Budgeting isn’t so bad once you get the hang of it, but getting started can be a challenge. How much money should you set aside for expenses and extras? What details should your budget contain? Navigating questions like these often deter individuals from starting a budget when they should.
But don’t fear! By putting a little effort into planning your finances, you’ll create a budget in no time. The sooner you start sticking to a budget, the better shape your bank account will be in. These tips will help you build your beginner budget to get you on the path toward financial freedom.
Write It Down
The best thing you can do to start budgeting is to write everything down from regular expenses to extras. Doing so will help you to better visualize the state of your finances and make accurate plans. Writing things down will also help you stay accountable to the budget you develop. Start by writing down the following things:
How much money do you bring in on a monthly basis after taxes? This will be the benchmark of your budget. You don’t want to spend more money than you have, after all.
Your regular paychecks will come first. This amount is typically consistent and easy to plan around. If you have any other sources of income, add them here as well and as accurately as possible. If you earn any money as an independent contractor, set aside some money to pay taxes on those earnings.
Next up are your expenses. Start by writing down your recurring payments. Rest, utilities and other essential payments should always take priority. Remember, too, any debt payments you make for credit cards or loans. There are serious consequences for falling short on these expenses. This is why they should be the first items you fit into your budget.
After writing these down, you can move down the list of other expenses that aren’t as high of a priority. Gas and groceries are important but can fluctuate from month to month. You can also adjust your budget to buy less expensive food or use cheaper transportation methods. Finish off the list with your monthly spending estimates for things like entertainment, clothing, and other miscellaneous purchases.
Get an App
To help you bring your budget to life and keep yourself on track, download an app that you can use anywhere. You can update your budget on the fly. You can also use it as a reminder when you are tempted to spend more than you should.
For example, most debit cards now come with an associated app. From your smartphone, you can look at your account balance, pending transactions, and even a breakdown of your monthly spending. This will help you stay true to your budget each day.
Set Some Goals
Once you’ve mapped out a budget, think about what you want to achieve financially and set some goals. What do you hope to accomplish by using a budget? Is your goal to save up for a new car or to reduce your spending as a way to get out of debt? Write down a specific and measurable goal to build your budget around.
A set goal gives your budget a purpose and direction. Otherwise, you’re just trying to line up your income and expense columns without making any financial progress. If you want to get that new car, you know you’re going to have to reduce your spending to save up.
Ask for Help
There’s no shame in asking for help when you start budgeting for the first time. Getting guidance from someone more experienced than you will make a huge difference early on. You can learn from their successes and mistakes to adjust your own budget.
Talk to your parents, a trusted friend, or even your manager at work for their advice. Listen and take note of the strategies you would like to implement. You can even show them the layout of your budget so they can provide even more specific advice.
Speaking with a financial advisor is also an option worth considering. You’ll be assured that you’re receiving guidance from someone who is an educated professional. Even one short consultation can help get you on the right path.
Allocate Funds with a Set Rule
Having a hard time dividing up your spending and saving numbers? Try a recommended strategy. There are two common options you can test out for yourself to get started.
The first one is the 50/30/20 rule. Half of your income is spent on needs, such as regular bills and debt payments. Then allocate 30% toward your wants like movie tickets or eating at your favorite restaurant. Then put the remaining 20% toward financial goals either through savings or investments.
The next rule is the 70/20/10 rule. It works a little differently. The bulk 70% is for all of your expenses, whether they be essentials or for pleasure. Put the next 20% into savings or use it to eliminate debt. With this rule, you donate the final 10% to a charity or cause of your choice. You could also use this 10% to bulk up your investments.
You’re not required to follow either of these rules. But they’ll help you get started if you don’t know how to begin. As you get more familiar with budgeting, you can adjust the percentages to fit your needs.
Learn to Adjust
Your first budget will likely be a work in progress as your life’s circumstances change over time. You’re going to have to learn how to make adjustments so that your budget is as effective as possible. Being willing to make changes is part of the learning process.
For example, you might not have allotted as much money toward savings as you had originally hoped. In order to make things work, you’ll need to be able to decrease your spending. This might be difficult, especially if it means sacrificing some of the things you love. However, this willingness to adjust is how you’ll get ahead in the financial game.
Ready to get budgeting? Grab a pen and paper and start making your first draft. Soon enough you’ll be a money management master ready to tackle any financial challenge you face.