The word “budget” can come with a bad connotation for a lot of people. This group assumes it means they can’t take a vacation, or buy the latest technology, and they don’t look at it practically. Of course, very few people enjoy budgeting, but it’s something that we can’t afford not to do.
Instead of thinking about budgeting as a negative, consider all of the positives that can come from it. You’ll likely find yourself less stressed about money and more confident in your ability to save for the future. Without a spending plan like a budget, you may notice your paychecks disappearing from your bank account, without remembering what you even spent them on. If this sounds familiar, you’re probably in need of a budget as soon as possible.
In this guide, we’ll help you start your first budget with easy-to-follow tips and tricks. Read on!
Ask Yourself Why You’re Starting a Budget
Most people don’t actually want to start a budget; they need to start a budget. If you don’t know why you’re saving, it can be difficult to stick to a budget and take your finances seriously. In this case, it’s important to outline the potential reasons why you might need a budget. Maybe you have a reckless spending problem and you want to have better control over your finances, or maybe you want to purchase a house in the future.
Everyone’s reason for why they need a budget will be different. Your reason can be simple, or it can be as complex as saving for your dream life.
There are some things that we can’t live without such as a car, food, and a roof over our heads. Figuring out what your priorities are will help you set your budget and stick to it. Many people have a wide variety of financial goals. Make sure to write down your aspirations so that you can visualize how to accomplish them.
Throughout this process, it’s important to be honest with yourself. If your priorities are dishonest, you’ll feel conflicted about making important decisions about your spending habits.
A great way to start your budgeting process, and get ahead of the game, is to set aside funds for taxes. If you know that you’ll owe taxes at the end of the year, make sure you’ll have enough saved to pay them. You can determine how much you’ll owe using professional tax software that can help you determine how much you’ll need to set aside.
Start Tracking Your Spending
You likely have the same bills every month, including a car note, rent, groceries, utilities, and more. If you know these numbers off the top of your head, write them down. If your credit card bill drastically changes each month, look at the last few statements and come up with an average number for your credit card spending.
To start a budget, you’ll need to first know where your money goes. Luckily, you can track your spending online easily. If your bank doesn’t provide a service for tracking your spending, you can download an app that will allow you to do so easily. It’s a small feature that’ll go a long way when it comes to saving money.
Determine the Type of Budget
You can create a budget for yourself with any system you like, but first, check out these popular budgeting tips and tricks:
The 50/30/20 Rule
When using this rule, 50% of your paycheck goes to your needs, such as housing, utilities, groceries, and debts. 30% is recommended to go to non-essential ‘wants’, such as new shoes or anything else that you feel improves your quality of life. The remaining 20% will then go towards your savings. Savings are important to have because they allow you to save for the future, or have an emergency fund.
The zero-sum budget means that every dollar has a purpose, and the amount coming in plus the amount going out will add up to zero. For example, if you bring home $5,000 every month, you’ll need to break your spending into different categories. If you have additional money remaining, you’ll assign a task and category for that amount as well. This budget style is very strict and leaves nothing up to chance. It’ll require willpower to make sure you stick to it.
The anti-budget plan may sound ideal for those of you who don’t want to budget at all, but trust us- it’s still a budgeting method. You can consider this as a ‘pay-as-you-go’ budgeting style. You’ll start by saving money before spending the remainder of the sum.
The money flow budget requires effort, but also some trial and error. Once you determine how much money you need to cover your monthly expenses, you can create a money flow plan. You can pay all of your bills from your checking account so that money flows in on payday and out when you have bills due. You’ll need to set up all of your fixed expenses on auto-pay to ensure this works, and payments are received on time.
Next, you budget the rest of your income so that you only need to monitor your discretionary spending. It might be easier to track if you move this money to a separate account so that you know exactly how much you have. With this budget style, it’s important to review your spending regularly and adjust it if you’re not making progress on your goals.
Commit to It
There’s no use creating a budget if you’re not going to commit to consistently following it. Remember, your budget is not set in stone and can always be readjusted. However, you should make a promise to yourself not to adjust your budget unless it’s absolutely necessary.
Additionally, when creating a budget, consider what types of circumstances might call for a budget adjustment. This could include something such as moving to a new home, loss of a job, any type of emergency, etc. You never know what could happen in the future, so make sure that your budget is also flexible.
A budget can change your life for the better, and give you financial freedom and help your credit score. While it can be difficult to stick to at first, the stronger your commitment, the better you’ll be at using your budget and ensuring that you’re in control of your finances.