How to start a budget
Whether it’s your”new years resolutions” or just an every day habit, it’s best to make goals as specific as possible. If you have a goal of doing better with money, you need to have a budget. If you’re looking for how to start a budget, keep reading!
The word “budget” can get thrown around in a negative way. Budgeting is not a bad thing. It a nutshell, budgeting is simply telling money what to do. For those who are good with money, budgeting lets you tell your money exactly where to go. For those who are not-so-good with money, budgeting is even better! Having a budget holds you accountable for your actions and lets you have a plan where you can relax instead of worrying about how you’re going to pay your bills.
So how to start a budget? It’s simple. I prefer a monthly budget. It doesn’t matter if you make the same amount every month of if it varies. My advice for those with variable income is to first budget the money that you know you will receive every month. For example, if your spouse works a 9-5 regular job but you sell handmade items on Etsy, start by budgeting the money that you know you will receive first. This might be only your spouses income, or maybe you make a certain amount every single month and you can budget that too. You can budget the additional variable income as it comes in. Then, start listing all of your expenses. I like to start with the necessities first. Rent, electricity, phone, internet, water, trash service and so on. It’s important to take time to think about it, it’s easy to forget about expenses that don’t come up very often. If you pay your car insurance twice a year, you can divide that amount by 6 and budget that amount every month. Doing this will help prepare for the large upcoming expenses and won’t leave you surprised when you receive the bill.
Your budget will not be perfect the first month. It probably won’t be perfect the second or third month either and that is okay. If you’ve never budgeted before, it’s a learning process. Every month you can look back on what you did right and what might have been off. That is how you learn and get better. Also, remember when I said that it’s okay if your income is variable? Well it is, because expenses are variable too. Your expenses probably won’t be the same every month. Some months there will be more spending on clothing and household items (think back to school) and some months the electric bill will be higher. Once you’ve been budgeting for a while, you will have a better idea of what your expenses are from month to month.
Another important tip
Christmas should never be a surprise. Neither are birthdays and neither are vacations. The best way to plan for any of these non-surprises? You guessed it – the budget. Say you’d like to spend $1200 on Christmas. I realize that this might be a lot for some and maybe not for others. I am going to use $1200 because math isn’t my favorite thing in the world. If you plan to spend $1200 on Christmas, you need to save $100 a month. This way, by the time Christmas rolls around the money will already be sitting there. I start Christmas shopping early (July or August) so it’s nice to have some Christmas funds waiting for me. The same principle applies if you want to spend $600, save $50 per month in a designated fund. I know this sounds simple, and it is simple. The fact of the matter is that most people don’t do this, and no matter how simple it is, it works! The key is not spending the money.
What to use
You can do a paper budget, and many people have great success doing do. However, I like having an app on my phone to record my transactions (bonus: the app does the math for me.) I use YNAB (or You Need a Budget) and I highly recommend it! I have been using YNAB for years with great success. Using that link to sign up will give you a free 34 trial with no credit card necessary!
I personally recommend YNAB because they’re easy to use and they have good videos to teach you how to use the software. I’ve never needed to contact customer service, but their team seems ready to answer questions on social media and I’m sure their e-mail support is the same. I will write a blog post (or a YouTube video) later comparing budgeting software. For now, I would suggest doing the 34 day trial of YNAB or starting an account on EveryDollar. EveryDollar is free, but you can’t connect it to your bank account without a fee. Making YNAB and EveryDollar pretty comparable cost-wise if you want to add your bank account(s).
How to keep designated money separate for savings
After you’ve added the necessities in your budget app or paper budget, you’re going to want to add savings goals. You don’t the different goals in separate accounts, but you can if you think you won’t leave it alone otherwise. I personally keep most of the money in one checking account, and another account for an emergency fund. We will talk about an emergency fund later. Let’s go over a scenario here and say that you’ve already budgeted all of your regular expenses, plus a little bit for things you might forget.
Let’s say that your savings goals are as follows:
- New Car Fund
If you have $500 leftover for the month, you need to decide where to put it. This is part of 0-based budgeting, you give every dollar a job. We will pretend like you have decided to save $100 a month for Christmas, so that leaves $400. Then you prioritize your other savings. If you’re car is wearing out and your next vacation is months away, you might want to put most of the money toward a new car and leave the remaining amount for vacation. If your car is just fine but you want to pay cash for a vacation soon, throw just a little (maybe $50) at the new car fund and leave the remaining $350 in the vacation fund. Budgeting isn’t one-size-fits-all. You have to figure out your priorities. Budgeting doesn’t have to be a chore, it can be a way to achieve exactly what you want to do!
While it isn’t necessarily part of how to start a budget, I do recommend having an emergency fund. I like the Dave Ramsey idea of having $1000 at first and then saving for a larger emergency fund (he recommends 3-6 months) later. If you don’t have an extra $1000 to designate for emergencies, read my post about how to make money at home and tighten your budget until you have $1000 saved. Don’t forget that Christmas and vacations are not emergencies, make sure to have savings goals for the big items!
How to start a budget? Start now!
Using these tips and tricks, you should be well on your starting your first budget. Don’t forget that your budget won’t be perfect the first month. Practice makes progress, and you will learn as you go. The best things to do when figuring out how to start a budget is just to start! If you have any questions, please leave them in the comments below. I hope you liked this post on budgeting. What else would you like to see on this topic? I am going to write a budget series and I would love to know what you’d like to see.