Budgeting Tips

If you’re anything like me, then your first job out of high school or college wasn’t exactly lucrative. Like many people, I entered the workforce earning well below the average salary.

The good news is that over time, most of us see our salaries gradually increase, which can open up a whole new world of opportunities.

Unfortunately, it often feels like those pay increases disappear as quickly as they appeared. We struggle to save money and wonder where all that extra cash went.

The answer? Lifestyle creep. 

And while lifestyle creep can seriously cut into your salary increase, there’s good news. There are several ways to avoid it and even reverse it if it’s already a problem for you.

What is lifestyle creep?

Lifestyle creep — also known as lifestyle inflation — is the gradual increase in your discretionary spending as your income rises.

Some lifestyle inflation is intentional. As we earn more, we choose to increase our standard of living as well. But plenty of lifestyle creep also happens without us even realizing it. We simply have additional money in our bank account, and so we spend it.

While it’s natural to elevate your lifestyle as your income increases, it can also seriously derail your financial goals. When you increase your lifestyle in an amount equal to your pay increase, you aren’t allocating additional money to your emergency fund, retirement accounts, and other financial goals.

Lifestyle creep may seem relatively harmless, but it can actually land us in a very precarious situation. Recent data shows that about 54% of Americans are living paycheck-to-paycheck, including 40% of those with income over $100,000. Unfortunately, that means there’s little left in the budget to cover financial emergencies or reach financial goals.

Lifestyle creep examples

Lifestyle creep can come in many different forms. In some cases, lifestyle inflation happens as the result of many small increased expenses that add up. For example, you might sign up for a new streaming service here and there, splurge for nicer clothes, or switch to organic groceries.

It’s these small increases in spending across many categories that allow lifestyle creep to go unnoticed until you take a hard look at your budget.

In other cases, lifestyle inflation is much easier to spot because it comes in the form of large purchases. You might elevate your lifestyle by upgrading your house or apartment, buying a new car, or taking extravagant vacations.

How to avoid lifestyle inflation

Lifestyle inflation often happens without us even realizing it, but there are several ways to help avoid it. Keep reading to learn five ways to avoid lifestyle creep.

CREATE A BUDGET

You’ve almost certainly heard that the best way to control your spending is to have a budget, but it’s worth repeating.

When you have a budget, you’re telling your money where to go rather than simply spending the money that’s in your account.

One of the best budgets to address lifestyle creep is the 50/30/20 budget. Using this budget method, 50% of your income goes toward needs, 30% goes toward wants, and 20% goes toward savings and debt.

This budgeting method makes it easy to address pay increases because you use the same percentage to split up your budget no matter how much you’re making. When you have extra income, you can simply divide it up using this same framework.

Need help starting your budget? Visit our complete guide to creating a budget (and actually sticking to it).

SET SAVINGS GOALS

Goal-setting requires making a clear plan for your money. For example, if I want to fund the down payment on a home in two years and it’s going to cost me $24,000, then I know I need to save roughly $1,000 per month for that goal.

If I’m excited to become a homeowner and that goal is really important to me, I won’t be tempted to spend that $1,000 on unnecessary spending. Nope, I’ve already got a plan for that money.

One thing I know about myself is that I’m far more motivated to save when I have a specific goal in mind versus when I’m saving just for the sake of saving.

If you don’t currently have any short or long-term goals you’re working toward, now is the time to start. Visit the free guide I created on setting and reaching your financial goals.

CREATE BOUNDARIES AROUND DEBT

The situation when lifestyle creep is most dangerous is when we don’t actually earn a high enough income to cover it, which is, unfortunately, the case for many people,

According to Bankrate, roughly 54% of Americans carry a balance on their credit cards. And data from Experian shows the average credit card balance is about $5,525.

There are some situations where debt is hard to avoid. If a financial emergency comes up and you don’t have the cash to pay for it, it might be necessary to finance it with a credit card or loan. And for large purchases like cars, financing is the only option for some people.

But often, credit card debt is the result of lifestyle inflation that gets ahead of our income. I say this from experience! When I got divorced at 27, I could no longer afford my lifestyle and ended up racking up some credit card debt before I got serious about my personal finances.

If you want to avoid lifestyle creep, it’s time to set some serious boundaries with yourself as to when you are and aren’t okay with getting into debt.

AUTOMATE SAVINGS

One of the reasons it’s so easy to increase our spending when our income goes up is that we simply have more money in our bank account. And when the money is there, it’s easy to spend.

