Have you ever reached the end of the month and wondered where all of your money went? Well, you’re not alone in this. Budgeting may feel like a boring chore but it’s one of the most empowering habits you can adopt. Whether you’re a student, a young professional, or someone trying to gain control of their financial freedom, a solid and firm budget can help you in gaining control and making money feel less of a burden and more of a lifestyle. This article will offer a step-by-step guide to help you through the process of budgeting, without having it feel like a demanding errand.
Step 1: Know your Why
Before diving into numbers, it’s important to know what for and why you’re budgeting. This can be your personal reason, like upgrading your phone or saving for a trip you’ve planned out with your friends.
Some people start budgeting to get ready for any uncertain circumstances of the future and desire to stay in control of their lives and decisions. Whatever reasons you have, note it down and see it somewhere you can see it often like your phone’s back, your fridge’s door, or on your mirror. Remind yourself of your future goals and help yourself save for the future you!
Step 2: Track your Income
Once you have a clear and realistic goal, the next step is to track and evaluate how much money you’re actually earning each month. Your income includes your salary after tax, any freelance or side hustle earning, or any passive way of earning such as rent, dividends, or family support.
If your income fluctuates and you don’t have a fixed amount, a better way would be to take an average of the past months to get a clearer and vivid picture. This amount serves as a foundation that helps you analyze the realistic starting point for all your spending and savings decisions, giving you a practical picture to help you analyze your goals and the money needed to accomplish them.
Step 3: List your Expenses
After figuring out your income, list down your expenses and evaluate where your paycheck is going. This can help you understand your spending habits and patterns you’re not fully aware of. For example, buying coffee each day may sound harmless but if evaluated in terms of months, coffee may be costing you hundreds of dollars per month!
To get the full picture, break down your monthly expenses by reviewing your bank statement, mobile payments, and receipts to get a rough estimate of your income and your spendings. Some expenses stay consistent through each month like rents, utilities, or internet and some may fluctuate like groceries, gas, shopping, or takeouts. Tracking both types can help you evaluate your purchasing habits and areas where you can adjust and save.
Once you see the full picture of how your expenses are working out for you, you gain more control and a better position to make decisions for future financial security and freedom.
Step 4: Set a Financial Goals
Now that you’re aware of what you earn and how much you spend, you can finally decide what you want your money to do for you. Think about what matters the most right now. Whether it’s building an emergency fund, saving for college, budgeting for a future financial target, buying a home, or saving up for a new laptop, setting goals is essential to have a picture that aligns well with your income and resources.
Be specific about how much you need and when you need to accomplish the set target. When you have realistic and applicable goals in front of you, you’re more likely to stay motivated and work hard throughout the process. Finally, you begin to see that every penny and every dollar you saved is bringing you one step closer to your goal!
Step 5: Choose a Budgeting Method
Now that you’ve evaluated your income, target, and expenses, it’s time to go with a budgeting method that aligns well with your interests and goals. Pick a method that is manageable and makes sense for your lifestyle.
There are many budgeting methods like the 52-week challenge, the 50/30/20 rule, or the zero based budget method. If you prefer to keep things organized and categorized go with the 50/30/20 rule where 50% of your paycheck goes to your needs like rent, utilities, or bills, 30% of the income goes to your wants including shopping, groceries, or takeouts, and 20% goes straight to savings.
If you’re an impulsive buyer and don’t trust yourself with your paycheck, try the zero-based budgeting method where you assign every single dollar to a specific category like $300 for groceries, $200 for gas, and $100 for loan payment until there’s no money left for you to spend.
Step 6: Automate where you can
One of the smartest things you can do as a beginner is take the human error out of the budgeting process by automating it. Some banking apps allow you to automatically round up spendings and transfer the amount left to savings.
Apps usually round up to $5, $10, or $100. For example, if you spend $8.75 on coffee, the app will transfer $1.25 straight to savings. This method helps saving without having it feel like a demanding chore. Moreover, apps also allow you to set up automatic transfers from the main account to savings right after your payday, making savings feel a little less troublesome. This method also helps you avoid overspending and impulsive buying, taking away the amount you were meant to save.
Step 7: Review and Adjust Monthly
No budget is perfect and free of flaws. To maintain a realistic and applicable budget, it’s essential to review and adjust your budget monthly. Some months bring financial surprises like planning your friend’s birthday, a medical emergency, or a wedding invitation, making it crucial to review the budget at the end of every month.
Evaluate what areas you need to work on and what worked out perfectly for you. Adjust your numbers based on a more realistic and practical approach, making the process a bit easier to handle and manage.
Step 8: Use Tools and Apps.
Budgeting doesn’t have to look like you sitting in your bed every night with a notepad and a calculator. Make life uncomplicated and use tools like Excel sheet, Google sheets, or budgeting apps that make the process easier and faster.
The goal isn’t to obsess over every single penny or dollar but to track your income, expenses and your spending habits impacting your savings process. Pick the tool or app that suits you the best and allow yourself to relax while technology handles the rest!
Step 9: Expect Mistakes
Budgeting may get complex at times and it’s okay to make mistakes and mess up in the initial stages of the process. Maybe you overspent on a night out, forgot a bill, or saved less than your expectations. That’s completely normal.
Budgeting often comes with goals and targets that you may fail to accomplish in the initial stages. The key is to figure out what went wrong and set realistic expectations. Try being cautious the next month or just simply readjust the saving plan to align well with your estimated income and spendings.
Step 10: Stay Motivated and Consistent
With all the errors and mistakes, the key to successful budgeting is to stay consistent and motivated throughout the process. If you didn’t save enough or overspent than the assigned money for a specific category, look for room for improvement and anticipate your weak spots.
Understand your habits better and you’ll potentially build strong financial discipline and freedom. If you stay committed to budgeting, especially through the boring and demanding stage, you’ll gradually start to see the progress and eventually, the results will speak for themselves.
Conclusion
Starting a budget can feel overwhelming at first, like you’re suddenly supposed to have it all figured out. But the truth is, no one plays it out the perfect right away. Budgeting isn’t about being strict or living a joyless life, it’s about getting to know yourself through your money and spending habits. Every time you check in with your money and every time you say no to something small so you can say yes to something bigger later, building a better relationship with your finances. With this step-by-step guide, you can have a clear idea of what budgeting looks like, so take a breath, be patient with yourself, and start budgeting!