Yes, I do know. Budgeting isn’t exactly the most exciting topic. I’m not joking. A simple budget can be a huge help to your bank account and to you. This guide will help you get started with budgeting.

Let’s first look at the reasons why you need a budget.

What are the benefits of budgeting?

Budgeting is about having a plan. Budgeting is just a plan to manage your money. This plan removes the anxiety and stress from managing your finances.

This plan shifts your financial focus away from reactive, immediate, and short-term spending to a long-term perspective. It changes your outlook. A blueprint is essential for any homeowner who wants to build a house.

Without a plan, money habits can be chaotic and unpredictable. A plan is essential if you are unsure of where your money is going. This plan will ensure that you have enough money to buy the things you want and need.

This will allow you to create a plan to pay down and stay out of debt.

How can you create a budget?

Budgeting for beginners can be divided into two phases.

• Keep track of what you’ve been spending
• Plan for how your money will be used in the future

1. TRACKING YOUR SPENDING

Look at the transactions from your credit cards and bank accounts for at least one month to get an idea of where your money is going.

This should not include your monthly bills. This should only reflect the variable amounts that you can control.

Take a look at the transactions and note the dates and amounts for groceries, clothing, and any other spending. Find the total for each column. 

Here’s an example for a month’s worth of spending:

• Groceries:            $700
• Restaurants:        $400
• Clothes:                 $120
• Miscellaneous:     $250

Total. : $1470

Although you may be surprised at the final total, it is important to know where you are starting from. It is possible to reduce your spending.

Let’s make a budget now that you know where your money is going.

2. CREATING A MONTHLY BUDGET

Step 1: Calculate your monthly earnings

Keep track of your monthly income, from all sources. This includes your regular paychecks and any money that your partner brings home. It also includes what you make if you have a side business.

This amount should be your take-home salary and not just the gross. Your take-home salary is what you get after taxes and other deductions.

If your salary isn’t always the same, you can either base your budget earnings on the least amount you make per month or simply take an average.

Example:-

• Income 1:                $2500
• Income 2:                $1500
• Extra Income:       $240

Total Income:     $4240 per Month

Step 2: List your fixed costs

Fixed expenses are those that are the same each month. Fixed expenses include your mortgage, rent, car payment, insurance, utilities, cell phones, cable, and other monthly costs.

Enrolling in the ‘budget wise’ program offered by your gas or electric provider can help you budget.

The average of your monthly utility bills is used to calculate your monthly expenses, which you pay each month.

This will help you stay organized and give you a clear picture of what it is you’re actually paying for. It also ensures that you don’t receive an unexpected $309 bill. 

Add up the fixed expenses once you have them listed.

• Mortgage:                       $1200
• Utilities:                           $300
• Cell:                                  $200
• Internet –                        $80
• Auto payments:            $600
• Car insurance:                $180
• Student loan scheme:  $250
• Credit card:                     $29
• Netflix, Hulu, Spotify:    $27

Total   : $2866

Step 3: Find out what’s left

Once you have added up your income, totaled your fixed costs, then subtract the expenses from the income

[Total income -Fixed expenses] = Variable spending

$4240 – $2866 = $1374

Do you remember how we kept track of your miscellaneous / variable expenses in the beginning ? Let’s take a look at that total ($1470) .You may begin to see the problem if your budget looks something like the one above. For those who don’t see it yet, let me explain. 

If you have $1470 in variable miscellaneous expenses and only $1374 in your budget after paying off all your fixed expenses, then you are in the red.

Many people find themselves in financial trouble by spending more than they earn. Let’s get it fixed.

Step 4: Create your financial goals

Once you have taken a hard look at where your money is going, you can decide how to use it. What are you looking to change about your financial situation?

How can you make your finances more manageable? Paying down debts such as student loans, credit cards, and car loans will make your budget more flexible. You’ll also save money on interest.

An emergency fund is essential. It is essential to have at least $1000 in emergency funds for unexpected situations such as car problems, medical bills, and household repairs.

If your short-term financial goals are to pay down your credit card debt and save money for an emergency fund, then maybe your first four months of budgeting will include the following:

• Set aside $250 per month to be used for the emergency fund
• Set aside an extra $150 on Credit Card payments.

You will have more money to reach your goals if you spend less on the variable and miscellaneous items we mentioned.

Step 5: Adjust Your Spending

Now that you know how much money is left after paying your bills, it’s time for you to decide what you will do with it. The remainder must be used to buy food, keeping in mind your goals. This means food, not fast food or restaurant food.

You should not budget for expensive entertainment such as tickets to concerts, movies, theme parks, casinos, and other venues.

There are many ways to have fun at a low cost. This is especially true if you are in debt or have very limited savings. You shouldn’t see any of this as a punishment. By holding back rewards, you are rewarding your debt-free self. 

You can feel empowered by the changes you make, as it is entirely within your control to adjust how much you wish to spend.

You will be able to spend less money and reach your financial goals quicker if you do this.

Step 6: Make more money

Consider making more money if you have more bills than income. There are likely skills that you have that someone would pay for.

Many people have more time than they do money. The reverse is true for the same majority. That’s where you come in to provide the service and get paid. 

Conclusion

We did it. This budgeting for beginners guide will help you create your smart financial plan.

Now you have logged your spending, tallied your income and fixed expenses, and decided how to spend the remaining money. Now you have a budget. This is all there is to it.

If your income or expenses change frequently, it’s a good idea to make a new budget every month.

You will soon see the benefits of a budget. You can feel empowered to make changes in your financial life.

Cheers to the new budget.