Budgeting and saving are pillars of wealth. Budgeting is not difficult. It helps you to reach financial freedom. You don’t need to be a financial expert to make your own personal budget. By reading this, you have done 1 step to make a budget as a beginner. Budgeting helps you to live comfortably within your mean. Budgeting helps you to save money for your goals. | How To Make a Budget For Beginners?
To start making a budget, there are 4 steps which are identifying your financial goals, adding up your income for the month, and determining your expenses, it must include savings and expenses. The last step is to balance your income and expense. If it’s not balanced you must find that must be adjusted to your budget. Following are details of those steps to make a budget.
How To Make a Budget For Beginners [Beginner Guide]
1. Determine your income (add up monthly income from all sources)
If you have income through employment, your spendable is your earn/salary minus taxes. However, if you have many sources of income, calculate how much money coming in and the date to see how often you earn (weekly, monthly, or yearly).
2. Add up your expenses (regular + variable expenses)
Categorizing your expenses is the next step. You must identify where’s your money go for. Following is an example of regular and variable expenses:
Regular or monthly expenses:
- Rent or mortgage
- Medical and Insurance
- Transport (fuel / public transport ticket bill)
- Family costs such as child care or school/college fee
- Loan repayment
Variable expenses can change month by month:
- Household expenses like groceries
- Gas, electricity, internet and phone bill.
- Pet cost
- Car/house repair
You can create a habit to record your daily spending on small paper notes or phone notes. You can also install budgeting apps on your phone.
3. Subtract expenses from your income
Remember to make your expenses less than earn. So the balance must be positive, if it is minus, you must reconsider your expenses). You can cut back on variable expenses such as groceries or gas by finding substitutes with lower prices, or lowering consumption. The money left after expenses is your reward for your saving and “wants” such as entertainment or hobbies.
4. Set realistic saving goals
After calculating, you must set the goals. The goals of sort and long-term goals. Sort term should take about one to five years to achieve such as rent payment, insurance, loans, debit card payment, personal goods, home improvement and repair, and traveling. While, the long-term goals may take several years or even decades to achieve, such as retirement, saving for a child’s college tuition, or paying off a mortgage.
How to stick to your planned budget:
- Track your expenses. No matter how small, you have to write it.
- Pay with cash. If your cash is out, don’t buy it unless it’s needed or urgent.
- Check regularly every week to make sure your expense on the track
- Review your budget once a month to see if there are expenses that must be altered.
A budget is important to keep track of your expenses and income. With a budget, you can see the pattern of your spending, increasing savings, and avoiding debt. The more intentional you are with spending, the more you save for emergencies, college, and retirement.
One indicator that you have a good budget is your spending less than earn. The left money should be for savings or emergencies.
The popular rule for budgeting
There are many different budgeting rules, but the most popular is the 50/30/20 budget rule. You can use this rule to create your monthly budget. According to this rule, budgeting is divided into three categories:
- 50% of your income is for needs. It includes food, utility, shelter, and transportation.
- 30% of your income is for wants. It includes trips, entertainment, or pleasure. You can cut down this category if your budget balance (income-expenses) is minus.
- 20% of your income is for savings or debts. Saving can be for short or long-term goals.
Tools for budgeting
- Software and apps for finance. Many people use Microsoft Excel to assist them to track personal cash flow or household finances. You use a basic spreadsheet with a simple formula to imply it. Furthermore, many templates are free to download on the internet.
- Paper budget planner. If writing down on paper is fit for you, this is the option to track your expenses and write your income. Nowadays, a budget planner book exists in various patterns and colors. You can choose one that fits you. Choose the small one, so you can conveniently write your spending on the go.