I’ve always lived paycheck to paycheck. Now, in my late twenties, I’m earning more and finally in a position where I can save money from month to month. I’ve read all about different styles of budgeting. How do I pick the right method for me? I want to find a system that sticks and make the most of my increased income.
—More Money, More Problems?
Dear More Money,
First off, congratulations! While money can’t buy happiness, being able to breathe a bit and move away from living paycheck to paycheck can be a relief. It can also be a great time to take stock of what you want out of your life.
Notice, I didn’t say “what you want out of your money.” While it’s excellent to maximize every dollar, at the end of the day, money is a tool. And that tool can help you live the life you want.
What goals can your money help you achieve?
So instead of jumping straight to the specifics of budgeting, take a step back and think larger picture. What does money mean to you? What experiences, goods, and goals are you hoping to achieve with your paycheck? These can be big goals, like buying a house, or smaller goals, like taking an awesome vacation this year. It’s also important to think about your security, too. How will you pay for retirement? How is your health and dental coverage? If an emergency were to happen, do you have the funds to be able to pay for it without relying on a credit card? Finally, what are the day to day habits, behaviors, and purchases that make your life better?
The best budgeting system? The one that works for you
Once you know what matters to you, you can begin to consider how to budget for everything. One smart strategy is to set up autosave, so 20 percent — or whatever percentage you want — of your paycheck is automatically transferred to a savings account. That way, you’re working with what you want to spend off the bat, instead of trying to save whatever money is left by the end of the month.
Once you’ve done that, the budgeting system that works best is, well, the one that works best for you. Think of it as a lifestyle setup, not some sort of deprivation diet, so choose whatever system seems intuitive and doable. Some people like spreadsheets. Some people use apps. And some people seem to keep an accurate running tally in their heads. You also may not need a strict “budget,” so much as general guidelines you set for yourself of how you spend your money each month.
Remember: Budgets are made to fluctuate
And remember, even though your paycheck is roughly the same every two weeks, your life and your needs aren’t static. A budgeting system may need tweaking over time; you may find some goals or expectations don’t match your reality, or you may want to talk to a finance pro about how best to allocate your money.
Just remember, your money is a tool. So use it and build a life you love.
Elizabeth Dunn, Ph.D. is a professor in the Department of Psychology at the University of British Columbia who researches how time, money, and technology shape human happiness. She is also the scientific advisor for Happy Money, a financial company that combines psychology and money to help people live happier lives. Have a question for Liz? Write her at email@example.com and check back every Tuesday for her next column.