I created a budget for the first time after graduating from college. I wish I could say it was because I was trying to be financially responsible and proactive with my money, but the reality was that I was drowning in student loan debt. I needed a way to track my small income and the large expenses that hit my bank account each month. Ten years later, even after paying off my debt, I still use a budget to track my monthly income and expenses. Why, you may ask. Because the budget works.
How to make a budget for beginners
A common misconception is that staying on a budget is the same as being restricted. But actually, creating a budget allows you to spend your money on the things you care about (also known as value-based budgeting). Tracking your income and expenses each month or pay period can help you better understand where your money is going. It helps you stay focused and accountable for achieving your financial goals.
But budgeting isn’t a skill many people learn growing up, so it can seem scary to start. What I’m trying to say here is that you don’t need to be a financial planner or a money expert to create a budget that works for you. If you’re ready for Budgeting 101, let’s get down to business and help beginner budgeters manage their money effectively and easily.
identify your values
The first thing you need to do when you start creating a budget is identify what you value. What motivates you to start a budget? Maybe it’s to save up an emergency fund, pay off debt, plan a vacation, start saving for retirement, start investing, or just start spending and saving more. such as proper management.
Taylor Price, Afterpay Brand Ambassador and Founder savvy & Priceless Tayis a globally recognized Gen Z financial activist and money mentor. She has helped over 1 million of her Gen Zers budget, start saving, pay off debt, and invest. “Making a budget is like getting a GPS for your money. It helps you track those money and put them in the right place,” she shares. “Have you ever tried driving in a new place without directions? It must be pretty difficult to do so! Creating a budget can reduce stress and improve your finances because you know exactly where your money is going. It will be easier to reach your goals.”
Once you know what your priorities are and what you’re trying to accomplish within your budget, you can move into the process with confidence and clarity.
Understand your income and expenses
Before you start creating your budget, you also need to have a clear idea of your numbers. Understanding your cash flow, spending habits, expenses, monthly bills, and savings habits will help you create the most accurate budget to reach your financial goals. Identify recurring bills and fixed expenses (i.e. expenses that are the same every month, such as rent or car payment). If you can’t keep track of your numbers, create a money diary to track your weekly or monthly expenses and record where your money goes.
If you don’t know where to start, we asked Taylor Price what’s the first step you should take when starting to create a budget, and Taylor replied: “First, it’s time to figure out your spending habits.” She details how to do this. “Check out your spending, whether it’s your online girlfriend’s banking, your receipts, or that crumpled Starbucks receipt at the bottom of your wallet. It’s like staring at your very own CSI: Budget Edition.” Think about what you need (like rent or avocado toast) and what you might not need right now. This will help you prioritize your spending. ”
set realistic goals
Once you understand what’s important to you, your financial accounts, and how you spend your money each month, it’s time to set your goals. The key here is to set realistic goals. While you might want to tackle thousands of dollars in debt or save up three to six months worth of emergency funds, the reality is that it takes time.
To set yourself up for success, you need to set smart, realistic goals, like saving $100 a month or matching your paycheck with an extra $50 toward debt. If you set a goal to save $5,000 for your emergency fund, it may feel unattainable and you may lose motivation if you feel like you’re contributing little to your balance. But when you set SMART (Specific, Measurable, Achievable, Relevant, and Time-Based) goals, you’re more likely to stick to your plan. An example of a SMART goal is, “This year he would like to save $1,200 toward his $5,000 emergency fund goal by contributing $100 each month.” This is a realistic goal that you can stick to and it will give you confidence knowing that you are on track.
Choose a budget plan
Now let’s get to the reason you’re probably here: choosing and building a budget. First of all, let me say that the best budget is one that you can stick to. There is no one-size-fits-all budget or one that ultimately covers everything. You need to find the one that suits you and your financial goals. “Determining your budget is no different than finding the perfect shoe; it’s all about the right fit,” explains Taylor Price. But everyone is different! Find a plan that fits your lifestyle and financial goals. ”
First, let’s take a closer look at an overview of some of the common budgeting methods available.
- 50/30/20 budget: This method divides your money into 50% needs, 30% wants, and 20% financial goals (saving, investing, paying off debt, etc.). Divide your total income into these percentages to determine where to focus your money.
- zero based budget: In this method of budgeting, every dollar is allocated to the items in the budget. This is a great way to incorporate it into your spreadsheet. Start with your gross income and subtract all upcoming bills, expenses, savings goals, etc. until every dollar is allocated to: budget categoryThat leaves zero.
