Unfortunately, far too many people are struggling financially. Sure, they’re working and bringing home a paycheck. But at the end of the month, they wonder how their paycheck managed to disappear so quickly. It’s hard to watch your savings account dwindle from a lack of discipline over your finances. This is why it’s so important to start a budget that works for you today.
Planning to follow a budget is not an easy task. Budgeting is a good habit that helps you manage your money so that you don’t spend more than what you earn. Following a budget can help manger your expenses and save money for bulky items such as car repair or new furniture.
This blog post will give you a solid foundation on how to start a budget.
What is budgeting?
Budgeting is simply the process of managing your money and spending in order to reach financial goals like paying off debt, saving for retirement, or buying a home.
It can also help you avoid overspending on things like groceries, clothes, and vacations by making you more aware of how much money is coming in and going out each month.
Why is budgeting important?
A lot of people don’t budget because they think it will be too complicated or time-consuming. But once you’ve done it a few times, it becomes second nature and can actually save you time and money in the long run by helping keep track of expenses so there are no surprises at the end of the month when bills come due.
Steps on how to budget for beginners
Define your “Why”
First things first, before jumping into the nitty-gritty details of your budget, take some time to figure out why you’re creating one in the first place. Why do you want one? What are your goals? Is there a specific reason behind wanting to save money or invest in something else?
Defining your “why” will make it easier for you to create an effective budget that will help achieve whatever it is that motivates you.
Set savings goals
One of the best ways to start a budget is by setting savings goals. Decide how much money you’d like to put away for emergencies, retirement, and other long-term goals.
Then make sure that any extra money goes into your savings account first so that the goal becomes a reality.
If you have trouble saving money from each paycheck, try transferring an amount from checking into savings once or twice a month instead. This way, it won’t feel like such an abrupt change in your spending habits.
Make sure your goals are achievable
It’s easy to become frustrated if you set goals that are too high or too low, especially if you’re new to budgeting.
Instead, start small and work your way up as you become more comfortable with budgeting and create financial goals that are reasonable but still challenging enough so they motivate you to keep working hard towards them.
Monitoring your spending
Once you have determined your savings goals, it is important that you monitor your spending on a regular basis so that you can see where your money is going each month.
This will help you identify areas where you may be spending too much and areas where there are savings opportunities.
If you keep track of all of your expenses during the month and analyze them at the end of the month, this will help you see where your money is going and how much extra spending room there is left over at the end of each month.
Figure out your income
The first step in creating a budget is figuring out how much money you have coming in each month. If you don’t know how much money you make, it can be hard to set priorities or make spending decisions.
Pay close attention to any changes in your paychecks, bonuses, overtime, or tax refunds that can throw off your budget if they’re not accounted for properly.
Categorize expenses
The first step in creating a budget is figuring out what all of your monthly expenses are. Write down everything that you spend money on every month.
This includes rent or mortgage payments, car payments, insurance premiums, utilities (electricity, gas, and water), groceries, cable TV/internet/landline phone bills, cell phone bills, credit card payments, and savings contributions.
If there’s something else that you spend money on frequently but isn’t listed here, add it to the list.
Cut back on impulse purchases
Just don’t buy things on impulse! Instead, wait 48 hours before making any big purchases.
If you still want it after that time period passes, then go ahead and buy it, but only if it’s something that is worth spending your money on.
The same goes for online shopping, if you see something online that catches your eye, wait 24 hours before buying it so you can make sure it’s something that truly needs to be added to your life instead of just being an impulse buy.
Pay yourself first
This is one of the best and most important things you can do to manage your finances. The idea here is simple: set up an automatic transfer from each paycheck into savings or retirement.
This will ensure that you’re saving money before you even get it, which is much easier than trying to put money away after the fact.
Review your budget regularly
You should review your budget on a regular basis, whether it’s weekly or monthly depending on how often your paychecks come in. Quarterly reviews may be necessary instead of monthly if you have irregular income from freelance work or side gigs.
Reviewing your budget can help you see where your money is going and where areas for improvement are, like those times when you spent too much money on eating out or shopping.
Key Takeaways
If you haven’t yet started budgeting, we suggest that you start learning the basics and proceed from there. Understanding how your money works for and against you, and being in control of it is the first step to getting your finances under control.
It might seem trivial and unexciting right now, but trust us when we say that it will affect your life significantly in the long run.