A great way to avoid that problem is by automating your savings.

When I was ready to get serious with saving, I set an automatic transfer from my checking account to my savings account the day after I got paid each month. At first, it was only $50, but I gradually increased it over time.

And you know what? I didn’t miss that money in my bank account. It was out of sight, out of mind. And because it wasn’t there to spend, I didn’t feel tempted.

You can use this automatic savings technique when it comes to building your emergency fund, saving for a big financial goal, funding your investment accounts, and more.

MAKE A PLAN FOR WAGE INCREASES

When you’ve gotten pay increases in the past, have you ever sat down and intentionally decided where that money would go? Most people don’t, but it’s actually the best way to avoid lifestyle creep.

Let’s say you’ve just found out you’re getting a $3,000 raise (after taxes). When you break it down monthly, the extra $250 doesn’t seem like much. But when you look at the big picture, $3,000 is a decent chunk of money to put toward your savings and other financial goals.

So rather than just increasing your spending by $250 when you get your pay increase, sit down ahead of time and decide exactly where that $250 will go. Maybe you’ll put it toward student loans, the down payment on a house, or your investments. 

And remember, you can, of course, put some of that money toward lifestyle elevation (we’ll talk about that more later). It’s just important to be intentional.

Can you reverse lifestyle inflation?

Unfortunately, most of us have already fallen victim to lifestyle creep throughout our adult lives. So while it’s important to talk about ways to avoid inflating our lifestyles with each pay raise, it’s just as important that we talk about remedies for our existing lifestyle creep.

Can you actually reverse lifestyle inflation?

I’m not going to lie — it’s really hard to reverse lifestyle inflation. Once you’ve upgraded your living situation, your eating habits, or your wardrobe, it’s hard to go back to the more affordable version you once had. But that’s not to say it’s impossible to reverse lifestyle creep.

I think the key to eliminating some of the lifestyle inflation that’s already worked its way into your budget is to get really clear on your values. Because when you get really clear on your values, it’s easier to spend money in ways that align with them.

Here’s an example for you. I used to spend a lot of money on clothes. In college, I would hit the mall with a friend and drop a couple of hundred dollars, sometimes on things I only wore a few times. 

Even later in my twenties, I would fall victim to emotional spending, buying clothes when I was anxious, depressed, and more. The difference is that because I earned more money than I did in college, I also bought nicer clothes.

But here’s the wild thing: I don’t actually care about clothes that much. I typically wear the same few items in my closet, meaning there’s rarely a purpose for me to buy new clothing.

On my own personal finance journey, I spent a lot of time identifying my values. I realized that nice clothes weren’t really something I valued, yet I was spending a lot of money on them. And because I had that clarity, I was able to reverse that lifestyle creep.

I’ll also readily admit that there are some forms of lifestyle creep that I have no desire to reverse. My husband and I really value good food, and we love trying out local restaurants. Our food spending has increased over the years, but I’m not particularly interested in cutting it. 

But I feel comfortable with that decision because I’ve identified my values, and I know it’s a form of spending that aligns with our values.

When is lifestyle creep okay? What you need to know about lifestyle elevation

Inflating your lifestyle in proportion to each salary increase will make it difficult to ever make meaningful progress toward your financial goals. 

But that doesn’t mean lifestyle creep is never okay. After all, no one expects you to maintain the same standard of living you had in your early twenties when you earned minimum wage and shared an apartment with three roommates. 

And frankly, cutting out lifestyle creep altogether will make it awfully hard to motivate yourself to earn more. What’s the point if you can’t enjoy any of it?

The key to doing lifestyle inflation correctly is to be intentional about it. Decide what spending increases would add actual value to your life. This intentional lifestyle creep — we’ll call it lifestyle elevation — might look like upgrading to a nicer home, buying quality clothing that will last you longer, buying healthy groceries instead of whatever is cheapest, and more.

One rule of thumb some experts recommend is allocation 50% of wage increases to lifestyle elevation, while the other 50% goes toward your financial goals of paying off debt, investing for retirement, etc.

Another way to manage your lifestyle elevation is to use the 50/30/20 budget, as we discussed earlier. The benefit of the 50/30/20 budget is that you never have to think about the appropriate amount to spend — it’s all laid out in the budget structure.

Ultimately, what you choose to do with future raises depends on your financial goals. While many people — me included — want to enjoy some of the fruits of their labor with a little lifestyle elevation, those that are seeking FIRE — or financial independence, retire early — often put nearly all of their pay increases toward investments for their big goal. You have to find what works for you.

