Too often, people approach the concept of a budget with the rarely kept promise to start one tomorrow.
While budgeting might seem like a daunting, or at the very least, monotonous task, it’s crucial to reaching your financial goals.
No matter how old you are, what your income is, or what financial goals you hope to accomplish, a budget can be the vehicle to your success.
In this guide, you’ll learn how to budget from start to finish, with all the tips and tools you need to get the ball rolling.
How to Make a Budget
The reason you create a budget, to begin with, will have a major impact on how you structure it.
Maybe you’re tired of living paycheck to paycheck and want to create healthier spending habits, or similarly, you want to build an emergency account.
If so, your budget will likely look different than if your aim is to strategically invest in your retirement or pay down your college debt quickly.
Or perhaps you’re looking to repair or replace your car or buy a vehicle for your teen.
Whatever your goals are, map them out from day one. Knowing why you’re tracking your spending and altering your habits can be highly motivating.
Establishing your financial goals early on will help you to set realistic standards you can actually meet.
Assess Your Current Finances
With a goal in mind, you need to take a hard look at your finances to see what your daily money management currently looks like.
There are a few different numbers you need to take note of as you set out to create a budget:
- Income: As you begin your financial inventory, the first amount you need to consider is your income. Knowing what you have coming in each month will help you determine how much to spend and save. Factor in your wages, investment income, side hustles, child support, and any other payments you get.
- Spending: The next step, which might be a bit more arduous, is to track your spending. For this activity to be effective, you need to track your spending for at least a month. The longer the better.
- Regular Expenses: You also need to identify your recurring expenses, like rent, student loan payments, childcare, and mortgage.
There are a number of ways to track your spending, from using a pen and paper to typing them up in a spreadsheet. One of the easiest ways to keep track is with budgeting apps.
With an app like Mint or Personal Capital, you can connect your cards and bank account, allowing the app to log and categorize your spending.
Then they’ll break down your spending habits for you. All you have to do is check your phone.
Keep Irregular Expenses In Mind
A lot of people build a budget around their daily and monthly expenses and income, only to be caught off guard by annual or other infrequent fees.
Be sure to factor in some of the following expenses:
- Vacation: The best vacation is one that you’ve saved money for. If you know you’re going on a trip, allocate some money for it.
- Holidays: Whether it’s Christmas, Hannukah, Valentines Day, or a birthday, you’ll want to set aside money for gifts throughout the year.
- Annual fees: This could include dues to a professional organization, taxes, vehicle registration, insurance premiums, and physicals. Be mindful of these annual fees as you prepare your budget.
- Auto Repairs: This is always a frustrating topic for any family. Whether it is a simple fix like a new battery, or something bigger like a new timing belt, the unexpected expense of car repair can really throw you for a loop if you havent set aside the funds in your budget.
With your goals, income, and expenses mapped out, it’s time to build your budget. One of the first steps you need to take is to determine which of your expenses are wants and which ones are needs.
You may enjoy eating out several nights a week or grabbing Starbucks on the way to work, but you don’t necessarily need to.
Your daily needs include expenses such as:
- or anything else that you need to survive
While it’s okay to splurge sometimes, your wants shouldn’t override your needs, savings, and debt repayment. By all means, you should build money into your budget for entertainment, but make sure you fit it realistically into your budget.
At this stage in the game, you may realize you need to make bigger changes, depending on how aggressive your goals are, like moving into a more affordable home or taking on another job.
Choose the Right Budget
Financial experts recommend a number of budgeting strategies, each of which comes with unique benefits. You should choose the budget that you can accomplish most realistically. Let’s take a look at a couple of options:
- 50/30/20 budget: This budgeting method proposed by Elizabeth Warren suggests you allocate 50% of your income to needs, as defined above, 30% towards your wants, and the final 20% towards savings. This budget provides you with the flexibility to spend your given percentages however you see fit, which is beneficial for some budgeters but may be too lax for others.
- Zero-based budget: On the opposite end of the spectrum, Dave Ramsey’s zero-based budget gives every dollar you earn a specific task. This type of budget is highly regimented and helps to guarantee you don’t spend more than your budget allows.
What About Irregular Income?
