Seriously how do you create an easy and effective budget that will work for you when you have no idea where to start?
I know the feeling, and in this article ill be showing you how you can.
Hang on to your seat because ill be guiding you through all you need to do to create a successful budget that will work for you.
I also have a free printable budget template that will help make the budget process a lot easier.
Budgeting can be difficult, but making a budget is a key step to control and manage your finances or the finances of your family.
If there is anything that 2020 has taught us, it is that budgeting and financial planning are more important now than ever.
I can comfortably say that I have been able to get the hang of my budgeting after lots of trials and errors?, and I am here to show you how I did it.
And show you the system you can use to formulate a simple budget.
This step by step instructions will help you start a budget that actually works for you.
This post contains affiliate links. See disclosure for more information.
How Budgeting Can Improve Your Life
A budget is a vital foundation to have a good financial plan.
Now that’s the cool thing about budgeting.
It gives you a clear picture of exactly how much money you have and where it goes.
This is crucial because it is one of the first steps to save and make plans for the future.
Believe it or not, budgeting can simplify your income, thereby improving your life and making your financial decisions and debt payment easier.
But in my opinion, the best budgets are the ones that are not restrictive using a printable budget binder like this can help you budget easily and take control of your finances.
Still on the fence? Here are a few other ways learning how to budget your money can improve your life;
- Budgeting will help you have easy control over your finances.
- Make savings and investment more comfortable, creating a pathway to building wealth.
- It will give you a guide and a clear picture of how much you make and how much is spent to tell if you are living above your means.
- When you budget, you are better prepared for emergencies or unexpected expenses that might occur from time to time.
- Budgeting is a great tool that can help you avoid debt and get out of debt.
How to Know When You Need a Budget
So now the question is, do you really need a budget? and how do you know when to start one?
Let’s look at it in detail…
Admittedly, It is very easy to get on the fence about starting a budget because some may not just like the thought of not spending money where and how they want to.
But the simple truth is, a budget does not have to be a strict restriction;
A budget is simply there as a guide to help you take control of your finances by planning for each expense so you can spend your money smarter.
For one thing, a budget gives you a clear picture and may help you find areas where you can cut back so you can afford the things you love without dealing with the vague impression of your income and expenses.
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So how do you know if you need a budget?
Here are some tips to help you know if you need to create a budget.
1. You Never Pay Off Your Credit Card Debts.
If you never pay off your credit card debts or you have numerous credits cards and you use one credit card to pay off another, then it is absolutely time for a budget.
2. You Never Have Any Extra Money
Do you feel like you have money for a moment or two, then it’s gone?
Possibly, this could mean you have too many expenses or that you are too quick to spend on wants rather than needs.
So it just may be time for a budget.
3. You Are Unable To Save Or Save So Little
You know what? having a savings plan is a crucial part of managing your finances.
At the point where you don’t have an organized plan for putting money into savings, or you are unable to save, then it may be time for a budget.
4. You don’t have a savings account at all.
If you don’t have any savings or emergency funds, it may be a sign that you need a budget. A reasonable family budget can help you make savings a priority.
5. You earn more than enough but never seem to have enough.
You know you are earning enough money to cover your expenses, but somehow you are always looking for money to buy what you need.
It is absolutely time to create a budget so you can know once and for all where that big hole swallowing all your money really is.?
Forming a budget can help you get a grip on what you have.
You may be pleasantly surprised that you actually have enough money or that it is actually attainable to make some cuts so you can have enough money for all you need.
How To Start A Budget
If you’ve been thinking about a budget but aren’t sure where to start, no worries, ill walk you through the steps.
An excellent place to begin is by outlining the different categories you’ll like to include in your budget.
The Fundamental idea of a budget is to have a clear picture of how much money you have so you can allocate this amount to cover your needs, savings, and investment to build financial freedom.
Before we go any further, ill like to draw your attention to the 50:30:20 budget rule simply because it is my preferred method of budgeting.
So What’s The 50 :30: 20 Budget Rule?
There are different budgeting methods, but the 50;30;20 budget rule is a common budgeting approach simply because it is easy and straightforward.
The basis of this rule is to divide up your income after tax into 3 categories, ( wants, need, and savings): and spend
- 50% on needs: expenses like rent, mortgages, utilities
- 30% on wants; costs for fun, vacation, entertainment, clothes, dining out, etc
- 20% to savings: emergency funds, retirement funds, money to pay off debts, money for the future, and financial goals
The 50;30;20 budgeting method can get a bit tricky for some when it comes to determining what to classify and wants and needs,
Nevertheless, your primary focus should be to stick to the budget irrespective of what you classify as a want or a need.
>>>Download this free budget and expense tracker to get you started and make budgeting easier.<<<
READ MORE >>>A simple guide to maintaining an effective family budgets.
READ MORE >>>14 unbelievably easy ways to save money on groceries.
Essentials Of A Budget
Here are a few essential principles to bear in mind when you start creating a budget.
- Figure out the difference between wants and needs
- Your expenses should not be higher than your income
- Figure out the difference between wants and needs.
