Financial literacy and using a budget is not easy to adopt! As someone with a degree in Finance, I still have made my financial mistakes. I believe the easiest way to begin making healthy financial habits is by building a budget.
Building a budget is such a vague statement, and I am here to show you what I believe are the three best starting points on learning how to budget for beginners. Budgeting can be made incredibly simple and most importantly, specific to yourself.
I hope this post can help someone else, and I also have posted my budget template for sale on Etsy for anyone who needs a quick guide! It includes pre-made formulas so you can quickly and diligently input your incomes, your expenses, and more.
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Click this link to purchase my Pink Monthly Budget Tracker!
Decide what your budget goals are.
First things first, what are your financial goals?
A great question to ask yourself is, how do I benefit from having a budget? Whether it’s saving for a down payment on a house, chipping away at student loans, or building up your retirement fund, knowing your goals is like giving your budget a roadmap. It is important to know where to start and it is important to be disciplined.
Identifying your goals is a crucial first step to learning how to budget as a beginner. Understanding this step can give you great success in the long run, even if it sounds redundant.
Assess Your Spending & Income in Your Budget
This part can be uncomfortable, but it is important.
Gather those receipts, print out transaction histories, and face your spending habits head-on.
You’re not just crunching numbers; you’re giving your spending behavior a makeover. Organize your transactions with labels such as essentials, debt payments, midnight snack runs – cover it all.
Trust me, understanding where your money goes will allow you to see how much you are spending and where is the best place for improvement!
Where to Start With Assessing Your Spending
It is important to know which of your spending is due to fixed or variable expenses.
Fixed expenses are often reoccurring expenses that stay the same. They are typically due at the same time every month and in the same amount.
Variable expenses often change from month to month. For example, maybe one month you may need to stock up on toiletries. Maybe when you purchased them last month they totaled to $45, but this month they total to $67. That is a variable expense. It can change at any time and is not fixed.
When you print out your transaction histories or receipts, find the reoccurring ones. This is a great starting point for organizing your expenses.
Having this all written down in your budget helps you avoid overdue bills and late fees. Which, if your preference is writing your expenses down rather than using digital planners, the below planner is great for this!
Start with checking your electricity bill, your student loan bill, and your rent and then allocate dollar amounts from your income to paying these things first.
It is important to find the reoccurring ones and then figure out what day the expense withdraws on your account typically. From there, pick what due dates will work best with your paychecks and ensure you budget a way to have those paid in time. Using budget templates can really help with organizing this. These are important to prioritize over variable expenses, as fixed are often crucial and due on specific days.
Understanding Your Income
Income can be hard to work around specifically if we are working toward a goal and just don’t feel like we earn enough to get there. I have a blog post that provides easy ways to make money online here, which is great for people who have free time to do so.
However, understanding your income is also crucial to budgeting. It is important to analyze when to expect bonuses, paychecks, and more so you can incorporate that in to your budget.
Be realistic with your budget!
Lastly, is to be realistic with your budget. Most people who start budgeting will give up if they are giving themselves incredibly restricting goals. Restricting yourself is not efficient budgeting. There is absolutely quick avenues to take in order to meet your goals while also being realistic. To be restrictive means you could potentially delay the time it takes to meet the goals you went in with.
Using specific budgeting methods can help with being realistic with your numbers. For example, there is a budgeting method called the 50, 30, 20 method. So, for 50% of your paycheck, use it for your needs. For 30% of your paycheck, use it for your wants. Lastly, for 20% of your paycheck, use it for savings and debt payments.
Understanding Your Needs, Wants, Debt, and Savings
Needs can be things like housing, transportation, food, electricity, water, trash, and more. These are essentials to functioning in your daily life and can be seen as needs.
Wants can be considered things like travel, clothing, make up, and more. These are not essential to functioning in your daily life, but make it better! These wants can be important for getting through budgeting without feeling restricted, so 30% of your paycheck being used on these can’t hurt.
Debt can be considered your student loan payments, credit card payments, or car loans, and more. These are strict pay offs you may have goals to get down, but are considered debt as you owe an institution or someone else.
Savings you can consider your savings an emergency fund, 401k, investments, and more. Having these are so crucial! Building an emergency fund is a great savings goal to have at the beginning of your budgeting journey. As the economy fluctuates often, having back up savings before your 401k or other investments can be life changing! Having this included in your budgeting plan is important.
Again, creating a budget is not easy. I hope this post can be the start of gaining financial freedom for those slowly breaking into the world of budgeting. Although this is a very simple starter read, there are so many more ways to learn how to budget outside of the basics. For more financial tips, click here!