Final Thoughts

Lifestyle creep may seem harmless, but it can seriously derail your financial goals and even result in you living paycheck to paycheck.

The good news is that as long as you’re intentional about it, you can elevate your lifestyle while still making room in your budget for saving, investing, and taking care of your future self.

When I started budgeting, I thought I was doing great.

I had plenty of money left over in my budget after accounting for all my expenses, and I thought for sure I’d be able to save a lot and pay off my debt quickly.

But somehow, the end of the month would roll around, and I never had any money left over.

I just couldn’t figure out where all my money was going. Sure, I’d usually eat out more than I planned or make an impulse purchase here and there to buy new clothes. But surely it wasn’t enough to spend all of it.

Why couldn’t I save when I knew I had wiggle room in my budget?

It turned out that the key to changing my financial situation was zero-based budgeting. Rather than spending the extra money in my budget, a zero-based budget forced me to make a plan for each dollar I earned, including putting money toward savings and debt.

In this article, I’m sharing what a zero-based budget is and how you can use one to reach your financial goals.

There are affiliate links in this post, meaning I may make a small commission at no additional cost to you. For more information, see my full disclosure policy here.

Zero-based budget definition

Zero-based budgeting is a way of planning your spending where you make a plan for each dollar. When you use a zero-based budget, you budget down to zero every month, meaning your income minus your expenses always equals zero.

It’s important to note that budgeting every dollar doesn’t mean you spend every dollar. The purpose of zero-based budgeting is to help you pay off debt and save for goals because you include them as a line item in your budget.

Zero-based budget advantages and disadvantages

The biggest advantage of zero-based budgeting is that it forces you to be intentional about your spending. Rather than have a large sum of money available to spend each money, you can only spend money that you’ve actually budgeted for that purpose. 

For anyone paying off debt or trying to reach a big financial goal, a zero-based budget is the best way to ensure you actually make progress each month.

The biggest downside of zero-based budgeting is that it requires more time than traditional budgeting. You have to make a detailed plan for your money and then track every expense throughout the month to make sure you’re sticking to it.

How to make a zero-based budget

1. Write down your monthly income. If you’re a salaried employee, this should be easy. For freelancers and other workers with irregular income, start with your average monthly income.
2. Write down your monthly expenses. Be sure to include fixed monthly expenses like rent and insurance, as well as variable spending like groceries and entertainment.
3. Set financial goals. A zero-based budget only works if you decide ahead of time where your money is going. You should have specific financial goals to send extra money to. Your goal can be anything from saving for a big expense to paying off debt.
4. Give every dollar a job. When you finish your budget, your income minus expenses should equal zero. This doesn’t mean you spend every dollar! It simply means that every dollar is either budgeted for spending OR budgeting for debt payoff or a financial goal.
5. Work on getting one-month ahead. The zero-based budget is easiest to use when you’re one month ahead on your budget. In other words, you’re using last month’s income to pay this month’s bills. This is important because it ensures you know at the start of the month exactly how much you have to budget.

Zero-based budget example

I promise that zero-based budgeting sounds more complicated than it is. I’ll use a real-life example to show you how this type of budget works in practice.

Let’s say your monthly take-home pay is $3,500. Using a normal budget, it might look something like this:

As you can see, this budget leaves a lot of wiggle room. You’d have $1,000 left each month that you could use to build your emergency fund, fund your debt payoff plan, or save for your financial goals.

Unfortunately, that’s not usually how it works. Often we tell ourselves that we’ll use whatever money we have left at the end of the month to reach our goals.

But because we weren’t intentional with our spending and didn’t make a plan for that money ahead of time, we simply find other things to spend it on. And then you might be lucky to have $100 left to put toward saving, let alone the full $1,000 you should have left.

Here’s what a zero-based budget might look like using the same income and expenses:

As you can see in the budget above, each budget is accounted for. You can’t impulse-spend a few hundred dollars on Amazon because you’ve already given that money a job.

Zero-based budgeting with irregular income

If you have irregular income, you might worry that zero-based budgeting won’t work for your situation. And it’s true that this budgeting style can be more difficult if you don’t know how much money you have available for the month.

But I actually think this budget is perfect for those with irregular income.

But here’s the catch.

It really only works with irregular income if you get one month ahead on your budget. In that case, you can create a customized budget at the start of each month based on the money you earned the previous month.

