HOW TO START BUDGETING FOR BEGINNERS

If you are ready to take control of your finances, you are in the right place. How to start budgeting for beginners will walk you through how to create a budget.

The best thing you can do for yourself when it comes to your finances is to create a budget. But it’s easier said than done. 

In the beginning, budgeting may seem overwhelming, but it’s the best thing you can do for your money. Besides, it’s important to control your money and don’t allow your money to control you.

Moreover, taking control of your spending is important in leading a happy life. It’s a fact that a person’s financial situation affects their mental health and overall well-being. Generally, it’s not that easy to make money and that’s why it’s important to have a plan for the money that comes in.

On average, many workers work 40-60 hours per week to earn a living. Despite the hard work, it is so easy to spend money.

Generally, if one doesn’t plan for their money, it’s easy to spend on unnecessary things and become stressed by the end of the month because of a lack of money.

Moreover, a budget will give you a clear picture of where you are spending your money. Ironically, many people think that making money is the answer to all financial problems. That’s so far from the truth. 

According to a survey by Salary Financial, 30% of American workers earning over $100,000 per year say they are out of money before they receive their next paycheck. Besides, 32% of those who make $200,000 or more per year also say they run out of money between paychecks. 

Hence, the importance of budgeting. Essentially, ensuring you can manage your money.

How to Start Budgeting for Beginners

Why You Need A Budget

• A budget guarantees that your income will always be enough to cover both your needs and your wants. 
• Budgeting does not necessarily solve all your financial problems. What it does is to condition you to live within your means.
•  It allows you to live life to the fullest, enjoy life, and plan for the future.

The key to a successful budget is planning. Let’s help you create a budget, stick to it, and achieve your financial goals. 

Start With Your Goals In Mind

As cliché as that might sound, it helps to consider your goals before you go ahead to plan your budget. Take time to think about what you plan to achieve financially. Your goals will guide the decisions you make. 

Do you have student loan debt? Do you want to pay off debt? Or you may want to save for a much-needed vacation or a child’s college tuition. These are goals that will determine how you spend your income and how much you save. 

Goals fall into two categories, short-term and long-term goals. Saving for a vacation might take a few months, but saving for a child’s college education might take years. As your goals change, your budget might change as well. 

What are the short-term financial goals?

Short-term goals are financial goals you can accomplish within a short period. Generally, the length of time may depend on who you ask but, its one to two years 

Short-term goal examples:

• Payoff credit card debt
• Build an emergency fund.
• Save for a vacation
• Money for a home down payment
• Minor home repairs

What are the long-term financial goals?

Long-term goals are usually big-ticket items such as paying off a mortgage. These goals take over one year to accomplish. Long term goals are usually more costly.

Long-term goal examples:

• Save for a child’s college tuition
• Pay off a mortgage
• Retirement fund
• Build a business
• Pay off all debt

Keeping your goal in mind is important to stay focused on your finances. Of course, you don’t necessarily have to write them down. However, clearly define your goals before beginning to plan your budget. Your goals motivate you to stick to your budget.

CALCULATE YOUR NET INCOME

Your net income is the amount you are paid after all deductions.

Now that you’ve decided what is a top priority to you (your goals), calculate your income, including all sources of income. If you don’t earn a fixed amount, work with the 3 months average.

If you are self-employed, estimate the taxes, and make the deductions. Doing these deduction, ensure you are working with the correct amount as opposed to over estimating your income. The final amount you get when you deduct those amounts is what you should use to plan your budget.

On the other hand, if you calculate your income and realize you need more money, think about getting a side hustle to bring in extra cash.

TRACK YOUR EXPENSES

Figure out your spending. Where, when, and how are you spending money?

Keep track of all your expenses, print the past 3 months of your bank statements, and write each expense in the spending tracker.

Create Categories

Group your expenses into categories to determine where you spend more money. It doesn’t matter where the money is spent, write it down. Include categories for all bills, spending, debt payments, and savings.

There two categories for the expenses are fixed and variable. Fixed expenses are the same month to month. In other words, bills that don’t change over a long period, while variable expenses change from time to time.

Examples of fixed expenses

• Rent/Mortgage
• Car payment         
• Auto Insurance           
• Health Insurance
• Life Insurance
• Other Insurance
• Subscriptions
• Mobile Phone Bill
• Utilities
• Electricity
• Internet

Examples of variable expenses

•  Groceries
•  Restaurants
•  Gas
•  Personal
•  Clothing
•  Entertainment
•  Household
•  Haircuts 
•  Gifts

Go over your list of transactions and write down the budget category for each purchase. Writing down the budget category helps pinpoint where you spend money. Then, total each category for each month. 

Now there is 3 months’ worth of expenses to decide what’s important and what’s not important to budget for this next month. 

Determine How Much To Budget For Each Category

Determine the percentage of your income that will go into paying essential expenses such as rent or mortgage for each month.  

The goal is to allocate 100% of your income among all the expense categories to complete the budget.  

