Budgeting Tips for Beginners

Guide to Budgeting for Beginners

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The personal finance advice that you will hear everywhere is that a budget is key to living your best financial life. A budget is the most accurate way to understand your spending habits and how they affect your ability to save. When you are creating a budget for the first time, it seems like a complicated process. But deciding to start a monthly budget shows that you want to manage your money better, pay down your debt, and save for your future. We will simplify the steps to take when creating a budget, so it’s straightforward for beginners.

The Basics of Budgeting

When creating a budget, all you need is a simple budget template. There are many different templates out there that you can find. Here are some that are great if you have Microsoft Excel, or if you have more time, you can find a simple budget template on Canva. There are also many free apps that you can find on the Apple and Google Play stores. Or use the “old school” route with a notebook and pen. Now you’re ready to follow the steps below.

Decide Why You’re Budgeting

Preparing a budget starts with understanding why you want to budget in the first place. Define what your goals are with budgeting. It will make it easier to stick to when you have a purpose in mind. Some common reasons include:

  • Become debt-free
  • Finding ways to save money
  • Reduce overspending in certain areas
  • Stop the fights between you and your significant other with money
  • Get out of the paycheck to paycheck way of life
  • Save for a home, car, vacation, or other big purchase
  • Get on track for long-term goals like retirement and college saving

Set Your Financial Goals

What are you trying to accomplish with your budget? Decide on what goals you want to focus on. They could be financial goals related to paying off all your credit card debt or saving money for an emergency fund. Goal setting is an important aspect in many areas of your life, and that’s true when it comes to your finances.

How to Prepare a Budget for Everything

When it comes to a question, how to prepare a budget for everything, we might think of how to pay streaming services, clothing, dining out and going to movies that we might enjoy having in our lives. Your budget should first cover your needs and then have enough left to put into your savings and wants. By budgeting specifically for these wants, you can avoid overspending.

Determine How Much to Save per Month

With your financial goal in mind, you need to break it down into realistic savings each month. For example, if we use the goal in the above example, then you would need to save $833.33 per month. This exercise gets you to think even more specific about what you’ll need to do to reach your goal. 

List Monthly Income Sources

Some people have one source of income from one full-time job and receive a regular paycheck with all the taxes deducted from it. That amount after taxes is called your net income.

If you have more than one source of monthly income, list those too. Include the net income or estimate how much you typically receive if the amount is variable.

Create Your List of Expenses

After writing your income and then continue to write out your list of expenses, you will have certain fixed expenses and stay the same each month. These expenses include items like your rent or mortgage, car loans, and student loans. These are the easiest expenses to track because they are the same each month unless you pay late and get charged a fee.

Other expenses you have will fluctuate. Your utility bills are an example of a variable expense. During seasons where the weather is more extreme, your bill will be higher than normal. Other variable expenses include gas and groceries.

Catch Those Irregular Expenses

Remember to account for irregular expenses. These are the day to day expenses that come up on a less frequent basis. These irregular expenses are usually a substantial amount of money, and you need to prepare it. Use a calendar to help identify those so that you consider them when you create your budget. Irregular expenses include:

  • Holidays including Christmas, Easter, etc.
  • Birthdays, weddings, and anniversaries
  • Car registration and insurance
  • Property taxes
  • Insurance premiums
  • Medical and veterinary exams

Budgeting Tips

With a monthly budget created, you are prepared to track your spending habits. Here are some budgeting tips to consider incorporating:

  • Cut down your expenses. Look for areas that you can trim your spending. Meal prep your lunches instead of going out to eat or cut your cord on your cable TV are two examples.
  • Put extra cash to work. After paying your monthly expenses, consider ways to put that money to good use. You could start an emergency fund or make an extra payment on your credit card balance.
  • Decide if you want to use a budgeting method. There are many types out there, including the envelope system, 50/20/30 method, and the zero-sum budget.

Sticking It a Budget

To be successful with budgeting, you have to do the work of keeping track and sticking to it. Some ways that might help you approach this include:

  • Automate where you can. Set auto-pay on your bills, which as a bonus will keep you from paying late fees. You can also set up automatic transfers for your savings accounts and retirement funds. Getting your money moved without having to lift a finger or rely on you having the time to do it, will make it easier.
  • Try the envelope system. If you are having problems with sticking to your budget, put cash in a different envelope for each spending category. Once the money in a category is gone, you’re done too.
  • Use tracking apps. Many banking apps also have a budgeting feature that you can link with your account and track real-time. It helps when you don’t have time to update your expenses list.

How to Make a Personal Budget That Works

If you want to know how to make a personal budget that works, just make sure that you create the habit first. One of the things that people often struggle with is sticking to a budget. If you’ve gone through the effort of those six steps above without following through, it’s a waste of your time. Make sure you’re setting yourself up for success. 

You do this by creating realistic financial goals. The realistic plan is one of the key budgeting tips for beginners that can help you stick with a budget. For example, let’s say that you want to save $1500 a month towards a down payment on a house. But you only have $1000 leftover each month even after cutting your expenses. Your goal was not realistic from the start. Instead, expand your timeline accordingly or lower your end goal so that it aligns with what’s possible.

Another common mistake that first-time budgeters make is that they don’t allow their budget to be flexible. Life happens sometimes, and you aren’t always prepared for them. A washing machine may break down, or unexpected medical expenses can happen, unfortunately. It might set you back on your savings goal for a few months, but don’t let it be your reason to stop budgeting. 

If you find yourself spending more on groceries than you’ve planned, then cut other spending categories. And if you’re still overspending, it’s ok to go ahead and increase your grocery budget and adjust your budget accordingly.

Get your entire family involved in the budgeting process. After all, you’re creating a budget to help your family succeed financially. It will help instill the value of money in your children. A family budget will be everyone’s guide to how much everyone can spend to prevent debt. Please provide an overview of how much debt your family has and its impacts on your financial future. 

Finally, make sure that you select the right budgeting method from some of the most popular methods.

Choosing a Budgeting Method

Managing a budget is made a lot easier when you use the right budgeting system. We’ll explain three of the most popular budgeting methods used today:

50 30 20 Budget Rule

This budget takes your paycheck (and your significant other’s) and splits it into three buckets: 50% of your “Needs,” 30% of your “Wants,” and 20% towards “Savings and Debt.” Your “Needs” include monthly things like mortgage/rent, groceries, insurance, and car payments. “Wants” are things that you’d like to have that you could go without, like eating out, fancier clothes, or taking a yoga class. 

You can split the “Debt and Savings” category in the 50 30 20 budget rule according to your situation. For example, if you’ve got a lot of debt, you might prioritize more towards paying that down over saving. 

Cash Envelope System

This easy budgeting system uses all your income and divides it up by your bills and expenses. The leftover money is then put into different expense categories like “Groceries,” “Eating out,” and “Entertainment.” The amounts are put into real envelopes with cash ideally because there’s a psychological effect of using cash to pay for things that makes people spend less. Once you run out of money in an envelope, you can’t spend any more in that category until the next month.

Zero-Based Budget

The idea behind this budget is that your income less expenses and savings should be equal to “zero.” The zero-based budget puts every penny towards your expenses, debt payments, and savings each month. You may have to revisit this detailed budgeting system each month to adjust for changes in income or expenses. If you end up with a negative balance at the end of a month, you must either increase income or reduce expenses to get back on track.

Test out these three different strategies and use the one that works best for your situation. If it makes it easier, download an app based on the budgeting system you want to use. 

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