The best zero-based budget apps

When it comes to planning out your zero-based budget, there are two different tools I’d recommend. You can choose the right tool for you based on your budgeting style.

• You Need a Budget (YNAB): YNAB is hands-down my favorite budgeting app. With this zero-based budget app, you only budget with money you already have, and you give every dollar a job. It’s the app I personally use. It completely changes the way you think about budgeting, and really teaches you to be intentional about where your money is going.
• Spreadsheet: Before I started using YNAB, I spent years using just a simple spreadsheet in Google Drive. It’s definitely more hands-on than an app, but perfect for someone really trying to turn their finances around.

Final Thoughts

I know how frustrating it can be to put a ton of work into a budget, only to have it fall apart halfway through the month. A zero-based budget is the best way to be intentional about where your money is going and help you reach your financial goals.

I used to blow my budget almost every month. I’m not proud to admit it, but I’m guessing plenty of other people can relate.

While I had the best of intentions, I was making a lot of mistakes with my budget. I wasn’t being realistic, I wasn’t planning ahead, and I wasn’t leaving any room in the budget for fun.

And let’s be honest — budgets like that just don’t work. When you restrict yourself or create a budget that doesn’t fit your life, it’s nearly impossible to stick to it.

Over the years, I’ve learned plenty of tricks on how to stick to a budget every month. Picking up just a few of these budgeting tips can seriously transform your finances!

There are affiliate links in this post, meaning I may make a small commission at no additional cost to you. For more information, see my full disclosure policy here.

Be realistic

One of the biggest mistakes that people make when they set up their budget is that they simply aren’t realistic. They budget based on what they’d like to spend in a perfect world rather than what they’ll really be able to spend.

People can get a little over-ambitious when it comes to their budget — trust me, I’ve been there! I would set an eating-out budget, and then my husband and I would go way over it every month.

Finally, we sat down and admitted that the amount we were budgeting wasn’t realistic. We love eating out, and it’s something that we value. Our budget can and should reflect that.

If you find that you have a hard time sticking to your monthly budget, go through and see if there are any categories where you aren’t being fully honest with yourself.

Budget differently for every month

People I talk to about this topic are almost always surprised to hear that their budgets should look different every month.

Traditional budgeting apps like Mint give the impression that a budget is a set-it-and-forget-it tool. You create it once, and then you’re supposed to stick to it every month.

But the fact is, no two months are the same. And as a result, no two monthly budgets should look the same.

At the start of each month, sit down and look at the month ahead. What’s on your calendar? Look for special events, holidays, birthdays, etc., that might mean you’ll be spending a little extra money in one spending category. Then you can figure out where you can cut back this month to make up for it. 

Use sinking funds

You know those pesky expenses that you don’t budget for because they don’t come up every month? But then, when they do come up, they totally break your budget? It’s okay, we’ve all been there! I used to go over budget nearly every month because of an unforeseen expense that, honestly, I should have foreseen. 

That’s where sinking funds come in. Sinking funds are a way of saving up for annual expenses all year long. Let’s say you spend $600 every year at Christmas. Instead of trying to find room for $600 in your December budget, you can set aside $50 per month all year long.

You can use sinking funds for tons of different expenses, including:

• Holidays
• Birthdays
• Vehicle registration
• Car repairs
• Medical expenses
• Pet expenses
• Association dues
• Home repairs
• Tuition
• Annual subscriptions

Budget fun money

So many people avoid budgeting because they think it’s restrictive and prevents them from spending their money on things they enjoy.

But that doesn’t have to be the case!

Rather than looking at my budget as restrictive, I look at it as incredibly freeing. I can spend money on my hobbies without the slightest bit of guilt because I know I’ve budgeted for them.

If there’s something that brings you joy and you enjoy spending money on, make room for it in the budget!

You can even budget for spontaneous purchases. If you know that you and your partner love a last-minute Sunday brunch, set aside money every month for exactly that.

Schedule your purchases in advance

Impulse purchases can kill your budget faster than just about anything else. An easy way around that is to schedule your purchases in advance.

Let’s say you’re at the store and you see an outfit that you absolutely must have. You can totally buy the outfit, but don’t buy it on the spot. Instead, go home and look at the budget. 

Do you have room in your clothing spending category for this month? If not, schedule the purchase for next month.

Even if you know you have the money in the budget, going home and scheduling the purchase for a future date is still a good idea since it prevents you from impulse purchasing. It forces you to really make thoughtful purchases.

