Learning how to start a budget can seem daunting. There are so many resources online and in stores. It can be a lot to take in when you are already dealing with the stress of financial planning, goals, and problems.
How To Start A Budget & Why I Started Budgeting!
I recently became obsessed with my household budget. I’ve known for awhile that my husband and I have been sloppy with our money and our finances, but we’ve always had the luxury to do so without much consequence. Tax season always puts me in what I call money mode and that’s what sparked this recent change in our financial planning.
Why do I need a budget?
You might be asking yourself why you need a budget or why I need a budget if we’re financially secure enough to pay our bills, spend our money as we see fit, and be otherwise lax.
The truth is that even though we have plenty of money to pay our bills that doesn’t mean we’re always making smart financial decisions. When life gets overwhelming it’s easy to let things slide so we end up paying extra here and there an everywhere for convenience and late fees and interest galore.
If you have enough money, that’s great! If you have too much money…feel free to send some my way! If you’d like to make sure you’ll always have financial security, budgeting is the way to do that.
Isn’t budgeting just keeping track of your income and spending?
No, not really. Budgeting is about more than just keeping track of your income and spending. Though I will say I did spend the first two months just tracking our income and spending to see where we needed help with budgeting.
Learning how to start a budget for me was kind of tricky. I’d never set up a formal budget before so I needed those two months to see where we were overspending, where we could make changes, and how I could best put our money to work for our future. A budget is about finding areas where you need to set limits, goals, and savings.
A few months ago we were spending $700 or more on food each month. That is insane with just two adults in the house. There was waste, there was way too much eating out, there was a lot of unhealthy spending. We’re down to less than $75 a week spent on food because I made a conscious decision to pay attention to what we are buying and eating.
Those conscious decisions are what budgeting means to me. Paying attention and making smart choices is giving us the freedom to pay off debt, save for the future, and reach our goals faster.
What if I’m already in debt?
Join the club! As a Millennial new to the budget world I’ve noticed that debt is a common trend. We were raised in a world where you could get loan, get a job, pay it back and live happily ever after but there was no focus on what happens when one of those crucial pieces falls out of place.
Debt is such a common thing in our world. We can pay for everything with plastic and never see it go anywhere. Credit cards are easy to get and difficult to get rid of, which is why that is our main goal for this year. We’re paying off our credit cards and saying goodbye for good!
Being is debt is an excellent motivator for setting up a new budget. It gives you a clear and concise goal. If you are in debt and looking for a way out of that debt, learning how to start a budget can make all the difference.
What do I need to start a budget?
A pen, some paper, and a few hours to go through your expenses. Even a rudimentary budget is going to have two things: income and expenses.
Start with the income, it’s the easiest and the happiest 🙂 We have a kind of tough system for income, I do budget by paycheck which I share more about later. I have super variable income because I’m self employed. Depending on the project I work and the number of hours I put in each week I get paid differently.
Some of my clients pay weekly, others pay monthly so some weeks I might only make $300 where other weeks I’m billing 10x that. It’s variable. If you have a set pay schedule you can easily do your budget for the whole month. Pay schedules that are more irregular lend themselves nicely to doing a weekly budget.
Once you sit down and figure out approximately (assume low) how much you are making you can add that up and put it at the top of your page.
Now the bummer…start putting in your expenses. Start with the ones you know. The recurring payments for credit cards, the insurance on your car or house, all the payments that are generally around the same price each month. List them all and subtract from your income.
Next up is the variable expenses, the light bill, heating, water, trash, etc. put all of these in with your best estimate (assume high) and subtract.
Don’t forget to go through and plug in money you spend on gas, entertainment, parking, and random expenses we all try and forget about.
Okay, now what do I do?
What do you have left over? Surplus? Deficit?
Now you can see a few things: a) where do you need to make changes, and b) how do you want to spend that leftover money.
I learned a lot when I went through our expenses for two months. We were paying for things we didn’t need anymore. I cancelled some services and subscriptions, changed others to lower plans, and put that savings towards other areas in our budget.
If you are at a deficit when you are done subtracting expenses from your income that can also be a good motivator to find other ways to bring in money. When we started our budget I was also in the middle of Konmari-ing our house so I sold a ton of stuff. Last model electronics that we’d upgraded, random house stuff we weren’t using, clothes, shoes, bags, etc.
How do I actually start my new budget?
Now that you know where you are spending your money and approximately how much money you are going to have each month or week you can start a new budget.
How much do you want to spend on certain areas, decide that first! Like I mentioned above we cut way back on food / groceries because we were overspending. Where are you overspending? How can you cut back?
Next up, decide what savings / debt pay off goals you have! That was an exciting one for us as well. We tallied up all of our debt, car loads, credit cards, etc. and now we know how much we have…overwhelming, sure. But also really liberating to know that there is an end in sight and we can get there if we work at it!
The first thing I do each month is set aside funds for our essentials. Things we can’t skip, cancel, cut back on, or forget about. I make a list of those bills, figure out how much they are going to cost us, and tally it up.
Now I know how much of my income I have left for things that I can control. Things like gas, groceries, and entertainment. Believe it or not you can control how much you are spending on these items each month better than you think!
I take what is left after bills are covered and divide it up into categories for gas, groceries, entertainment, and misc. spending (hello my dogs are always at the vet). This is where budgeting has really helped me. I set limits for these amounts. You can use cash envelopes if you want, I don’t do that as of now. But we have limits to how much we spend in those areas. i.e. we don’t spend more than $75 a week on food and groceries. I can shop sales, we eat at home, we are finally cleaning out the meat we have in our freezer, get creative.
The same goes for gas and entertainment. If you have a set limit (that is reasonable) you can control your finances instead of letting them control you.
When I’m done putting money into those categories if there is money left it goes towards are financial goals; paying off debt! But yours might be saving for a light up scooter, who knows, life is weird.
I don’t have any money leftover!
That’s okay! If you are only breaking even right now that means that your budget is helping you stay out of debt, that’s nothing to sneeze at.
As your income grows and your bills shrink (we are turning off way more lights), you’ll slowly start to see more money being leftover and then you can use that money to help save for the future, pay off debt, and even add more to your entertainment and misc. spending budgets.
I’m bad a guessing what we will spend on things…
You don’t actually have to guess what you are going to spend on things for a budget to work! The most important step is figuring out all of your expenses and income so you can work from those areas. The cash envelopes approach might work best if you are bad at averaging your expenses for variable things each month.
Once you know how much is left after your monthly bills, you can straight up divide that leftover into your variable spending areas (gas, groceries, entertainment, etc.) so you know how much you have to spend. Then your budget will keep you from overspending because once that envelope is empty, it’s empty.
What does a budget actually do for me?
For me my budget as made me uber aware of the areas where we overspend the areas where we could be saving money, building savings for debt payoff.
A budget can be as simple as tracking your expenses and income or as detailed as setting restrictions on every financial area of your life! In short, your budget will give you what you need and what you put into it! Don’t get frustrated, give it a chance to work, and be willing to make changes and a budget can help you succeed.