This can be a tough one, but you must understand the difference between a want and a need for a budget to function properly.
In fact, It is very easy to convince yourself that a want is a need.
You need to be aware of this so you can avoid it as much as possible.
Clothes, food, and rent/ housing are a few examples of needs.
Wants, on the other hand, are things like high-end clothes and bags, expensive vacations, etc.,
2. Your Expenses Should Not Be Higher Than Your Income:
The reality is when you first create a budget, you may be shocked to find out that your income is not enough to cover your expenses.
Don’t be too hard on yourself if this is the case. There are solutions and several ways to manage it.
All you have to do is start by looking for expense categories to cut back on.
Another option is to explore other ways to increase your income.
Main Steps In Creating A Budget
Getting started on a budget for yourself or your family can seem complicated at first, – how do you categorize everything?
What do you do about expenses that vary or aren’t monthly?
But the best thing to do is take a step back and look at some practical steps toward formulating your budget.
So if you’ve been wondering, ‘ How do I create a budget?’
Here is a simple way of budgeting that will answer your question.
And you know what? By following this simple budget plan, you will become good at budgeting in no time, even if you are a beginner.
Let’s jump right in.
#1: Calculate Your Net Income
The first place to start in creating a budget is with your income.
To start a budget, you’ll need to know what your net income is for each month.
To do this right, you’ll need to work with your income after taxes, 401K deductions, insurance, retirement account savings, etc.
If you have a 9-5 job or a business/side hustle, your net income is your total income from all these sources.
Your income will be easy to calculate if you have a steady paycheck every month because all you have to do is write down your income after tax.
However, if your income is not fixed or regular, just use the estimated amount that you are sure you’ll be making each month.
For example, if you have a business that makes $500-$2000 every month, then it is best to budget with $500 as your income.
Why do i say so?
Frankly, It is safer to stick with the lower amount because you know you will be bringing in that amount even in bad months.
More to read>>> 23 ways to make money from home as a stay at home mom
I would love to share this printable budget binder with you, so you can better manage your money. These are the templates I used to save lots of money in a few months.
Download your free budgeting printables here.
#2.Determine Your Expenses
The next consideration when creating a budget is your expenses.
In this step, you may need to make a list of all your expenses, so you have a good grasp of where your money goes.
You can begin with general categories based on your past expenses.
Break down your expenditures into understandable categories.
If you are just starting, try making the categories are broad as possible because getting into serious details can get pretty frustrating.
So simply review your past transactions for the previous months, go through your credit card statements and bank statements for the last three months so you can have a better idea if where your money goes.
Dont forget tp take note of cash purchases too.
It is also a great idea to track your actual expenses for several months so you can eventually have a clear picture of the exact amounts spent on these categories.
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Examples of Monthly Expenses in a Budget.
Here are the most common categories and monthly expenses to factor into a budget :
- Rent: Home (mortgage, rent, property tax, insurance, repairs, etc.)
- Utilities : electricity, internet ,etc
- Food: groceries / eating out
- Car payment and transportation
- Medical expenses: insurance, doctor appointments, medications/ prescriptions
- Family expenses: Daycare, school expenses
- Personal: Hair appointments, clothes
- Entertainment: Fun, vacations, subscription
- Pet expenses: food, veterinary, etc
- Extra expenses: Miscellaneous and unplanned expenses, gifts
Taking the time to figure out where your money goes and how much you spend is a crucial step for creating a budget.
You may be shocked to discover how much you are really spending on specific categories.
I was surprised too.
I certainly didn’t realize how much we were spending on family vacations until I started a budget, and this gave me a good idea of where I needed to cut back on.
At this point, if you are left with nothing after you take out your expenses from your income, then it might be time to really decrease your spending or look for other sources of income.
Needless to say, finding ways to make extra money with side hustles can help immensely and give you more flexibility with your budget.
>>> Want to increase your income? You can read about the three ways I make over $3000 as a stay at home mom, plus other work from home opportunities to increase your income>>>
#3: Set Your financial goals
At this point, you are well on your way to a workable budget!
And remember, having a budget means you are working towards a goal.
This means you have to set your financial plan, focus on it as a priority, and not get distracted.
You may be trying to reduce your expenses so you can save for retirement or increase your income so you can build your emergency funds?
Or maybe you want to focus on streamlining your finances so you can pay off loans or save for a down payment for a house?
By and large, goals differ from one person to another, so it is up to you to figure out your financial goals, align your budgeting plan and focus on that goal.
#4: Stick To Your Budget
Once you have created and set up your budget plan, that’s not the end; you’ll have to rinse and repeat.
Budgeting is an endless process and in other to succeed with it, you’ll have to monitor it and stick with it.
The intention is to
– have a clear picture of your expenses,
-cut back in certain areas so you can save more, or
-focus on the need to increase your income so you can have a lot more to save.
The good news is, you dont have to cut out the things you love completely.
If you do that, it is a sure path to get frustrated and ditch your budget plan.
All you need to do is simply find a balance and identify the areas you can improve on.