Identify your spending triggers and avoid them

We all have our unique spending triggers. For some people, it’s sale emails in their inboxes. For others, it’s their favorite influencer rocking a new outfit or accessory on Instagram. Chances are, you know what your biggest triggers are.

Once you know what your triggers are, you can work on avoiding them. Examples might include:

• Unsubscribing from store emails
• Unfollowing people on social media who make you want to spend money
• Removing your credit card information from your favorite store’s website

Use a zero-based budget

The premise of a zero-based budget is that you give every dollar a job and budget down to zero.

Let’s say you bring home $4,000 per month. You wouldn’t just budget for your monthly bills and then leave the rest as spending money. Instead, you’d decide exactly how much you plan to put toward discretionary spending, saving, and your debt payoff plan.

Using a zero-based budget can help you stick to your budget because there simply isn’t extra money to work with. You’ve already allocated your excess money to debt or savings, so you can’t afford to impulse spend on food or clothes.

The budgeting app You Need a Budget is hands-down the best app out there for zero-based budgeting!

Plan your meals ahead of time

I used to never meal plan. Instead, I’d head to the grocery store every week and just stock up on foods I liked. But then I’d either end up throwing food away at the end of the week, or I wouldn’t have enough for every meal and I’d end up eating out.

Planning your meals ahead of time ensures that:

• You only buy what you need
• You’ve accounted for every meal
• You can estimate the budget ahead of time

Pay yourself first

It’s easy to tell yourself that you’ll transfer whatever money you have left at the end of each month to savings. But inevitably, the end of the month rolls around, and there’s nothing else.

That’s where the concept of paying yourself first comes in. When you pay yourself first, you decide how much you want to save each month. Then, you transfer that money to savings as soon as you get paid. And you only have what’s left over to spend the rest of the month.

Paying yourself first can be used for literally any financial goal, including building your emergency fund, saving for a specific purchase, or paying off debt.

Track your expenses

I’m embarrassed to say that I was in my mid-twenties before I ever tracked my expenses. My partner at the time and I made a decent amount of money but never seemed to have any left. Finally, I decided to start tracking where our money was going.

If I’m being honest, I was a little horrified. I couldn’t believe how much we were spending on takeout each month!

Once I knew where my money was going, I could decide where I wanted my money to be going instead. And tracking my expenses throughout the month helps me to make sure I’m sticking to my plan.

I use the budgeting app You Need a Budget to track my expenses throughout the month.

Figure out your “worth-it” expenses

One trick I recommend to people is to keep a spreadsheet of their expenses and then go through it later and decide whether each expense was worth it to them. In other words, are they glad they made that purchase, and would they make it again?

A really good example of this comes into play with eating out. My husband and I love eating out, and our date nights are sacred to us. They’re always a worth-it expense.

But we really don’t eat at chain restaurants or fast food often. So when we impulsively grab a quick dinner because we don’t feel like cooking, it’s less likely to feel worth it. I remember that when we’re feeling the urge to spend, it helps us to save unless it’s a worth-it expense.

You can use this tool for so many things. Another example for me is makeup. I don’t wear makeup every day, and I’m fine with the drugstore stuff. Therefore, expensive makeup just wouldn’t be worth it for me. But there are plenty of other areas in my budget where I’m happy to splurge for the nicer stuff. For example, I will never pass on seeing my favorite bands in concert, no matter the cost of the tickets.

Final Thoughts

We’ve all gone over budget — don’t beat yourself up over it! There are plenty of easy tricks that you can start implementing in your budget and your life to help you stick to a budget every month (or at least almost every month).

For my first seven years out of college, I got paid on the first day of each month. It made budgeting ridiculously easy. I could pay all of my bills right away, and then I knew how much I had available to spend the rest of the month.

Then Brandon and I got married and combined our finances, and suddenly budgeting was a little more complicated. Brandon got paid twice a month, meaning we had to time his paychecks to our bills.

Not too long after that, I quit my job to run my business full-time. And unlike my government job, self-employment doesn’t come with the same consistency, such as a paycheck once a month.

I knew I had to figure out a different budgeting system before leaving my full-time job.

Then I learned the concept of getting one month ahead in your budget (aka spending last month’s income). This system has completely changed the way I budget and has eliminated so much of the stress I used to have around my finances!

There are affiliate links in this post, meaning I may make a small commission at no additional cost to you. For more information, see my full disclosure policy here.

What does it mean to get one month ahead in your budget?

Most people budget each month with the income they’ll get that month. For example, someone would pay all of their November bills with the income they’ll earn in November.

