Saving money and establishing a budget are dull subjects, but they have to be tackled. Having a budget, in fact, is one of the best things you can do to get your money under control before it gets out of hand.
You don’t have to be worried, and budgeting is not difficult. This introduction to budgeting will get you off on the right foot, and like any good beginner’s guide, it saves all of the hard work of figuring it out on your own.
How to Start Budgeting
When it comes to money management, budgeting is the most important skill you can have in realizing your financial goals. If you’ve never made a budget before, where do you begin? Follow these steps to begin budgeting and start taking control of your finances:
Track Your Expenses
You can’t determine where your money should go until you know where it is going. Tracking your expenses is crucial. There are a few easy ways to do this:
- Automatically categorize expenditures with a spending tracker app
- Keep receipts and record purchases in a spreadsheet.
- Watch out for regularly recurring expenses such as subscriptions.
Keep track of all your daily purchases, no matter how small, and you should be able to see where most of the money is going. If you want to track spending, observe it for a month or two and see what your average monthly expenses are.
Identify Your Income After Taxes
Then, you figure out your after-tax monthly income. But don’t budget on the basis of your salary before taxes. Take-home pay is what counts, and only this can be a guide for planning your finances.
For example, combine all your sources of income–including salary and interest in bank accounts–and any other sources of additional income. This is actually how much money you have each month to save or spend on yourself.
Set Your Budget Priorities
Once you know how much money is coming in and going out each month, it’s time to decide what’s most important to you and allocate your money accordingly. Everyone’s budget priorities look a little different.
Common budget items include:
- Housing – rent/mortgage, housecleaning services
- Transportation – car payment, insurance, gas, repairs
- Food – groceries, dining out
- Personal – clothing, haircuts, gym membership
- Debt payments – student loans, credit cards
- Savings goals – emergency fund, retirement
Take a look at your current expenses and decide how much you want to dedicate to key budget priorities moving forward. Housing and debt payments usually need to stay consistent, but you may be able to cut back in other areas like transportation or dining out.
Staying focused on your priorities will help guide your spending decisions and prevent overspending. Over time, as your income changes, you can tweak the amounts going toward each budget category.
Choose Your Budgeting Method
Now it’s time to select a budgeting method that allows you to easily track income coming in versus money going out each month. Here are three budgeting methods to consider, along with software and tools to try:
The 50/30/20 Budget
This budget breaks spending into three categories:
- 50% on needs – housing, groceries, transportation, minimum debt payments
- 30% on wants – dining out, travel, shopping
- 20% on financial priorities – additional debt payments, retirement contributions, saving for goals
Try using the Mint 50/30/20 Budget template to quickly allocate spending.
Zero-Based Budget
With this method, your income minus expenses equal zero, meaning you assign each dollar coming into a specific purpose. It helps prevent overspending.
Apps like YNAB make zero-based budgeting easy.
Pay Yourself First Budget
Automatically deposit money each month into savings and investment accounts before paying for any expenses. You’ll grow your net worth while still budgeting the remainder for regular costs.
Use Qapital or your bank’s auto-save tools to effortlessly pay yourself first.
Pick the budget method that best fits your needs. Over time, you may tweak your approach. The most important thing is to start monitoring your spending versus income.
Make Budgeting a Habit
When it comes to managing finances, consistency is essential. To ensure that you are adhering to the budget priorities you set, think about allocating a specific time each week to analyze your expenditures. Being actively engaged rather than passively tracking transactions helps solidify budgeting as a habit.
Use your budget to guide financial decisions throughout the month – before making big purchases or overspending in certain categories, check in with your budget to see the impact.
And revise your budget as needed if expenses come up that don’t align with your spending priorities. Make sure the budget you create is accurately reflecting your entire monthly financial situation by adding line items for sporadic costs such as auto maintenance or medical expenses. The more time you dedicate to monitoring your budget, the easier it becomes to stick to your financial goals!
Conclusion
Budgeting is an essential money skill, but it doesn’t need to be complicated, especially when you’re just starting out.
The hardest part is getting started! But having a budget in place helps you align spending with your values and make smart money decisions. So don’t delay – monitor your spending, create a budget that fits your lifestyle, and start making progress toward your financial goals today.
Before you go, I want to invite you to join my FREE email list community. By signing up today, you’ll get notifications of my latest posts. Plus, access to my FREE Resources Library. Click Here to sign up!
Recommended Reading:
