5 Tips for Beginners to Budget
Coming up with a budget can be challenging. You must analyze your spending habits and change whatever is problematic.
However, a budget is a good idea. You will have peace of mind and a better chance of attaining your financial goal.
Here are 5 basic steps for beginners.
Set a Financial Goal
What is your reason for setting up a budget? This reason is what your budget will be anchored on and it will help you stick to it.
Have a long-term or even short-term goal such as a vacation, new car, paying off debt or buying a home. Once you achieve one goal, you can create another one and follow through.
Log Your Expenses, Income and Savings
A Microsoft Excel spreadsheet (or any other template) would be ideal for tracking your spending and monthly expenses. Note down every expense. Your entire budget will be built on this list.
Find out how much money is brought in every month, from you and other members of your household. Be sure to include all payments, side gigs, child support, rental income and passive income. If the number varies by month, use an estimate.
Now, make a list of the mandatory monthly expenses.
- Mortgage payment or rent
- Living expenses (internet, utilities and phone)
- Transportation costs and car payments
- Child care
- Debt repayments
Move on to irregular and non-essential expenses.
These include cable TV, memberships, streaming services, and miscellaneous spending. Do not forget annual expenses.
Finally, include savings in the budget. This is for investment, emergency fund, or any other goals you have.
Fix Your Expenses So They Match Your Income
Once you have the monthly budget drawn, look at it. Do your expenses exceed your income? Adjust make your goals possible.
Reduce Your Expense
- Cut out optional outings such as eating out and happy hours.
- Pull the plug on a subscription service or cable TV. This could save a significant amount.
- Adjust the grocery bill.
- Consider making homemade gifts for friends and family. Holidays and special occasions can be expensive.
- Transfer high-interest balances or consolidate credit cards.
- Refinance loans to lower interest rates.
If you still have some money after paying your expenses, set up an emergency fund. This fund will come in handy when you have unexpected expenses mid-month.
Select a Budgeting Method
You have outlined your spending, expenses and income, what do you do now? You need a budgeting method that accommodates your lifestyle. Here are four common budgeting methods: The envelope system: this is the best for over-spenders. The 50/20/30 method: 50% of your income goes to expenses, 20% to savings/debt and 30% goes to personal sending. The 60/20/20 budget: it is the same as the above one but with different percentages. The zero-based budget: with this one, you must account for every dollar you earn.
Always review your budget, monitor your expenses and make the necessary adjustments.