Getting one month ahead in your budget means you’re always living off of last month’s income. So instead of paying November’s bills with November’s income, you’d pay November’s bills with October’s income. Then you’d use your November income to pay your December bills, and so on.

The benefits of getting one month ahead in your budget

YOU DON’T HAVE TO TIME YOUR BILLS WITH YOUR PAYCHECK

For people who get paid biweekly or twice per month, budgeting can be a huge hassle. You have to make sure that for each of your bills, you’ll have the money in your paycheck to cover it.

Let’s say you get paid on the 1st and the 15th of each month. But what if most of your bills are due in the first half of the month? You’ve barely got enough to cover your bills, and then you’re pinching pennies and waiting to buy groceries until your next paycheck comes in.

When you budget a month ahead, all of the money is in your bank account on the first of the month, so you don’t have to worry about when exactly each of your bills is due.

IT SERVES AS A SMALL EMERGENCY FUND

You probably already know that saving up an emergency fund is critical to getting ahead with your finances. The general rule of thumb is to save 3-6 months of expenses, but the minimum you should have is one month’s worth.

When you’re budgeting one month ahead, you’ve already got that small emergency fund built into your budget. If any emergencies happen, you know you’re covered for at least the next month.

IT ENSURES YOU’RE ONLY SPENDING MONEY YOU ALREADY HAVE

Many people get into a pattern where they put all of their expenses onto a credit card and then use their income from the following month to pay off their credit card. 

The problem with this is that you’re spending money you haven’t even earned yet. First, it’s just not a good habit to get into. Second, if you lose your job and don’t have the income you expected, you may not be able to pay for those purchases at all. Rather than always being one month ahead on bills, you’re always one month behind.

When you budget one month ahead, you know you’re only spending money you already have.

IT REDUCES FINANCIAL STRESS

I can say from personal experience that my financial stress decreased in a big way when I started using this budgeting system. I didn’t have to monitor my budget quite as closely. 

It’s also been a life-saver as Brandon and I have been traveling full-time. First, we have to pay for many of our RV park reservations ahead of time. If we weren’t ahead on our budget, we wouldn’t be able to do that.

It’s also helped us to navigate through the small emergencies that have popped up since we’ve been on the road, such as having to replace all of our RV tires or buy a new car while on the road.

Edit: Now that we’re done traveling and we own a home, budgeting one month ahead is just as beneficial! This budgeting style definitely isn’t just for those in unique circumstances.

How do you get a month ahead?

STEP 1: CREATE YOUR MONTHLY BUDGET

The first step to getting one month ahead is to create a monthly budget. For this system to work, you need to know exactly how much you’re spending each month and where your money is going!

Here’s how to create your budget:

1. Determine your monthly income
2. Make a list of your monthly fixed expenses
3. Track your spending for the past 3-6 months to determine your variable expenses
4. Decide on spending goals (use how much you’ve been spending to figure out how much you WANT to be spending)
5. Don’t forget to make room for debt payoff and savings goals!
6. Make sure your spending is less than your income

STEP 2: ROLL EXTRA MONEY OVER TO THE NEXT MONTH

Ideally, you won’t be spending exactly as much as you earn each month — there should be some left over. Then, you can start using that extra each month to build your one-month buffer.

The idea is that every month, your buffer will get a little bit bigger until you’ve saved enough for the entire month of expenses.

Let’s say you have $3,000 per month of income. You currently spend or save $2,750 each month, which leaves you with $250 left over. You can put that $250 toward the following month’s budget. A month later, you can roll over another $250 for a total buffer of $500. Each month, the buffer will grow a bit until it reaches enough to cover your entire budget.

What if you’re living paycheck to paycheck?

This budgeting system is even more beneficial for people living paycheck to paycheck, for whom any financial emergency would throw them off.

Unfortunately, living paycheck to paycheck makes it especially hard to get one month ahead on bills. Here are a few ways you can start saving money, even if you’re on a tight budget:

• Use cashback apps like Fetch, Ibotta, and Rakuten. These tools allow you to earn a little extra money on purchases you’re already making.
• Negotiate your monthly bills. You can try negotiating bills such as your car insurance and internet to reduce your monthly payments.
• Pick up a side hustle. When you’re living paycheck to paycheck, every little bit helps!
• Sell stuff on Facebook Marketplace. You’d be surprised how much you can make by selling clothes or household items you aren’t using.

