Budgeting Guide: How to Create a Budget You Can Live With

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If you’re having trouble managing your money, you’re not alone. A GOBankingRates survey found that 40% of Americans have less than $300 in savings.

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If you don’t accumulate money in an emergency fund, it will be much more difficult for you to manage unexpected expenses. The best solution — budgeting. There are many ways to prepare a budget that meets your needs, especially if it’s your first time.

Take a look at this guide to help you get started.

What are the benefits of budgeting?

Budgeting doesn’t mean winding up and never having a latte again. In terms of how budgeting helps, this means:

  • You know how much money comes in and how much goes out. Depending on your priorities, you decide how much you want to spend on flexible spending.
  • You have a roadmap for your short and long term financial goals. After budgeting for your living expenses, you find money for other goals, like saving and paying off debt.
  • You understand what your income and expenses are. You avoid arriving at the end of a month and wondering what happened to your money.

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Types of budgeting methods

When it comes to tackling budgeting, there is an option for everyone. Here are some popular methods:

  • 50/30/20: Developed by Senator Elizabeth Warren, this budgeting method allocates 50% of your income to your needs, 30% to your wants, and 20% to building savings and paying off debts.
  • Zero-Based Budgeting: With zero-based budgeting, you allocate all of your income so that your income minus your expenses equals zero. Every dollar that comes in has a function.
  • Envelope method: Popularized by Dave Ramsey, this method uses cash in envelopes to control spending. Each spending category has an envelope, and once the money runs out, you stop spending.
  • Flexible budgeting: With a flexible budget, you reallocate your income and expenses as they change. This allows more flexibility, but it takes more time to manage.
  • Static budgeting: As the name suggests, a static budget stays the same even as your income increases.
  • 80/20: You focus on setting aside 20% of your income for savings. Everything else comes from the remaining 80%.

How to create a budget

Monthly Budget Template

Budgeting and forecasting isn’t always easy, but knowing where to start can help. These step-by-step instructions on how to create a budget will help you get started:

Steps to create a budget

  1. List all of your current expenses.
    • Start by budgeting for living expenses like housing, food, and transportation.
  2. List flexible and recurring expenses and debt repayments.
  3. Add up your after-tax income.
    • Include income from your spouse or partner and from full-time jobs, side businesses and other sources.
  4. Use your priorities to save money. Your priorities might include:
    • Overall financial stability
    • Setting up a savings or emergency fund
    • Saving for retirement
    • Pay off the debt
    • Saving for a major purchase like a house, car, education, or starting a business
  5. Record and track your expenses.
    • You can use a notebook, spreadsheet, or budgeting app. The important thing is to track your spending and note where you deviated from your plan.
  6. Adjust as needed.
    • Over time, you will learn how to improve the budgeting process so that it better reflects your goals and priorities.

Budgeting tips for beginners

The best budget is the one you can stick to. Here are a few tips.

What is a good budget for you?

You want a realistic budget. You may want to start with a few broad spending categories and narrow them down as you learn your spending habits.

An elaborate budget may not be realistic. It’s OK to start slowly and with small goals. Even adding a small amount to savings each week adds up over time.

Choose a budgeting method

The 80/20 budget is a good starting point since it is intended to help you build your savings. The 50/30/20 budget is another beginner-friendly option because it helps you focus on what’s important: covering essential expenses, saving, and paying off debt.

Any budgeting method can work, but it may take some experimentation to find the one that’s right for you.

Use budgeting tools and apps

Many banks offer tools to automate recurring payments and analyze your spending. You can also check out the many budgeting apps available. Check user reviews and forums to see what works best and what is reliable.

Avoid fads

Finance gurus are constantly offering what seems like exciting new budgeting advice. While it may be tempting to switch to a new method, it’s best to stick with what works for you.

If you are a long-time user of an application or method, you have an established history that you can use to inform your decisions. If you want to try a new app or method, think about what sets it apart from what you’re doing now. Is it really better? Is it friendly? If so, make the switch slowly.

What to consider when setting a budget

Income and expenses may vary from month to month. Preparation is key to overcoming them while staying within your budget. Consider the following factors that could affect your budget.

Irregular income

Budgeting can become a problem for freelancers and commission workers. It could also come into play with a side business. Once all monthly budget items are covered, that money can be used to pay off debt, needs, or savings faster.

Irregular expenses

These expenses are predictable but infrequent. Examples include property taxes and periodic car maintenance. You can budget the amount in a specific month. Or, if you have less flexibility, a monthly contribution to this eventual expense might work better.

Emergency room

These are irregular expenses that you cannot predict, such as a visit to the hospital or damage to your home from a storm. Create an emergency fund for these items by setting aside a percentage of income or maintaining a fixed amount in your savings account.

How to improve your budgeting process

When it comes to knowing how to budget and save money, you’ll find it’s an ongoing process. The best approach is to work regularly to improve your approach. Here are a few ways to do it.

Weekly and monthly monitoring

Each week, reach out to other spenders in your household to get on the same page with your income and expenses for the week.

Budgeting and forecasting should take place monthly. Look at the previous month and assess your spending against your budget. One way to do this is to:

  • Create a column for your spending budget
  • Create a column for your actual expenses
  • Determine the percentage you spent in each category
  • Calculating the difference between your budget and your actual expenses

Adjust and reassess

Use your monthly tracker to decide your budget percentages for the next month. Review the categories in which you overspent and allocate funds or reduce spending in those categories.

Build a habit

Determine if the method or app you used last month worked for you. Check your budget on a regular schedule. Set alarms or calendar appointments to monitor your budget.

Think about budget mistakes, but don’t let them hold you back. Regroup and keep going to achieve your financial goals.

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About the Author

Will Healy is a freelance business and finance writer based in the Dallas area. He covered a variety of finance and current affairs topics, including the stock market, real estate, insurance, personal finance, macroeconomics and politics. Will holds a Bachelor of Science in Journalism from Texas A&M University, a Master of Science in Geography from the University of Northern Texas, and a Master of Business Administration from the University of Texas at Dallas.

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