I never liked to budget because that meant getting real about how much money I didn’t have. It was this way of thinking that got me into trouble. I ended up buried in debt with seemingly no way out. It wasn’t until I made a change to my thought process that I saw the light at the end of the tunnel and that’s why budgeting for beginners is so important.
Let me start with this:
What is a monthly budget?
Despite being a major factor in personal finance, many people don’t know what a budget actually is.
Simply put, a budget is an estimate of your income and expenses for any given month.
Knowing this allows you to make more financially sound decisions like whether or not to hit up that fancy restaurant or just make the same meal you would have ordered at home for a portion of the cost.
Which brings me to:
Why do I need a budget?
Nobody will ever tell how great it is to find yourself in need of cash for an emergency but not have it. I sure bet they’ll say how dang awesome it was to have money in the bank when their furnace stopped working or a leak sprung in their roof. Emergencies aren’t the only reason you need a budget, though.
Other reasons you need a budget include:
- To Pay Off Debt
- Saving for College
- Saving for Retirement
- Vacation Planning
- Birthday Party Planning
- Saving for a Home
Budgeting for Beginners: What do I need to get started?
You will need the following to get started:
- Pay Stubs for the month
- Monthly Statement for Bills (electric, water, cable, phone, etc.)
- This Free Worksheet
- A Pen
Now that we’ve covered the Basics of Budgeting, let’s get to it.
Pull out your pay stubs for a month and add them together. *Make sure you’re adding your net income, the amount actually paid to you after taxes are taken out.
Next, add all of your fixed expenses together using your bank statements and bill statements. Fixed expenses include:
Fixed expenses can include:
- Insurance – Home, Car, Life, etc.
- HELOC (Home Equity Line of Credit)
- Auto Loan(s)
- Student Loan(s)
- Property Taxes
- Education Expenses
Now, we’ll move onto you variable expenses that can include:
- Savings – Personal, Investment, IRA, College, 401(k), etc.
- Credit Card Payments *if you have high-interest rates, consider signing up (for free) with Credit Sesame, they’ve helped me find cards to do a 0% Balance Transfer
- Transportation – Gas, Parking, etc.
- Child Care
- Household Utilities – Water, Sewer, Trash, Cell Phone, Home Phone, Cable, etc.
- Living Expenses – Groceries, Clothing, Hair Cuts, Lunches, etc.
- Medical – Insurance, CoPays, Prescriptions, etc.
- Entertainment – Eating Out, Movies, Vacations, etc.
The last think we’ll do with our budget worksheet is subtract all expenses, both fixed and variable, from your total net income.
It should look like this:
Total Income – Fixed Expenses – Variable Expenses = ______
The total is what’s left after you’ve paid all of your monthly obligations. Put it towards an emergency fund if you don’t already have one of at least $1,000 or if you do, put it towards your next savings goal.
Congratulations! You’ve just made your first budget.
After I’d mastered budgeting on paper, I moved on to Mint and couldn’t be happier with it. I can track my spending and create budgets, heck, I can even pay my bills! It’s super convenient for me and I think it will be for you too.
What to read next? Try: