Hey there! Ever been in a money chat where the word “budget” gets thrown around like confetti? It’s the go-to advice, right? But hold up, you might be scratching your head wondering, “How the heck do I even create one? And seriously, why is this budget thing such a big deal?”
Well, my friend, fear not! This easy-breezy guide is your go-to for diving into the world of budgeting for beginners! Plus, you can dive into the action with my free budget templates or spice things up on an Excel spreadsheet, your call! Let’s make budgeting a friendlier affair, shall we?
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What is a Budget?
A budget is a spending plan based on your income and expenses over a specified period.
It is simply a way to keep track of the money coming in and where it is going. Budgeting and creating a plan for your money allows you to control how it is being spent.
Why is a Budget Important?
Keeping track of income and expenses through a budget prevents overspending, avoiding debt pitfalls.
It helps identify areas of overspending, allows focus on priorities, and aids in saving money and paying off debts. The benefits of budgeting include stress reduction, goal-oriented spending, timely bill payments, and preparation for unforeseen events.
Here is a breakdown of the many advantages of budgeting:
Advantages of Budgeting
- Provides financial control and reduces stress.
- Helps achieve saving goals.
- Prevents overspending and going into debt.
- Ensures timely bill payments, avoiding extra fees.
- Highlights spending habits and areas of overspending.
- Facilitates emergency savings preparation.
How to Make A Monthly Budget
Now, let’s get down to business. Budgeting isn’t rocket science. My first-ever budget? I typed it up in my phone’s notes app!
How to create a simple budget:
- Calculate your total after-tax income from all sources.
- Set a savings goal. Decide how much you would like to save every month and take out that amount first.
- List all expenses, subtracting from income.
- Adjust your spending. If there is not enough money to cover your expenses, find ways to lower them or increase your income.
- Stick to the plan. As you go through every month, track your progress to avoid overspending.
Saving Guidelines:
I loosely follow the 50/30/20 budget rule: allocate 50% to needs, 30% to wants, and 20% to savings. I aim to save 20% of my income; however, I don’t stick to a specific amount for needs and wants.
Even if you can only save a small amount, it’s a positive start. Slow and steady wins the race!
Expense Tracking:
Use bank statements, apps like Mint, or a combination of methods to track expenses effectively.
Adjusting Your Budget:
If you’re spending more than you make, you’ll have to make some adjustments to balance your budget.
Prioritize what is important to you by determining your needs and wants.
1. Needs
Needs are the things that you require to survive. When deciding, think… “Can I live without this?” For me, they included things like rent, utilities, insurance, internet, a car, etc.
However, some wants can seem like they are needed. For instance, you might want more space in your home than is necessary. Or, while you do need clothes, you don’t need to buy new ones every month.
You can always find ways to cut everyday expenses: Find better deals at cellphone companies, shop around for cheaper car insurance, skip out on that brand-new car, and find a used one, etc.
Calculate the cost of your needs and use the money left over to figure out which “wants” you can afford.
2. Wants
Wants are things that you desire but don’t require. This includes groceries, getting haircuts, entertainment, subscription plans, etc.
Some things don’t fit easily into a category. While food is necessary for survival, the specifics of what is bought are easy to adjust. Ex: Food and water are needed, but expensive cuts of meat or gallons of juice are not.
Read More: Learn how I keep my grocery budget at $200/mo. for two while eating healthy.
Balance your budget by determining what can be trimmed out. I also always put a miscellaneous amount for irregularly bought items.
And ta-da! That is how you create a simple budget.
Budget Plan Sample:
| Monthly Income: $3,500 Savings 20% of Income Total= $700 $3,500 – $700 = $2,800 for Needs Needs $1200 Rent $100 Utilities $100 Cellphone $150 Car + Apartment Insurance $300 Car Payment Total= $1850 $2800 – $1850 = $950 for Wants Wants $300 Groceries $160 Gas (Car) $40 Internet $80 Hair $40 Internet Tv $200 Misc. Items (household, personal, etc.) $80 Entertainment Total= $900 $950 – $900 = $50 leftover (More to save! It is good to keep this for additional emergency savings.) |
Utilize this method with my free budget printables to gain control of your finances!
Budgeting Methods:
There are various methods to help you stay on track with our budget. Whatever way you choose, find something that works for you.
You might also find these tips for how to live on a budget useful.
1. Create Separate Bank Accounts
One way that helped me stick to this budget is to have two separate bank accounts.
After every payday, I transferred the amount for my bills and savings into my second bank account. This ensured that I always had enough to pay my bills and would not “accidentally” spend it. I set up all my bills on auto-pay so they’d be paid on time.
I also have some bills on my credit card and set it to be fully paid off each month. This helped me increase my credit score!
2. Envelope System With Cash
The envelope budgeting method is great for those who need to visually keep track of their expenses.
You do this by withdrawing cash and adding the predetermined amount into separate envelopes for each category. Once the money in the envelope is gone, that’s it for the month!
You might also find that it works best for you to combine these methods.
For bills, you can separate that money into another account and pay them electronically. Then for everyday spending, categorize those amounts into envelopes and pay with cash.
Conclusion
There you have it, the A to Z of mastering your budget for financial success. Whether you’re using free templates, an Excel sheet, or a combination of methods, taking control of your finances is a rewarding journey. Stick to your plan, adjust as needed, and watch your financial goals become a reality.