I recently shared why traditional budgeting doesn’t work for me. However, that has not always been the case. Having a budget was a great guide when I was new to personal finance.
Perhaps this is your first time budgeting and you are trying to get an idea of what that looks like in your life. I want to present my first-timer’s guide to budgeting. You veterans might learn a thing or two as well!
Step 1) Get in the right mindset
Contrary to popular belief, budgeting is not meant to control you or even limit what you can spend. A budget is not a leash. You are not chained to the confines of an Excel sheet or budgeting app.
Budgeting is a way for you to monitor your regular spending and provide you with the data necessary to make informed decisions. Going “over budget” in one category does not mean your month is blown. However, it does give you the nudge to freely decide how to balance the deficit from another spending category.
Your budget’s role is to keep you mindful of the amount of dollars you are spending in each category of your life. It might be the catalyst to launch you into financial success! Therefore, the word “budget” should be associated with positivity and motivation 😊
Step 2) Figure out your expenses
Keep track of what your regular bills are (both the category and the expense). Use an Excel sheet or just make your own list. Here are some things to remember to include:
– Groceries
– Dining Out
– Entertainment
– Clothing/recreational spending
– Auto Insurance
– Gas/electric
– Water/sewer
– Trash/recycling service
– Rent/mortgage
– Internet/phone
– Pet care
– Travel expenses
– Emergency fund additions
– Gifts/charity
– Memberships/subscriptions
I KNOW you have either Prime, Netflix, Hulu, Disney+, cable, Apple Music, gym membership or something. Don’t forget to list all of them!
Scour your banking and credit card spending history. Many institutions put your spending into categories for you. Make sure you don’t have a regular expense that goes undocumented.
Remember: Your checking/savings account should not just cover your monthly expenses. You NEED an emergency fund that covers 3 – 6 months of living expenses. That way, when an emergency occurs that you weren’t budgeting for, you can confidently (and calmly) cover it. Make a habit of adding a little money each month to build your emergency savings back up. And, if you haven’t yet built up your emergency fund, add into your budget an amount of monthly savings to boost that account!
Step 3) Time for some self-reflection
Look at the list of expenses you just wrote down. What does that list say about you? Are your personal values supported by your spending habits?
Look at the list of expenses you just wrote down. What does that list say about you? Are your personal values supported by your spending habits? Click To TweetI’m a huge fan of Marie Kondo’s book, Tidying Up, and how she states that all your possessions should “spark joy.” This applies to finances too. Do you look at your list and feel good about it? If not, now is the time to make a change.
If you are already content with your spending habits, then perfect. Don’t change!
Remember, a budget’s primary purpose is to support your existing spending goals. It’s not a financial corset trying to shape you into something you’re not.
Step 4) Put your plan into action!
Note: I’m not suggesting anything new or unique here. I can’t make a budgeting tool better than what’s already available to you online. I will highlight tools that I’ve either used myself or heard positive feedback on, and you can decide for yourself what works for you!
Mint.com – It’s simple, free, and available on your phone.
YNAB – It’s affordable, offers a free trial, and provides some education.
Excel spreadsheet – It’s completely adaptable to your wishes. However, it’s not as convenient to track on the go.
Envelopes – I would only recommend this in very specific circumstances. However, some people have experienced success with envelopes for each discretionary spending category and filling them with actual cash each month. You are only “allowed” to spend what is in the envelope. If your goal in maintaining a budget is to focus on paying down debt, this method typically brings a lot of success!
Your friends – It seems that everyone has their own little budgeting secret that has worked for them. Ask around among your friends, family, and coworkers and see what tools they have used and enjoyed. Try a few methods out to see if they work for you too.
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If your first attempt at maintaining a budget is a bust, don’t panic! It just means that particular method wasn’t right for you. Give yourself time and grace. It is so important to build a solid foundation for your financial future, and this is where it starts!