STEP 3: USE ANY CASH WINDFALLS TO BUILD YOUR BUFFER

In addition to using the extra money in your budget to build your one-month buffer, you can use any cash windfalls you have. Common examples include:

• Tax returns
• Gifts
• Extra paychecks (if you get paid every other week, then two months of the year you’ll get three paychecks instead of three)
• Side hustle income

STEP 4: BUDGET USING LAST MONTH’S INCOME

Once you save the full month of expenses, you’ll start using this to budget for each month’s expenses. Rather than creating your budget using the amount you’ll earn in the current month, you’ll use the amount you earned last month.

This budgeting system is really great for self-employed people. With irregular income, it can be hard to know how much to budget. But with this system, you’re budgeting with last month’s income.

It’s also worth noting that you aren’t limited to just getting one month ahead. There have been times when my income was less certain, so I budgeted two months ahead for added security.

BONUS TIP: USE A BUDGETING APP TO HELP YOU GET ONE MONTH AHEAD WITH YOUR BUDGET

Tracking your finances when you budget one month ahead can be tricky because you can’t just spend what you have in your bank account. Because of that, I recommend using a budgeting tool to help you stay on track. The budgeting app You Need a Budget is specifically designed to help you budget this way.

In fact, YNAB is how I first learned about this concept of budgeting one month ahead. I could talk more about the many ways this budgeting app has improved my finances, but I’ll save that for another article.

Getting one month ahead while paying off debt

One of the most common questions I get from people is about whether they should prioritize saving or paying off debt. The answer is both…sort of.

If you don’t have any sort of emergency fund in place, then saving one month’s worth of expenses should be your first priority. Once you’ve got that in place, you can start putting extra money toward debt using either the debt snowball or debt avalanche.

Of course, everyone has a different comfort level and financial situation. If you have a job where you’re at higher risk of losing your income or you have a family who depends on your income, it may be worth pulling back on debt payoff to build your emergency fund even larger.

And don’t forget that while you’re paying off debt, you can still save for other financial goals!

Final Thoughts

I’m not exaggerating when I say that getting one month ahead with my budget has totally changed my finances. Not only does it create a lot of peace of mind, but the financial habits I learned getting there changed everything. I credit those habits with us being able to travel the country for a year, buy a home, save for a baby, and pay off large amounts of debt.

Despite our best intentions, we all inevitably seem to go through financial setbacks that catch us off-guard and throw off our financial progress.

Mine came in 2017 when my ex-husband and I decided to end our marriage. Between the discrepancy in our incomes (I made way less than he did), the costs associated with the divorce, and my lack of financial safety net, it was a struggle for a while.

Once I finally got back on my feet and started to regain some balance in my life, I had to get my finances back on track.

I’m not going to lie – it was an uphill battle. There was a lot of work that went into figuring out where my finances were, making a plan to get them back on track, and actually following through on it. 

Throughout the pandemic, plenty of people have gone through financial setbacks of their own. Whether you were laid off from a job or just let your spending get away from you, it’s time to get a plan in place to get back on course. 

In this post, you’ll learn the nine steps to follow to get you get back on track with your finances and lessen the blow of future financial setbacks.

Evaluate your current financial situation

The first thing you have to do to get back on track financially is to figure out where you are now. As with any journey, you have to know where you’re starting to map out the route to your final destination. 

As you’re evaluating your financial situation, determine the following:

• Your current income and expenses
• Your net worth
• How much money you have in savings
• How much debt you owe
• Any outstanding bills

Figure out where you went off course

Once you figure out where you’re at with your finances, determine how you got there. Really narrow down what caused you to get off-track with your finances.

In some cases, it wasn’t anything you did. Cases of unemployment, especially during COVID, were unavoidable. It wasn’t a scenario any of us ever expected, and as a result, most of us weren’t financially prepared.

But in other cases, you might look back and realize your own actions caused you to get off course with your finances. For example, maybe you stopped tracking your spending a few months ago or took on a debt you couldn’t really afford. 

Identifying the root cause of the problem can help you to avoid getting off-track for the same reason again. 

Create a new budget from scratch

I’m constantly tweaking my budget to make sure it’s still working for where I’m currently at in life. But some circumstances call for a full overhaul.

Anytime I’m going through a major life change or find that I’ve gotten completely off-track with my finances, I like to start fresh with a brand new budget. 

Think of it like Marie Kondo-ing your budget. Instead of going through your existing budget and deciding what stays, throw everything out and only put back those things that really belong there.