- Pay your own initial budget: This method is exactly as its name suggests. Get paid and pay yourself first. That means you’ll instantly put money toward your monthly goals. This will ensure that you are making progress towards your goals without having to spend any money. Then use the remaining balance to pay bills or spend.
- envelope budget: of envelope budget system A cash-based budget approach. If you’re using a card to pay for expenses, it can be difficult to get a clear picture of how much you’re actually spending. To better manage your money, use only cash to pay your bills and assign envelopes to each budget category. Decide on an amount for each category and put that amount of cash into each envelope. And once the money is gone, it’s gone.
Again, the best budgeting method is one that you can stick with no matter what season you are in life. What works for you today may need to be tweaked or updated to fit your future lifestyle in five years. The best way to find out what works best is to start and repeat as necessary.
automation, automation, automation
If you’re setting savings goals, automation is your friend. This is useful for both contributing to a savings account and investing in retirement or other future plans. Start by deciding how much you want to contribute each month or pay period, set it and forget it. Automation ensures that you have funds available to reach your goals because you are paying yourself first. This is especially important if you’re working on saving for retirement through an employer-sponsored retirement account, such as a 401(k) or her 403(b). By automating your contributions to these investment accounts, you’ll never even see your money arrive in your bank account, ensuring you’re making steady progress toward your goals.
Most companies also allow you to automate your invoices. In some cases, you may be able to choose a payment date that best fits your schedule. This helps you pay your bills on time and stay on budget. However, if you want more control over your money, you may want to hold off on automatic payments until you’ve settled down. Personally, I prefer hitting the pay button every month to monitor the bill payment process, but some people are big believers in automatic payments.
Track your progress
The point of a budget is not that you create it and never touch it again. Budgets should be reviewed, reevaluated, and adjusted regularly. The best (and most fun) way to do this is to establish regular money check-ins. Think of it as a money date, where you sit down, check in on your money, and practice true self-care (getting right with your money).
Grab your favorite takeout or drinks, enjoy some great music in the background, and look forward to an expensive date. These dates can be set once a month or every time you get paid. I take mine with me every time I get a paycheck and make sure to track where all my money is going. Do whatever it takes to make these money check-ins work, as long as you do them regularly.
Best budgeting app for beginners
One of the most frequently asked questions about budgeting is where to track your money. I’m a big fan of spreadsheets and use them to manage my budget, but there are many useful budgeting tools that allow you to manage your money in an easy and resourceful way. Here are six budget apps to check out to get started.
This free household budget app lets you link all your accounts to monitor your spending, track your savings goals, and stay on top of your debt repayment progress. Set your budget within the app and instantly see your progress. I love how the app creates a clear financial snapshot by linking all your accounts and categorizing them into categories such as cash, credit cards, investments, real estate, and loans. This is a very powerful tool for all your financial needs. You have the option to upgrade from the free version for additional features such as no ads.
Similar to Mint, You Need a Budget (YNAB) is a mobile app that syncs your financial accounts and easily tracks your spending. YNAB offers a 34-day free trial before choosing an annual or monthly plan. The app also offers expense and net worth reports, as well as goal tracking and loan calculators. I love that this app allows me to reflect on my immediate, short-term, and long-term priorities and allocate and spend my money accordingly.
If you use a zero-based budgeting approach, the EveryDollar app will be your best friend. This app allows you to allocate any amount to a budget category, hence the name. I love how easy it is to budget, especially for beginners. The app offers a free version or a premium version with a 14-day free trial before signing up for a monthly or yearly plan.
Nerdwallet’s team of experts has developed the Nerdwallet app to help you reach your money goals. It has similar features to other household budget apps, including tracking expenses, savings, net worth, budget, and more, and it’s free. I love that I can track my credit score within the app so I can constantly monitor my credit score improvement if I’m about to make a big financial decision like buying a car or a house.
Quicken’s Simplifi believes in making personal finance simpler. You can connect all your accounts to make budgeting easier. This app includes budget planner and money management features to help you stay on track. The app offers a 30-day free trial so you can try it out before signing up for a plan. We like that this app was developed by Quicken, a trusted personal finance management application. So you can tell they created it with the end user in mind.
If you decide to try the envelope method, download the GoodBudget app. This app modernizes the envelope method, allowing you to create virtual envelopes to organize your budget. Personally, I love that the app allows me to be more conscious of my spending and stay on track towards achieving my goals without having to physically use envelopes. A free version of the app is available and you can purchase the premium version for additional features.