Take time to review your budget from time to time; in the beginning.
You can begin by reviewing it every week, then progress to reviewing it monthly.
This will help you see the progress you’ve made and keep you accountable.
Taking little steps is the key not to get overwhelmed and ditch it altogether.
I know how hard it can be when it seems like you can barely live on your income.
But making little changes like meal planning instead of eating out, can help immensely with your budget.
I saved 10% more of our income simply by meal planning using this $5 meal plan.
Another thing is, you should not expect to stick to your budget entirely from day one.
Having this in mind will keep you encouraged to try to be better the following month instead of ditching it altogether.
It is easier than you think, Just set attainable goals and be attentive in tracking your expenses.
READ MORE >>> A simple guide to maintaining an effective family budget.
How Create a budget for a low income?
You may be thinking, ok, Megan ill really love to budget and plan my finances, but budgeting on my low income? I dont know about that.
Not to worry, there are a few ways you can budget for a low income.
Let me give you some examples;
1. Home/ Rent Expenses Comes First
Housing is critical because no matter what else you want and need having a roof over your head comes first.
So honestly, this should be the first category to consider when budgeting on a low income.
2. Cut Back on Your Grocery Bills
This is one area where many people tend to spend a lot of money without realizing it, myself included.
I’ve always been cautious about how much I spend, but I was so shocked when I put together our grocery bill and food expenses for the month.
Thankfully I was able to take control of this by meal planning.
This $5 meal plan is a lifesaver and has helped my family save a lot on groceries.
>>>Here are other unbelievably easy ways to save money on groceries.
3.Save First, Spend Later
If you want to attain your financial goal when budgeting on a low income, your primary focus should be staying intentional when it comes to saving.
What this means is, you need to save first then spend what you have left after saving.
The truth is because your income is low, there will always be an expense you need to cover.
To achieve your financial goal with budgeting, for example, putting money away for retirement, emergency funds, short or long-term goals, that vacation you’ve always wanted to have, etc.
You will need to be more intentional with your savings.
Determine how long it’ll take to achieve your goals and how much you need to save per month to achieve these goals, then put that aside every month first before your expenses.
Are you looking for ways to pay off your student loans? Click to download a free pdf with tips to pay off student loans plus the pros and cons of making student loan payments timely.
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What Are The Best Budgeting Apps?
Some great apps can help you keep track of your income, but before I share it with you, here are my free budget templates if you also love to create your budget manually.
You could also pop in your email address below to have it sent directly to your email.
As a beginner with creating a budget, it may be best to start off writing out your budget on paper, and then you can switch to using apps once you have got the hang of it.
You can print this template as a pdf and manually fill out your income and expenses to get a clearer picture and understand what tweaks you need to make to achieve your financial aspirations.
Here are also a few of my favorite budget books to make budgeting easy and fun.
Here are some popular apps that can help you keep track of your income and expenses automatically;
#1. Personal Capital App
Personal capital is a great free app that will help you categorize your expenses, keep track of your income and expenses and handle all the computations and assessments for you.
It is an excellent app to help you keep all your finances in one spot in addition to all the savings and investment features it also offers.
It examines your accounts to help you set financial goals while monitoring your progress so you can see where exactly your money goes.
>>> Click to get started with personal capital<<<
Mint.com is a free website that uses personal finance software to help track your transactions and give you a clear picture of your finances.
It is a well-known app that has been around for a long time.
Mint links up with your bank accounts and credit cards to track the flow of money through them, it notifies you when you are over budget this way you can always stay on track.
It reminds you to pay bills, recommends financial accounts with better interest rates, and even tells you your credit score.
Best of all, it is free and doesn’t require a subscription.
Mint is beneficial in managing your finances because not only is budget building seamless and easy, but Mint also helps guide your day-to-day spending by automatically categorizing your expenditures,
It also notifies you of any unusual expenses or over budget, therefore, ensuring that you always stay on track with your spending.
#3. You Need a Budget(YNAB)
Ynab is another great budgeting app, that manages your money for you using a different technique from the others.
This apps simply focuses on giving your money a job.
Simply put, every dollar of your income has a job; it could be to pay a particular bill, invest, etc
The primary aim is to help you change your spending habits over time.
With this app, you won’t need to make an advanced budget; YNAB makes budgeting easy and straightforward and helps you plan for unexpected expenses.
READ MORE>>> Simple ways to save up to $1000 fast.
How do You Make a Budget You Can Really Stick To
Finally, budgeting is one thing, but sticking to your budget is another.
Here are a few key points to bear in mind to make a budget you can stick to.
- Determine the budgeting plan that works best for you.
- Estimate your net income
- Calculate Your expenses.
- Separate needs from wants
- Make provisions for savings.
- Adjust and revise regularly.
To Sum Up…
It is important to note that budgeting is not a one-size-fits-all.
The truth is in all this, you need to figure out what works best for you.
But by and large, when you create a budget using these steps and stick to it, you’ll be well on your way to improving your expenses and getting a good handle on your finances.
So go ahead and give budgeting a try, and you’ll be glad you did.
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