How to Do a Budget Challenge for Financial Security

Are you ready to spring into financial stability by giving yourself a budget challenge to complete and follow? What challenges are you facing currently?

Are you spending too much each week? How do you know how much you should be spending and saving? It is time to dig deep and figure out precisely what is going on with your finances and get things going positively.

How Do You Start Your Budget Challenge?

Thinking about the process of setting a budget can be overwhelming for you, and that is understandable. If you have been spending without planning first, it can seem like a colossal task, but it will be a much more approachable challenge if you sit down and get organized. It is one of the best things you can do for your finances.

There are so many things to look at; it helps to brainstorm and think about financial goals you have for yourself to start. Once you have goals in mind, you can create a game plan, decide on a set period of time to begin with, and set up your challenge!

Are You Ready For Step One?

Step 1: What Do You Currently Struggle With Financially?

Now that you are focused and ready, the first step is to start thinking about what you can change regarding your financial situation.

It can seem like a lot to think about if you do not go into it in an organized way, so here are some things to start with as you organize your budget challenge:

• Make a list of your bills and include everything from student loan payments to credit card bills, as well as things like mortgage or rent
• Make a list of your weekly expenses, including grocery shopping (meal planning is a big help to find out what this is)
• Make a list of what you can cut out to open up more room in your budget by stopping those impulse purchases
• Gather all of your gift cards and coupons to see where you can save
• Go over how much income you have coming in and how much you spend monthly. Do you have enough money coming in? Are you spending more than you make?
• How much are you saving each month? Look at your bank account and see if you are putting anything into emergency savings.

Now, create your lists so you can move on to step 2!

Step 2: What Are Your Goals?

Are there things you want to do but don’t have the liquidity to do? When you decide on your goals for your spending habits, you can also plan to determine your savings goals.

An emergency fund is crucial for financial safety. If you don’t currently have one or want it to be higher, this is an excellent goal to set for yourself. Even if you only have room to save $5 a paycheck for it, it will grow over time and get to where you want it to if you stick with it and save!

The same thing goes for anything else you need to budget for overtime. Has it been a while since you got away? Start a vacation fund and save a little out of each check so you can finally go!

Try starting your list of goals with three savings goals and three spending reduction goals. Doing this will help you stay organized and will help you achieve what you want with your finances.

Keeping a spreadsheet with your goals to document how you are doing each month is also helpful in keeping up with your budget challenge.

Step 3: Time To Get Started!

Are there things you want to do but don’t have the liquidity to do? When you decide on your budgeting goals for your spending habits, you can also plan to determine your savings goals.

An emergency fund is crucial for financial safety. If you don’t currently have one or want it to be higher, this is an excellent goal to set for yourself. Even if you only have room to save $5 a paycheck for it, it will grow over time and get to where you want it to if you stick with it and save!

The same thing goes for anything else you need to budget for overtime. Has it been a while since you got away? Start a vacation fund and save a little from each check so you can finally go!

Try starting your list of goals with three savings goals and three spending reduction goals. Doing this will help you stay organized and will help you achieve what you want with your finances.

Keeping a spreadsheet with your goals to document how you are doing each month is also helpful in keeping up with your budget challenge.

How to Find the Right Budgeting Method for You

Cash Envelope System

The cash envelope method is a budgeting method where you allocate cash to different categories of your budget (like groceries, entertainment, and personal care) and place them in separate envelopes. Once the cash in an envelope is exhausted, you can’t spend in that category until the next budget cycle begins. This method is particularly beneficial for visual learners, as it allows you to tangibly see where your money is going and how much you have left.

50/30/20 Rule

The 50/30/20 rule is a simple, straightforward budgeting method that divides your after-tax income into three broad categories: needs, wants, and savings. 50% of your income goes to needs, such as housing, groceries, utilities, and health insurance. 30% can be spent on dining out, hobbies, and leisure activities. The remaining 20% is allocated to savings or paying off debt. This approach is appreciated for its simplicity and flexibility, making it an excellent choice for budgeting beginners. 

Zero-Based Budgeting

Zero-based budgeting allows you to allocate every dollar of your income to a specific expense category, leaving no room for overspending. In this method, you start with your monthly income and assign chunks to each category until you reach zero. This approach creates a tight budget, encourages intentional spending, and allows you to track every dollar closely.

The Snowball Method

The Snowball method is a debt reduction strategy where you prioritize your smallest debts first, regardless of the interest rates. As you eliminate each debt, you roll the amount you were paying into the next smallest bill, creating a ‘snowball’ effect. This method benefits those who need quick wins to stay motivated in their debt repayment journey.

The Avalanche Method

Contrarily, The Avalanche method is a debt repayment strategy where you first focus on repaying the debt with the highest interest rate. This method can save you money over time as you’re tackling the most ‘expensive’ debt first, but it may require more patience as high-interest debts can be more extensive and take longer to pay off.

Automated Savings

Automated savings isn’t a traditional budgeting method but can complement any budgeting system. Setting up automatic transfers from your checking account to your savings account can help ensure you consistently save money. You can set up automatic transfers for every payday or at the end of the month, so you don’t have the chance to spend the money before it’s saved. 

The 80/20 Rule

Also known as the Pareto principle, the 80/20 rule is a less stringent budgeting method but good if you want to work on a savings challenge. You commit to saving 20% of your income while the remaining 80% can be spent any way you wish. This provides more flexibility and less oversight, making it an appealing option for those resistant to strict budgeting.

Are You Thinking You Can’t Create Your Budget Challenge Because You Have Debt?

You can tackle debt this way as well! Add your debt amounts, such as credit card debt, into your monthly expense list to ensure you pay at least the minimum each month. As you clear out your budget, you can make room in your new payments to overpay your minimum and chunk out your debt.

Depending on your situation, you can also look into debt negotiation. There are several ways to approach debt negotiation. Remember that if you have debt in collections, you can negotiate out of it and create settlements if you choose to.

When you call to speak to the debt collectors, don’t let them bully you into paying then and there. You have negotiation power when it comes to negotiations because, by the time the debt gets to the collection agencies, it has been purchased for less than it was initially worth! 

Make sure you negotiate for the lowest price, and if it is too much to take care of in one payment, set up a payment plan with the collection agency and add it to your new budget. Like your savings accounts, you can overpay and pay it out over time.

Always do your calculations first before committing to anything. Also, ensure you can keep up with the monthly payment in your new budget.

Final Thoughts on How to Do a Budgeting Challenge

It is never too late to start budgeting. Setting up a budget challenge is a great way to set goals to push yourself into a better situation and keep growing. The biggest budgeting challenges are usually just getting started.

We all need to learn money management, and the good news is that there is always time to start. The most important thing is to get a clear idea of your personal finance situation and the key things you want to achieve. Then, find a budgeting system that works. 

Dive into a budgeting challenge and never fear those unexpected expenses again. Financial freedom starts with a solid budget; a challenge is a great way to get that long-term financial plan into motion.

This article originally appeared on Hello Sensible