by Maja Majewski

Budget Rules

When it comes to budgeting, there’s no one-size-fits-all approach. Everybody’s needs are different, depending on their income, expenses, preferences, and priorities. But there are some general budget rules that can guide you towards success.
Budget Rules

Does the thought of following “budgeting rules” make you cringe a little? Is your natural tendency to procrastinate anything regarding your personal finances? Hey, we get it—no one taught us this stuff in school, either. But the good news is that you don’t have to be perfect at it—you just have to get started. No matter where you are now, these eight budgeting rules can help you cover the basics and feel more confident in your financial life.

1. Choose a budget strategy (or two!)

Sounds a bit…obvious, right? But, depending on age, one-quarter to one-half of Americans do not follow a budget. It can be intimidating to set up a budget, especially if you aren’t someone who likes strict rules.

The key is to create a budget that makes sense for you. If that means following the often-recommended 50/30/20 budget, awesome. If you’re into tracking every penny with a zero-based budget, great. Or maybe envelope budgeting (digital or in cash) is right for you. Maybe you’d rather automate your fixed expenses, and then focus on limiting your variable spending—that works too.

Creating and following a budget can sound complicated, but it really comes down to this: Income - expenses = positive number. If you’re doing that, you’re on the right track!

To find a budgeting system that works for you, check out this post on How to Budget.

2. Spend less than you make

This is often considered the golden rule of budgeting. No matter what your income is, it’s always important to spend less than you make (also known as living within your means). But it doesn’t just happen by magic—you have to be aware of how much you’re making, when you get paid, and where your money is going each month.

Otherwise, it’s easy to wind up spending more than you make—often without realizing it—by: - Making purchases on a credit card or from multiple bank accounts - Paying for subscriptions that auto-debit every month - Forgetting to account for expenses that come up every few months (like car insurance) - Getting charged late fees, overdraft fees, or other fees

The list goes on.

To make sure you’re actually spending less than you make, you’ll want to: - Figure out exactly how much your paycheck is each month - Write down all of your monthly expenses and their average monthly cost - Account for irregular expenses that come up only a few times a year - Establish a budget for any discretionary spending to make sure you don’t go over - Check your account balance at the end of each month to see how you did

If you have money left over, you can use it for next month’s Expenses, or move it into your emergency fund, savings account (or high-yield checking account), or one of your Goals!

Tip: If you’re currently spending more than you’re making—and it’s all truly essential spending—a budgeting strategy might not be the first thing you need. Finding ways to reduce costs or improve your income should be your priority. The tips in this guide might help!

3. Automate your savings/pay yourself first

Do you plan to save money each month, or simply save what’s left over? Even if you consistently spend less than you make, you’re more likely to build up your stash if you devote a percentage of your income to savings—before you start subtracting bills and other expenses. This is sometimes referred to as “paying yourself first.”

When you pay yourself first, you can consciously decide how much of your income you want to save, instead of leaving it up to chance. Of course, if you do have money leftover at the end of the month, you can save that too!

Paying yourself first not only guarantees that you save a percentage of your paycheck each pay period. It also helps you train yourself to live without having that money in your budget: out of sight, out of mind!

There are many ways to go about paying yourself first: - When you set up your direct deposit, ask for a percentage of it to be sent to a separate account (instead of having it all go to your main checking account) - Create a Goal in your Simple Account and create a Funding Schedule to transfer money into your Goal after each paycheck - Open a Protected Goals Account and create a Funding Schedule to transfer money into it after each paycheck

4. Diversify your income streams

Much of the budgeting advice you’ve probably heard is focused on how you spend your money. But another way to improve your financial circumstances is to work on how you make your money.

“Diversifying your income streams” is a fancy way of saying, “making money in more than one way.” Whether you work a traditional 9-to-5 job, freelance, work part time, or bring in money some other way, it’s a good idea to have multiple income streams. Having income from more than one source can help you make more money each month, and it can serve as a safety net in case one of your income streams falls through—for example, if you get laid off or furloughed.

