You don’t need to know a lot about money to create a budget. With these simple budgeting tips, you can easily save money and build savings.
How to Start a Budget for Beginners
Adulting sucks. You know how I know this? Because I just spent over $2,000 to pay for a plumbing fix. Underground. Which means all that money goes to something I won’t even see. Not a new phone, not a vacation, not even to my current debt. UNDERGROUND.
Budgets are one of those things that everyone knows they need, but not a lot actually sit down and create one. Or if you create one, how often do you stick to it?
I know I avoided creating a budget because I lived paycheck to paycheck for so long. Why create a budget when there isn’t money left over at the end of the month anyway? Don’t need to worry about what debt to pay off or what gets saved… there’s nothing left after bills anyway!
But thank goodness I did. Because when that quote came out of the Plumbers mouth, I was able to say “Go ahead, let’s it done”. Instead of crying, screaming, and selling my first born child.
No matter how much you make, or what your bills look like, it’s time to sit down and create a budget. Grab a glass of wine to make it more enjoyable, but just do it already!
Related Post: The Best Apps for Budgeting
Easy Steps to Creating a Basic Budget
Step 1: Write Down All your Bills
Start with the fixed monthly expenses you know about. Mortgage/rent, car, insurance, phone, cable, student loans, etc. These don’t often change month by month so they are a great starting point to see where the majority of your money goes.
Next, write down all your other expenses to the best of your knowledge. Gas, groceries, entertainment, etc. Have no idea what you spend on these things? That’s ok, I didn’t either. Try taking a month where you only use your debit card. Even if it’s $2 from a vending machine. At the end of the month, you’ll be able to see exactly where your money went and how much.
Step 2: Write Down Your Monthly Income
If you are salaried then this is easy. If you make hourly, go based on what your minimum hours worked would be. Leave out any overtime or bonuses. Any additional income such as bonuses, overtime, child support… should not be counted because they are not reliable. Save these for paying off additional debt as they come in.
Step 3: Look at Your Spending
Where is the majority of your income going? A basic principle of budgeting should follow the 50/30/20 rule. Here is how you should be organizing your budget…
Take 50% of your total income (minus taxes, insurance, 401k) and that should cover your ‘needs’. What do your needs include? (no, not a clothing allowance!) It should include things like groceries, housing, utilities, health insurance, car payment, and car insurance. All these items should not exceed 50% of your income.
If they do, try taking a look at what can be cut down. Can you refinance your mortgage to a lower rate? Can you negotiate your utilities or learn how to cut back on those? Or can you try to reduce your grocery spending?
Next, limit your wants to only 30%. Shopping at the mall vs a thrift store is a want. Cable is a want. Other ‘want’ expenses would be eating out, planning a vacation, etc.
The last 20% is for savings or debt reduction. If you haven’t heard it before, you’ll hear it again… it’s so uber duber important to have at LEAST $1,000 set aside as an emergency fund. Take that last 20% of your income and work towards that until you have the full amount. Once you do, move on to paying off debt.
You might also be interested in Easy Ways to Pay off Debt Fast!
Don’t confuse your needs with your wants!
A car payment is a need but any money over the monthly payment is considered a debt reduction. Same goes for credit cards. The minimum payment you make towards a credit card should be included in your ‘needs’ but any payment over the minimum can come out of your 30% debt reduction fund.
Ok… continuing on!
Once you have your debt figured out, it’s time to start looking at how to tackle it. Write down the debt you have that you want to pay off. Give yourself a goal. Whether it’s a credit card, student loans, or your car payment… have something to work towards.
This is where I highly recommend Dave Ramsey’s Debt Snowball. Take your smallest debt and work towards paying that off. Once that’s paid off, take the next debt + the amount spent on the one just paid off, and pay the next one off. Keep going until every debt is paid off.
Step 4: Stop spending money!
I don’t think we realize it very often, but budgeting and paying off debt can be really easy if we just remember to stop buying things in the first place. Learn how to put your credit cards away and operate in cash. Therefore, once it’s gone, it’s gone.
However… if you are paranoid or even forgetful like me and worry about losing cash, then try only using your debit card. Leave the credit cards at home!
Step 5: Find Ways to cut back.
There are many ways to cut back expenses.
- Call your utility companies and negotiate your bills. It’s not always easy to do with things like electricity or water. However, you can negotiate cable, internet, and phone services.
- Sell unused items. It’s a great way to not only earn a little extra money but to also clean out your house.
- Cut back on groceries with coupons or money-saving apps.
- Learn how to shop generic. This goes for food AND clothing.
- Learn more about money and budgeting apps that automatically save money for you.
- Rotate your credit card balances to cut your interest. Interest on credit card balances is what keeps us in a debt cycle we just can’t get out of. If you have decent enough credit, find a card with a 0% interest rate for balance transfers. Then, transfer your balance onto that card and keep paying it down until the interest-free period ends. At that point, transfer it back to your original card for another 0% interest-free period. If you keep doing this back and forth every 12-18 months, you’ll essentially never pay interest. Making your credit cards a heck of a lot easier to pay off.
Need More Help?
If all of this is still overwhelming, get some help! Download a copy of the 90-day Budget Bootcamp Workbook and have a basic budget all laid out for you, step by step. Don’t put off until next year what you can start today. Starting a budget today can mean a better year and an easier lifestyle before you know it.