don’t fit quite right, or they don’t go with the rest of your wardrobe. Or, perhaps you’ve purchased a winter coat you don’t need in your climate. In the same way that buying food you don’t consume can eat into your budget, buying clothes you don’t wear can do the same.
If you struggle particularly with buying clothes and overspending in this category, this challenge is for you. Track every article of clothing and accessory you buy and the number of times you use it over the course of the year. Calculate the cost per wear and note whether you like, dislike, or are neutral about it.
At the end of the year, reflect on how much you spent on items you loved vs. items you didn’t like or never used. Then, adjust your budget accordingly for the following year. Meanwhile, you can earn some extra cash by using apps or websites to sell the stuff you never wear.
Budget strategies are different from challenges because they’re more like best practices. Strategies form a foundation on which to build. Challenges can then help you boost your savings and eliminate waste. The following strategies are tried and true methods for budgeting that are recommended by financial experts.
The numbers in the 50/30/20 rule are percentages. Under this budgeting plan, you allocate 50% of your after-tax income toward needs, earmark 30% toward wants, and set aside 20% for savings.
This plan’s broad categories allow you some flexibility. For instance, you can use the 30% in the wants category to see a movie, concert, or sporting event; buy a video game; go on vacation; or purchase an article of clothing that doesn’t qualify as a need.
The savings component of this plan allows you to put money aside for emergencies and/or as a down payment on your retirement.
A balanced budget simply describes a situation in which your revenues (the money you’re bringing in) match or exceed your expenditures.
Having a balanced budget can keep you out of debt, which is important because paying interest on loans and credit cards can add up quickly. By contrast, if your revenues are greater than your expenditures, you can build a surplus that you can set aside for savings or use to pay down existing debt.
The envelope system, developed by Dave Ramsey, is a cash-only way to track what you spend.
This old-school budgeting technique involves tucking money away in envelopes, each of which is labeled to indicate a budget category. You then put the amount of cash you’ve budgeted for that category in the corresponding envelope. You make withdrawals as you need the cash, but when it’s gone, it’s gone, so there’s no danger of overspending.
Of course, this won’t work for bills you pay online. However, you can still modify the system to make it work. Write the amount of cash you’ve budgeted on outside of the envelope and keep track of how much you’ve spent on the back, as you would with a checkbook.
Another option is the “three-bucket approach”: 30% for tomorrow, 30% for today, and 30% for taxes and expenses, with 10% left over to use as you wish.
Created by Ryan Moore, the founder and CEO of Kingman Financial Group in Corpus Christi, Texas, the “three-bucket approach” defines your “today” bucket as money needed to be spent in the here and now — on rent, utilities, groceries, personal items, etc. The “tomorrow” bucket can be investments, money put into retirement accounts, emergency funds, or anything to better prepare you for expenses yet to come. Taxes and expenses should be covered with the third 30% breakdown in your monthly income, and the rest (10%) can be a leftover to reward yourself.
When setting up a budget and picking a formula, such as the 50/30/20 plan or something more specific, it’s important to be realistic.
If you want to get more specific, you can create more targeted budget categories, such as those mentioned above. However you allocate things, be sure it adds up to 100%. Here are a few other things to help you stick to your budget.
Creating and following a budget is essential to your financial health and financial future. This is especially important in the age of automatic payments, subscriptions, credit cards, and debit cards, when it’s easy to see your money disappear almost before your eyes.
There are many different approaches to personal finance and budgeting, but the most important thing is that you track your spending and make sure it aligns with your income. Ask yourself, “What should my budget look like to make my financial life easier and more successful, both now and in the future?” Your answer to that question will help you create an effective budget.
Jeff Smith is the VP of Marketing at Self Financial. See his profile on LinkedIn.
Ana Gonzalez-Ribeiro, MBA, AFC® is an Accredited Financial Counselor® and a Bilingual Personal Finance Writer and Educator dedicated to helping populations that need financial literacy and counseling. Her informative articles have been published in various news outlets and websites including Huffington Post, Fidelity, Fox Business News, MSN and Yahoo Finance. She also founded the personal financial and motivational site www.AcetheJourney.com and translated into Spanish the book, Financial Advice for Blue Collar America by Kathryn B. Hauer, CFP. Ana teaches Spanish or English personal finance courses on behalf of the W!SE (Working In Support of Education) program has taught workshops for nonprofits in NYC.