There are countless ways to make more money each month, such as: - Start a side hustle - Sell your clothes or other items you no longer need - Create and sell physical or digital products online - Work as a virtual assistant - Participate in the gig economy—deliver food or groceries, drive for a ridesharing company, walk dogs, etc.

If you’re budgeting for variable (or multiple) incomes, check out our variable income budgeting rules.

5. Work toward an emergency fund

You’ve probably heard that it’s a good idea to set money aside in case of emergencies. There’s a lot of debate around how much exactly you should set aside. The reality is, like most financial matters, it depends. But one thing that pretty much all personal finance experts can agree on is that it’s important to have some money set aside for unexpected expenses.

This is usually called an emergency fund—money that is saved separately from your expenses, short- and long-term savings, and other financial accounts.

Learn more about why you need an emergency fund—and how to start saving up for one.

6. Avoid going into debt when possible / have a debt payoff plan

It’s not always possible to avoid going into debt. Sometimes, it makes sense to take on some debt in order to improve your long-term financial circumstances—like taking out a mortgage or investing in your education. But in general, it’s a good budgeting rule to avoid debt when possible. This means living within your means, saving up for big purchases before making them, and avoiding the temptation to use credit cards to buy more than you can afford.

If you do have debt, whether it’s a few hundred or tens or thousands of dollars, it’s important to come up with a plan to pay it off so that you don’t end up having to pay even more in interest. Here’s a guide to help you start paying off debt.

7. Don’t waste money on unnecessary fees

It feels pretty frustrating when you have to spend money on fees—late fees, overdraft fees, etc. Usually, these fees hit when you’re already in a financial bind, making an already frustrating situation even worse.

It goes without saying that if you can avoid fees, you should. Banking with Simple is a great place to start, because we offer a free checking account with no maintenance or overdraft fees.

To avoid fees in the rest of your financial life, follow these tips: - If you have a credit card, set up autopay for the minimum amount due, so you can protect yourself from late fees (and pay off the full balance when you can to avoid accruing interest) - Set up reminders on your calendar app to pay your bills on time - When possible, pay your fixed bills automatically, so you don’t miss any deadlines - Schedule a monthly date to sit down and look at all of your accounts to make sure everything’s working properly

8. Track/manage your spending categories

It’s one thing to plan your spending, but to put the plan into action, you’ve got to track it. Now that you’ve set a strategy and have your money in order, it’s time to look to the future.

Far too many online quizzes ask, “Are you a spender or a saver?” as if all humans fall squarely into one of these two boxes. The truth is, most of us are somewhere in the middle. You might have some categories where you have no problem staying on budget—and other categories where you really struggle to stick to your plan each month. If you can identify which is which, you can focus your energy on reigning in those categories where you know you tend to struggle most.

The first step is to figure out what your “spendy” categories are. Maybe it’s treats and toys for your dog, or cool sneakers, or hosting dinner parties. Or perhaps you have a weak spot for spending on sporting equipment, home improvement supplies, or quirky antique finds. You probably don’t have to think too hard to come up with the things you’re most likely to blow your budget on!

Spend some time digging into your purchase history to learn exactly how much you’re actually spending on them. Take a deep breath. Then, set up an Expense for each of your spendy categories, so you can hold yourself accountable to staying on budget! Whenever you make a purchase from that category, be sure to spend it from your Expenses so you can see exactly how much you have left to spend in that category.

Happy budgeting!

We hope that these budget rules will help you feel more confident in your financial life. If you have other budget rules you’d like to share with the Simple community, tag us in a post on Facebook, Instagram, or Twitter!

Disclaimer: Hey! Welcome to our disclaimer. Here’s what you need to know to safely consume this blog post: We do our best to make sure information is accurate as of the date of publication, but things do change quickly sometimes. Any outbound links in this post will take you away from Simple.com, to external sites in the wilds of the internet; neither Simple nor our partner bank, BBVA USA, endorse any linked-to websites; and we didn’t pay/barter with/bribe anyone to appear in this post. Individual situations will differ; consult your favorite finance, tax or legal professional for specific advice. And as much as we wish we could control the cost of things, any prices in this article are just estimates. Actual prices are up to retailers, manufacturers, and other people who’ve been granted magical powers over digits and dollar signs.

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