#IRL: Better Budgeting with 5 Habits

*This article was written by Udemy instructor Chris Haroun.

If you’re like many people, you don’t give a second thought to buying your daily coffee. And you find ways to justify picking trendy, brand-name headphones when a less expensive model might serve your needs just as well.

But while we all need and deserve the occasional treat, mindless spending can catch up with us. If you’re just starting out in your career, you might believe you have tons of time to save for retirement, but the hard truth is that you have to start budgeting as early as possible to reach your financial goals for the future.

Making a few small changes today can add up to millions more in savings down the line. Here are some budgeting habits to help you get on a more stable financial footing.

Budgeting Habit #1: Every purchase you make should be thought of in terms of the future value of that purchase. Avoid impulse buys–like in-app purchases while playing your favorite phone game or a $5 cappuccino for your afternoon pickup– by taking time to reflect on the future value of every single purchase you make.

I suggest keeping a journal or using a spreadsheet to track every cent you spend, so you can see for yourself how those “small” treats eat up a big chunk of your earnings. You don’t have to deny yourself everything you want, but when you see your spending patterns in black and white, it can be a serious wake-up call. You’ll need that before you can become truly mindful before you make the next purchase.

Budgeting Habit #2: Contribute the maximum allowed to your 401(k). You can’t be tempted to spend money that’s not available to you, and that’s exactly what happens with your retirement savings account. You’ll incur big penalties by withdrawing funds prematurely, so you’ll be more likely to exercise self-discipline. For 2019, the maximum contribution limit will go up to $19,000, which can grow into millions over the next few decades.

If you don’t have a 401(k), consider opening a separate bank account where you move your savings automatically. Out of sight can mean out of mind, and you won’t be as tempted to dip into an account you don’t look at regularly. You can choose to have some or all of your paychecks direct-deposited there.

Budgeting Habit #3: Don’t take on more housing costs than you can afford. I get it—you want to be in a vibrant city with a thriving economy and fun social scene. But paying beyond your means for rent will prevent you from saving money and could even force you to dip into any existing savings. At the same time, if you’re fortunate enough to find yourself in a position to buy a home rather than rent, you’ll be investing and building equity. Try to shift away from the mindset that is paying rent for the rest of your life… set a deadline for when you want to start paying a mortgage and live within your means in order to meet that deadline.  

Budgeting Habit #4: Take advantage of your employee benefits and other savings-hacks. In addition to incentives like 401(k) matching plans, your employer might also offer perks such as gym discounts, commuter benefits, etc. Additionally, there are now tons of websites that provide money-saving hacks on everything from restaurants to travel to home goods – the list goes on.

Budgeting Habit #5: Write down your spending and savings goals. To build upon my earlier advice, don’t just track your actual spending. Think about your personal goals and how saving money can help you reach them. Documenting your goals, along with your spending habits, gives them substance and can help keep you honest before you make that next purchase. I suggest setting up your spending and savings goals as a permanent calendar entry that repeats daily on your mobile device.