If you’re an entrepreneur or freelancer, you may be wondering how the budgeting tips above fit into your ever-changing finances. While your earnings may fluctuate every month, you don’t have to live paycheck to paycheck.
You just need to create a budget to see you through the months where you’re making bank and the ones where you’re scraping by.
To do so, you still need to walk through all of the steps above, establishing goals, looking at your income, and tracking your expenses. The added step for you will be to take both your highest and your lowest monthly earnings into account to build a conservative budget.
The next step is to reevaluate all of your fixed expenses. The more of those you can trim down, the more money you’ll have to float you through less profitable months.
For you, that might look like refinancing your home, paying down debt, or cutting down on subscription services.
Another crucial part of your budget is padding your emergency fund. While everyone should dedicate resources to savings, you’re at an increased risk of needing to use those funds with inconsistent resources.
6 Tips to Make Your Budget a Success
The steps above will help you to create a budget, but that’s only half the battle. Below are a few tips to help you faithfully stick to your budget, even when the going gets tough.
#1 – Keep Tracking Your Spending
Don’t simply use a budgeting app or spreadsheet to map out your past expenses. If you continue to track the money you’re spending, you can stay on top of your budget and see if you need to make any changes at the end of the month.
#2 – Try Envelopes
While it may be becoming less popular to carry cash around, if you need help staying on track, envelopes are a great way to go. When you use the envelope method, you’re creating a physical version of your zero-based budget. Once you’ve used all the money in your entertainment envelope, for instance, that’s it.
Envelopes provide budgeters with a very practical way of spending mindfully.
#3 – Automate Your Payments
The benefits of setting up autopay can’t be emphasized enough. When you stop paying your bills manually, you don’t have to worry about missing a due date. Automating your payments also allows for easy tracking with your budgeting app.
In addition to keeping your budget on track, automating your payments can help keep your credit score on track. As a bonus, automation declutters your finances, allowing you to go paperless and stress less.
#4 – Shop Strategically
Single item shopping trips, where you run to the store for x,y, or z, can completely derail your budget. When you aren’t following a shopping list, you run the risk of buying beyond your limits.
And it’s very unlikely that you’ll walk out of the store with only the item you went in to purchase.
Instead of standing in the checkout line with an unexpected new outfit and wondering if you should buy it or not, you should create a list, set aside a certain amount of money, and shop intentionally.
#5 – Involve Your Family
If everyone in your household isn’t on board with your new budget, you’re far less likely to stick with it. Your budget should be something that you share with your spouse and kids, setting goals together and encouraging everyone to participate.
Even if you’re dating, unmarried couples can help keep each other accountable by being upfront about their budgeting goals.
#6 – Attack Your Debt Wisely
Debt repayment can put a damper on your budget and financial goals. Rather than blindly throwing money across all of your debts or merely paying the minimum, you should prioritize your debt. There are two tried-and-true debt repayment strategies:
- Debt snowball: Another of Dave Ramsey’s favorites, the debt snowball challenges you to pay the minimum on all of your debts except for the lowest one, then use the extra money to pay off your lowest debt. Is it the quickest strategy? Not necessarily, but it sure is motivating.
- Debt avalanche: The debt snowball tackles debt by aiming to pay off the highest interest rate first, which ultimately saves you more money in the long run.
Whichever method you choose. prioritizing your debts and working them into your budget strategically can totally transform your finances.
A budget isn’t meant to hold you back, but to help you thrive financially. With some planning, realistic expectations, and diligence, you can successfully create and stick to a budget.
Take advantage of budgeting apps, recruit friends and family, and put some thought into the way you’re spending.
Cutting your spending and boosting your savings may seem difficult in the beginning, but you’ll be glad you did in the future.
Other Fun Budgeting Topics For Reference!
- Take The Stress Out Of Christmas Shopping
- How the Sandwich Generation Can Stay Financially Fit
- What to Expect When You Stop Paying Your Bills
- How Much House Can You Afford?
- Financial Advice for the High School Graduate
- Back to School Money Tips for College Students
- Should You Hire a Lawn Care Service?
- How to Avoid Lifestyle Inflation
- How to Bail Out Family Members Without Going Broke