Starting fresh with a new budget is especially helpful if your income or expenses have changed at all since the last time you put together your budget. 

Read More: How to Create a Monthly Budget That Really Works

Start with any outstanding bills

Before you dive into any new financial goals, make sure you’re up-to-date on any outstanding bills you have. When you go through a time of unemployment or another financial struggle, you may end up falling behind on one or more of your expenses.

Once you start getting things back in order, settling up any outstanding bills should be the first thing on your to-do list. 

Create a long-term plan for debt and financial goals

One of the most valuable lessons I learned on my own financial journey is the importance of having a plan in place. And when it comes to your finances, there are two plans you absolutely have to have.

First, make sure you have a plan in place to pay off your debt. Ideally, you’d be able to make extra payments to pay your debt off ahead of schedule. But even if you can only swing the minimum payments right now, knowing when you can expect to be debt-free is critical. 

The other plan you should have in place is one for your financial goals. How many times have you found yourself dreaming of a future home or a dream vacation but never actually taking steps to get there?

When you don’t have a plan in place, you’re far less likely to take action. By creating a written plan, you’re exponentially increasing the odds of actually reaching your goals!

Track your spending

I always think tracking your spending is important to financial success. But when you’re working on getting your finances back on track, this becomes even more important.

Tracking your spending allows you to know exactly where each dollar is going. This ensures you’re being super intentional about your spending. Doing so can also avoid being caught off-guard when an unexpected bill hits or you go over budget without realizing it. 

There are plenty of budgeting apps that can help you to track your spending. I also recommend a good old-fashioned spreadsheet, as it forces you to personally check in with your finances on a regular basis. 

Look for ways to increase your income

In many cases, we realize that our financial troubles stem from the fact that our current income isn’t sufficient to help us pay our monthly bills and reach all of our financial goals. In that case, you might consider looking for ways to increase your income.

There are a few different ways you can go about making more money:

1. Negotiate a pay increase: Perhaps the simplest way to increase your income is to negotiate a salary increase at your current job. This strategy allows you to make more money without taking on a second job.
2. Get a part-time job: If negotiating a raise isn’t in the cards, you might consider a part-time job. When Brandon and I were paying off debt and saving for our RV, he worked a few nights per week at a bar in town to bring in some extra money. Meanwhile, I worked on my freelance writing business while working at my government job.
3. Join the gig economy: If working specific hours at a part-time job doesn’t work with your schedule, you can join the gig economy. Options include rideshare apps such as Uber, grocery delivery apps such as Instacart, or pet-sitting and dog-walking opportunities through a service like Rover. These opportunities allow you to pick up jobs only when you’ve got some time available.
4. Start a business: If you want more of a long-game solution to increase your income, you might consider starting a business. Know that this option usually won’t result in making money right away. In fact, you’ll probably have to put in a lot of work before you’re profitable. But in the long run, this option can result in the most amount of money. The good news is that technology makes it fairly easy and extremely low-cost for anyone to start a business!

Put a safety net in place

Once you start getting back on track financially, it’s time to put a safety net in place for the next time things don’t go as planned. 

There are two key strategies to help you avoid or lessen financial struggles in the future:

• Emergency fund: Your emergency fund is a pool of money that can help you with a one-time financial emergency, such as home or car repairs. Even more importantly, your emergency fund serves as an income replacement in case you lose your jobs. In 2020, COVID caused people to be laid off from work for far longer than anyone would have expected. This taught us all the importance of an emergency fund that can cover your bills for several months. 
• Sinking funds: While your emergency fund helps you cover any unexpected financial emergencies, sinking funds help you to plan for expected but irregular financial obligations. With sinking funds, you set aside money each month for an expense that comes around less often. For example, let’s say you spend $600 on Christmas each year. Instead of taking $500 out of your December budget, you’d set aside $50 per month all year. Sinking funds can also be used for costs such as:
  • Car insurance
  • Home and vehicle repairs
  • Property taxes
  • Holidays
  • Annual subscriptions
  • Financial goals

Have regular money dates

If you share finances with a partner, or even if you share a life with a partner without having joint finances, communication around money is key.

Regardless of whether you’re just coming back from a financial setback, money dates are critical to making sure you and your partner are on the same page and that you both have a seat at the table. 

These check-ins become even more important when you’re working on getting back on track after a setback.

Final Thoughts

No one expects financial setbacks to come, but they inevitably seem to pop up once in a while. By following these steps, not only can you get your finances back on track, but you can also prevent future setbacks from being quite as painful.