Now, this is a good time to cut your expenses in the least essential area. This especially critical if you are spending more than you are making or struggling to make ends meet.

In general, you’ll be able to cut down on groceries using coupons and planning your meals around the store sales. Cut back on entertainment, eating out, and other non-essential expenses.

Sample Budget

Let’s take a look at the sample budget and practice putting all of this information into practice.

Savings

• Emergency Fund = $200 – Initially starting to build $1,000 emergency fund. If you don’t have an emergency fund, start there.
• Savings = $400 – save for retirement or big purchases. Possibly reduce savings and pay car loan.

Housing

• Rent = $1,500 – rent is too high. Possibly look for a roommate.

Utilities

• Electric & Gas = $55 – low bill
• Cell Phone = $100 – that’s a high bill. Look for a lower rate
• Internet = $40

Food

• Groceries = $300 – wanting to eat healthier

Wellness

• Gym Membership = $25 – Exercise is important

Insurance

• Auto = $90 

Family

• Personal = $30 – Toiletries

Loans

• Car Loan = $350 – Regular Payment. Possibly reduce savings and put the money towards paying down debt.
• Student Loans = $200 – Regular monthly payment. Possibly reduce savings and put the money towards paying down debt.
• Credit Card = $50 – Regular monthly payment. Possibly reduce savings and put the money towards paying down debt.

Other

• Gas = $100 – Gas for the car
• Entertainment = $60 – Restaurant, movies

SAVINGS

People know it’s important to save but don’t because they are waiting for the perfect time to begin.

Regardless if you are saving for an emergency fund or a vacation, have a goal in mind, and save a percentage of your income. If you are struggling or need to catch up on payments, start by saving as little as 5% of your income and increase when your bills are current. 

Include savings as a fixed expense, this ensures you are saving each month before you begin spending on variables.

There’s no perfect time to start saving. Start today!

Examples of ways to track your day-to-day spending: 

Manual Method

While this may not be the twenty-first century’s choice, it remains an option for many people. Tracking your day-to-day spending manually helps keep you updated on your spending. You can use the expense tracker below to track your expenses. Review your expenses each week. 

On the other hand, if this method is not for you, don’t worry, there are other ways to track your spending without the hassle of writing every penny down.

Budgeting Apps

Once again, technology makes our life easier. You can avoid the trouble of tracking your spending manually by using a budgeting app. You can track your spending with the free mint app.

Link your bank account to the app, track your expenses, and watch your progress.  

An added advantage of using a budget app is that you can set limits in specific areas. You can set a limit of $200 in entertainment for instance; you will get alerted when you get to that limit. Set a target estimate for each budget category and your app will take care of the rest.

Review your expenses each month, the information should guide you on how to create your budget for the next month. Of course, it’s possible to overestimate or underestimate, but the more you budget the more accurate you get. 

TIP: If you have extra money to spare, you can budget an amount for unexpected situations, tag it miscellaneous. Trust me; one or two things will always pop up unexpectedly, its part of life.

Using a Single Credit or Debit Card

Some people prefer to use one credit card for all expenses to collect points. However, that’s not a bad idea if you are going to pay off the credit card each month.  

On the other hand, if you are not disciplined enough to pay the card off each month, use a debit card, or use cash envelopes.  

By using a single card, it is easier to monitor your expenses.

It’s best to balance the budget before your payday to zero out your account and send any amount not spent towards an emergency fund, savings account, or pay off debt. If the money is needed for an upcoming expense, including that balance as income on the next month’s budget.

 TIPS TO HELP YOU STICK TO YOUR BUDGET

Making a budget and sticking to it is not an easy process and some might even regard it as boring and stressful. Yet, you must make it a part of your life. Below are tips that will help you stick to a budget.

Adjust when needed and Repeat

Before the end of the month, review your budget, and make any needed adjustments for the next month. Over some time, you will get accustomed to having a budget and living with a budget.

Eventually, you’ll begin to see the difference it makes in your finances, you’ll be glad and wonder how you lived without a budget all along.   

If you have a month where things didn’t quite work out, make the necessary changes, and stick with the budget. 

As a reminder, no budget works for all situations. The budget you used in October may not work for December because of the upcoming holidays. If you know you have an event coming up, take that into account when you are creating the December budget. The new budget may require adding more categories but that’s fine.

CONCLUSION

While it is unlikely you can predict every single variable, monitoring how much money you spend each day should be a deliberate and consistent effort.

Everyone can benefit from having a budget and sticking to the budget. 

Initially, budgeting seems overwhelming, but it gets better along the way. Like everything else, the more we learn, the better we get. It’s always best to be flexible with a budget.

A budget is about managing your money and not necessarily about the income. Why would some people that make $200,000 and someone that makes $30,000 both live paycheck to paycheck? Money management.

A budget is an essential step towards achieving financial freedom.

Earning more money would help and lead to financial freedom.  Check out the many ways to earn extra money.

Click here to print the excel budget spreadsheet if you are learning how to budget!