Setting a budget is difficult. Doing so forces you to face your spending habits and make an effort to change them.
But deciding to set a budget means you’re taking money seriously. Maybe you have some financial goals in mind.
The end result will give you peace of mind. But if you’re creating a budget for the first time, keep in mind that different individuals and families have different budgets. Setting a budget that works for you is important.
Budgeting for Beginners in 5 Easy Steps
Follow these basic steps and tailor them to your needs to create a monthly budget for financial success.
Step 1: Set financial goals
First of all, why do we need a budget?
Reasons become anchors and incentives when creating a budget and help you stick to it.
Set short-term or long-term goals. It could be paying off student loans, credit cards, mortgages, or saving for retirement, an emergency fund, a new car, a down payment on a home, or vacations.
For example, creating a budget is a must for many people looking to buy their first home. But it shouldn’t stop there. Once you’ve bought a home, stick to your budget to pay off debt and give yourself wiggle room for unexpected expenses.
Once you’ve completed one goal, you can move on to another and customize your budget to suit your needs.
Step 2: Record your income, expenses and savings
We recommend using a Microsoft Excel spreadsheet or another budget template to track all your monthly expenses and expenses. List each expense line by line. This list will form the basis of your monthly budget.
Aggregate monthly income
Review your payslip to determine how much money you and anyone else in your household bring home each month. Include passive income, rental income, child support payments, or a side job.
If your income fluctuates, estimate as accurately as possible or use the average of your income over the past three months.
Create a list of monthly mandatory expenses
Start with fixed costs or monthly expenses such as:
- rent or mortgage payments
- Living expenses such as utilities (electricity, gas, water), internet, telephone, etc.
- car payment and transportation
- student loan payment
- Insurance (automobile insurance, life insurance, health insurance)
- Debt repayments such as credit cards and medical bills.
Anything that incurs late charges for not paying an invoice falls into this category.
List unnecessary monthly and occasional expenses
Non-essential expenses include entertainment, coffee, subscriptions and streaming services, memberships, cable TV, gifts, dining out, and other items. It’s basically your expenses for the month.
Don’t forget to account for non-monthly expenses such as annual fees, taxes, car registrations, oil changes, and one-off fees. You can either add them to the month in which they normally occur, or add up all irregular expenses for the year and divide by 12 to incorporate them into your monthly budget.
Review all bank and credit card statements from the last 12 months to make sure nothing has been overlooked.
don’t forget to save money
Be sure to include savings items in your monthly budget. Use for short-term or long-term savings goals, build emergency funds or investments.
Figure out how much room you have, no matter how big or small. For direct deposits, automatic payroll deductions can simplify your savings. About $10 a week, that’s over $500 a year.
Step 3: Align your spending with your income
So, how’s your personal monthly budget going so far?
Are you living within your means or are you spending more than you are making? Either way, it’s time to make adjustments to reach your goals.
7 ways to save money
Don’t panic if you’re overspending each month. Now that you’ve itemized your spending, this is a great time to assess areas where you’ll save money. Honestly, this is exactly why you started budgeting regularly!
Here are some budgeting tips to save you money each month.
- Cut out optional outings like happy hour and eating out. Saving $4 a weekday purchase would add up to over $1,000 a year.
- Consideration unplug cable tv or subscription service. Cable costs an average of $1,284 a year, so cutting cable and switching to a streaming service can save you at least $50 a month.
- Fine-tune your grocery bill and practice meal prep. Save money by planning and preparing recipes for the week that use many of the same ingredients.
- Create handmade gifts for family and friends. Special occasions and holidays can be a constant occurrence and costly. Spend more time and less money to polish thoughtful handmade gifts such as framed photos, magnets and ornaments. It takes
- Consolidate credit cards or transfer high interest balances. To combine multiple credit card payments into one and reduce the amount of interest you pay each month, apply for a debt consolidation loan or take advantage of a 0% balance transfer credit card offer. The faster you pay off your principal balance, the less debt you have.
- Loan refinancing. Refinancing your mortgage, student loans, and car loans can lower your interest rates and lower your monthly payments. If you get your original loan and then improve your credit, you can save a lot.
- Get a new quote for car insurance to lower monthly payments. Find new quotes based on your needs using our free online service. Saving $20 each month is $20 that you can put towards savings or paying off debt.
Start small and see how big the waves can be.
When you feel like going to Starbucks at 3pm, remember to remind yourself of your financial goals. sometimes.
what to do with extra cash
If you have money left over after paying your monthly expenses, prioritize building an emergency fund if you don’t have one.
Having an emergency fund can often help you stay on budget. This is because you don’t have to borrow money to cover unexpected expenses such as broken appliances or repairing a large car.
If you jump into that emergency fund, start building again right away.
Otherwise, you can use the extra non-expense money to reach your financial goals.
Got a big expense like a wedding or vacation? Learn how to start a depreciation fund to reach your short-term savings goals.
Step 4: Choose a budgeting method
Your monthly budget clarifies your income, expenses, and expenses, but how do you act on it? Experimenting with budgeting methods can help you manage your money and accommodate your lifestyle .
Living on a budget doesn’t mean you can’t have fun and splurge. Luckily, many budgeting methods account for those things.
- envelope system is a cash-based budgeting system suitable for spendthrifts. Save money on debit and credit card spending. Because you need to withdraw cash and put variable expenses (like groceries and clothing) into pre-labeled envelopes.
- 50/20/30 system For those who have more financial flexibility and can pay all their bills with 50% of their income. Allocate 50% of your income to living expenses, 20% to savings and/or debt relief, and 30% to personal expenses (vacation, coffee, entertainment). This way you can save while having fun. Your basic needs only make up 50% of your income, so it’s usually not suitable for someone living paycheck to paycheck.
- 60/20/20 budget It uses the same concept as 50/20/30, but applies 60% of income to living expenses, 20% to savings and/or debt relief, and 20% to personal expenses. Suitable for those who are fans of the 50/20/30 method and need a large portion of their income to cover their living expenses.
- zero-based budget I will let you account for all of your income. Budget your expenses and bills and allocate extra money to goals. The strict system is good for people looking to pay off their debts as quickly as possible.It is also beneficial for those who live paycheck to paycheck.
Another money management option is to use a budget management app. The app helps you organize and access your personal finances on the go, and can alert you to financial costs, late fees, and when bills are due. Many also offer free credit score monitoring.
Step 5: Follow Through
Budgeting is pretty easy once you’re in the groove, but you can’t set it and forget it. You should review your budget monthly to monitor spending and spending and adjust accordingly. Check your checking and savings account statements for fraud, even if you set your bills to automatic payments.
Prioritize saving extra money even if your income increases. That way, you can avoid lifestyle inflation, where you earn more and spend more.
The thrill of being debt free or finally having enough money to travel may prompt you to seek out other financial opportunities and advice. Set up a consultation with a certified financial planner who can help you with long-term goals like retirement and savings plans.
Stephanie Bolling is a former staff writer for The Penny Hoarder. She is contributed by Kaz Weida, Senior Her Writer for The Penny Hoarder.