How to Budget for Beginners : Step by Step
Did you know that only 41% of Americans are likely to use a budget. Many of which actually admit to not knowing how to even begin to budget their finances. It’s a simple task once you get the hang of it. But, it does take work.
Budgeting isn’t just for those who are sparse on cash, many wealthy people budget their finances as well! Budgeting not only helps you prepare for mishaps or everyday spending, but it also keeps you and your income on track.
If you’re looking for a simple way to get started with budgeting, we’re here to share with you our easiest method to get anyone on board. It only takes 4 simple steps! All you need is a pen and paper!
This is a monthly budgeting plan – but you can also replace with weekly or bi-weekly! (Picture below for visual purposes)
- Income – Make a list of every stream of income you have coming in for the entire month. This includes job wages, sales commissions, tips, – and any cash that you normally use towards your everyday expenses.
2. Bills – The very first step to not only having good credit, but also having a peace of mind, is paying bills first. This includes rent/mortgage, gas, electric, water, insurance, phone, internet, hospital, student loans, and credit card bills. After all, many of these are a necessity and/or help us with day to day tasks! List all bills you pay throughout the month, along with the amount.
3. Subtract – Now that you have all your bills listed, subtract them from your income. Bills are usually between 40%-70% of our income, the lower the better. Your total bills should never be more than your income, so you should typically have a good remainder.
4. Allot – This is where the actual budgeting comes in. On a daily basis we spend money on everyday expenses like gas for driving or dinner out with friends. These expenses are exactly what budgeting is for – so we don’t go overboard. Separate your expenses into categories and jot them down, then organize them by priority (not amount). Your basic category list may end up looking similar to this::
Out to Eat:
You may notice that we have savings listed first. You may have it last on your list, or even in the middle. I was always taught that savings are priority after bills because they go towards your future and your goals. Whether you’re only saving $5 or $500 for the month, you’ll always have a comfort in knowing you have money set aside.
Groceries are next, as of course, we all need to eat. Gas for driving back and forth to school/work. The fun budget is allotted for things like movie or concert tickets, basically any leisurely activity you may spend time doing throughout the month. We do have a budget for going out to eat on days that we are short on time for cooking, or for birthdays and special occasions.
Many people forget to include a miscellaneous category– which almost always is the missing link when it comes to sticking to budget. Any expense or item that doesn’t fall into the other categories will be considered part of the miscellaneous category. This may include trips to the nail or hair salon, shoes, clothes, wine/beer, oil changes, birthday/anniversary gifts, and even furniture.
Set a specific amount for each of the above categories and dispense money to each using the envelope or jar system. Consider diving the amount into 4, (for each week per month) so you can have a set amount to set aside each week. This way you’ll have cash ready when you need it.
As you can see above, we ended up with an amount left over after bills and expenses. We call this the remainder. Many people like to use this amount as paying off debts, saving for vacations or children’s college, or put towards an investment. Whatever you decide, put your money to work!
Remember, the main idea of having a budget is so that we can train ourselves to live inside our means, and know our limits on what we can/should spend. Personally, budgeting has kept me on track and has enabled me to meet many financial goals. There are many different ways to budget out there, but I have found this to be the simplest – and most successful – for me!
More tips, info, or tricks? Did this work for you? Let us know what you think below!
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