Have you ever wondered where all the money you earn have been going? You collect your monthly salary at the end of the month and everything is gone in the blink of an eye, leaving you no savings or extra money. This guide to starting a budget shows you how to organize every penny that comes into your account, saving a lot of money in the process.
Most people create a budget because they have a financial goal in mind. There’s something they want to get at the end of the line. If you don’t have some financial goals in mind and just plan to spend money as it comes because you only live once, you should change that mindset.
What you get when you create a budget for the first time is peace of mind. You know where your money is going, you know how much is going into a particular sector, and you know how much you have left.
5 Steps to Starting a Budget for Beginners
Know where you’re going
It has been mentioned above that starting a budget is only done by those who have a financial goal in mind. If you don’t have any idea of where you’re headed, you can’t get far without destroying what you’ve planned. You begin to dip into the money for automobile repairs to organize parties and ruin the entire budget.
Therefore, before you start, the first question you’ll ask yourself is- “Why do I want to budget? Why am I doing this?”
Whatever reason you come up with is what will make you stick to that budget. If you think you would forget, you can write it in your diary to keep reminding yourself of why you shouldn’t ruin the budget.
The financial goals you set could either be long-term or short-term.
For instance, it can be to plan for your summer vacation, pay off college debt, buy a new car, or save for retirement. When you complete one goal, you can create another budget to accomplish another goal and fit your needs.
Track your expenses
After you’ve established your reason for keeping a budget and what goal you want to accomplish, the next step is to open a Microsoft spreadsheet or a budget template to put down all your expenses (monthly expenses, savings…). List out everything you use your money to do. You can follow the steps below to make it easier.
Determine your monthly income
Before you can start a budget, you have to know how much you earn monthly. If your financial goals include other members of your family, it means you would have to find the average of everyone’s monthly income. , if
If your monthly income isn’t fixed, you can use the average of what you’ve earned for the past three months.
List your compulsory expenses
There are some things you can’t do away with for a whole month. And these include groceries, transportation costs (includes car payments), debt repayment, insurance, and childcare amongst others.
List your non-important expenses
Many people don’t like to live boring lives. They want to have a nice time with friends, go for parties, payment for cable TV, subscriptions, shop for new clothes. Put all these into a separate list.
In addition, you also shouldn’t forget to include irregular expenses that you don’t have to plan for but happens along the way such as vehicle break down, annual fees, and taxes.
On a separate line, put down all your savings. Include how much you’ve saved so far, and how much you plan to save (long-term savings, short-term savings, emergency fund, and investments). Think of how much you want to add to your savings. If you’ve not started saving yet, how much you’re going to start putting into your savings each month?
Cut down excess spending
By now, you should have discovered that you have been spending a lot of your money on things that never really mattered. As you create your new budget, you have to ensure that your expenses match your income.
Are you spending more money than you make?
Retrace your steps back to where you’re overspending, and adjust how much you put into that particular activity. To meet your goals, you have to make the necessary adjustments.
How to cut down excess spending
The main reason you decided to create a budget is that you’ve been overspending. Cutting your expenses shouldn’t scare you. This way, you get to save more money and reach your financial goals on time.
Adjust your grocery bill
You can prepare various types of food using the same ingredients. To avoid stocking up on too many ingredients you wouldn’t use, start the month by planning recipes for your food and determine what essential ingredients you would need to prepare them.
Refinance your loans
When you refinance your student loans, car loans, and other forms of loans you may have collected, you can easily lower the interest on each loan per month. This would also save you a lot of money.
Reduce the outings
If you discover that you’ve been going out too frequently, spending money on drinks, parties, and friends, you have to stop. If you save $5 a day, it will add up to $1350 saved at the end of the year (without including weekends).
Replace cable TV service with streaming service
If you’re really into watching television and you enjoy movies and television shows, consider replacing cable service with streaming service. You could save at least $50 per month, which is almost half of the amount for cable TV ($1,284 annually).
Do more things at home
Instead of getting expensive gifts for friends and relatives from stores, you can make your own gifts. Framed pictures are usually well appreciated. Homemade gifts save you a lot of money and time.
This is where all the extra money should go into. This means when you get extra money from paying your monthly expenses and after you’ve deposited into your savings, you should start an emergency fund.
Emergency funds are like a form of short-term savings that prevent you from taking out of your savings during a time of emergency.
If you’ve not started an emergency fund, you should use the extra money to start one. Also, when you take out of your emergency fund, replace it and build up when money comes because you would need it later on.
Methods for keeping a budget
How do you act on everything you’ve planned so far? Your income, expenses, and savings have been written down in a budget. Now, you have to choose from one of the various methods of budgeting
This method is very easy to understand and apply. 60% of your monthly income goes into your living expenses, 20% goes into your monthly savings or is used to pay off debt, and 20% goes into your personal spending.
This works well for those who love to spend all their money and even end up borrowing to go through the rest of the month. This budget system is based on cash. You withdraw your cash and share it into several envelopes for your monthly expenses. This prevents you from spending more than you can, else you deprive yourself of something important.
Pay Yourself First Budget
This budget helps you save. The first thing you are to do after receiving your income is SAVE. After saving, you can then cover your bills and other necessary expenses before you can have some for yourself.
The 50/20/30 budget is for those who make enough money and can settle their bills with 50% of their monthly income. Just like the 60/20/20 method, 20% of your income goes into savings and the remaining 30% is for personal spending.
The Zero-Based Budget
This is the strictest method of budgeting as you have to account for every spending. There’s no wastage and no excessive spending. Whatever money is left goes into accomplishing your goals. If you want to pay off loans or debts faster, this method is what you need,
Using apps to create a budget towards a goal is also a budgeting method. With apps, you can easily organize and access your finances. You are also alerted of every due date and finance charges, so you don’t miss anything.
If you love tech and enjoy using your mobile devices, organizing your finance is one of the things you should be looking into. Some of the best budgeting apps include Mint, Pocket Guard, YNAB (You Need a Budget), and Wally.
Stick to The Plan
Budgeting only works out fine when you follow through with the plan. If you set everything and forget it, going ahead to spend your money as you wish, you would regret everything when the month is over and you didn’t accomplish your goal.
When you’re able to accomplish a goal, it would be easier to set more goals. If you get extra money, remember not to spend it lavishly. You can use the money to pay off debt, so you can enjoy without restrictions in the nearest future.