Do you often feel stressed about your finances and wish you could have more control over them?
If you find yourself constantly worrying about money, it may be time to consider starting a budget. Having a budget can help you take control of your finances and work towards your goals. Whether you want to save up for a big purchase, or simply have more financial security, a budget can help you get there.
Starting a budget can be a bit overwhelming, especially if you have absolutely no idea where to start. But guess what? Budgeting is not as complicated as it sounds. Trust me, I was completely clueless about budgeting when I first started, but I’ve got it down pat. Now, I feel more in control of my finances, and I’m here to help you do the same too.
If you’ve come to this blog, chances are you’re looking to start a budget but are completely clueless as to where to begin. To make things less complicated for you, here’s how to start a budget when you’re clueless about budgeting.
Steps to Starting a Budget When You Are Clueless About Budgeting
Table of Contents
Step 1: Ask yourself why you want to create a budget.
Aside from wanting to have enough to pay your bills, there are probably many other reasons why you might want to start a budget. It could be to save for your dream house, send your kids to college, or simply pay off debt. Whatever it may be, it’s always important to have a goal in mind.
A budget isn’t simply an outline of your income and expenses. It isn’t just a plan on how to get by before your next paycheck. For me, it is a laid-out plan of where you want your finances to be.
Be specific about what you want to achieve with your money. When you know exactly what you’re working towards, it’s so much easier to create a plan and stick to it.
One of the first things I did when creating my budget was to identify my short-term and long-term financial goals. I made sure to be specific with these goals, laying out exactly what I wanted to achieve and by when.
It’s also important to set realistic goals. Take a good look at your income and expenses and figure out what you can realistically afford to spend each month. By setting realistic goals that align with your financial situation, you’re more likely to stay motivated and follow through with your budgeting plan.
Step 2: Figure out your after-tax income.
Now that you have a clear goal in mind for your budget, it’s time to start crunching numbers.
To get started, figure out your after-tax income, which is the amount you have left over after you’ve paid all your taxes. To calculate your after-tax income, you need to know your gross income. This is the money you make before taxes are taken out. Your gross income includes your salary from a job, commissions, and any other income you may receive.
Next, calculate your taxes. This includes federal, state, and local income taxes, as well as other contributions. To calculate how much tax you need to pay, multiply your gross income by your tax rate. This rate can vary depending on your income level and filing status. Let’s say your gross income is $100 and your tax rate is 20%. Simply multiply $100 by 0.20, and you would get $20 in taxes.
Once you’ve figured out how much tax you have to pay, subtract that amount from your gross income. The amount you’re left with after taxes have been deducted is your after-tax income.
Step 3: List and categorize your expenses.
Between rent or mortgage payments, groceries, gas, and the small purchases you make along the way, it can be difficult to figure out where all your hard-earned money is going each month. You may have an idea of how much you spend on monthly bills like rent and utilities, but you might not realize how much you’re spending on extras like dining out, shopping, and entertainment. Remember, every penny that you spend can have a significant impact on your budget, so make sure to list all your expenses.
The best way to get a good snapshot of your monthly spending is to categorize your expenses. You can start by identifying which expenses are fixed and which are variable.
Fixed expenses are necessary expenses that stay the same every month—things like rent, utilities, insurance, and loan payments. Variable expenses, on the other hand, are expenses that change from month to month. These could include items like groceries and household supplies. Because variable expenses are much easier to adjust than fixed expenses, they provide a more flexible opportunity for saving.
Keeping a close eye on all of your expenses allows you to track your spending patterns and identify areas where you can trim unnecessary costs. By being aware of your expenses, you can keep your spending under control and make better choices with your money.
Step 4: Choose a budgeting plan.
There are a lot of budgeting strategies you can use, so choose the one that best fits your unique financial goals and needs.
Cash stuffing
If you’re on TikTok, you’ve probably heard about this budgeting trend.
Cash stuffing isn’t a new concept. It is simply a modern twist on the traditional, cash-based budgeting approach known as the envelope system. So, what exactly is cash stuffing, and how can it help with your personal financial goals?
Cash stuffing is a budgeting method where you allocate a specific amount of money for different expense categories and keep the money in separate envelopes.
To start, divide your expenses into categories like rent, bills, groceries, and transportation. Based on your income, decide how much you plan to spend in each category. Now that you have set your budget, put the cash into separate envelopes for each category. Once the money in an envelope runs out, you can no longer spend money in that category.
Keep in mind to spend only what’s in each envelope. This way, you can easily get a tighter grip on your spending and avoid dipping into funds meant for other expenses.
What’s good about cash stuffing is that it motivates you to be mindful of your spending habits and prioritize your needs over your wants. If you frequently find yourself buying random stuff you don’t need or running out of money before the next paycheck, this method could help.
Wondering what cash envelope categories you should include in your budget? Check out this list of cash envelope category ideas.
Zero-based budgeting
I’m not a huge fan of zero-based budgeting, but honestly, I think it’s one of the best budgeting methods out there. It’s not just easy to do—it’s practical and efficient.
Zero-based budgeting is a method of budgeting in which every penny you earn is allocated to a specific category of spending.
Think of your finances as a puzzle board, with different expenses and savings goals representing the pieces of the puzzle. With zero-based budgeting, you approach your finances like solving a puzzle—fitting each piece into its right spot to create a complete picture of your financial situation.
Instead of simply looking at how much money is coming in and going out, it requires you to carefully consider your needs and wants and allocate your money accordingly.
To create a zero-based budget, subtract your expenses from your income. The result should equal zero. So, make sure that your total expenses don’t exceed your total income. For example, if your take-home pay is $2,500 a month, everything you spend or save should add up to $2,500. If your expenses exceed your income, then you need to adjust your budget.
With so many expenses and bills to pay, it can be difficult to keep track of where you spend your money. The main idea behind zero-based budgeting is to put you in control of your finances. It motivates you to be more conscious about spending and make wise decisions about the things that truly matter.
The 50/30/20 rule
The 50/30/20 rule is an easy way to create a budget when you’re struggling to get started. It suggests that you allocate 50 percent of your income to needs, 30 percent to wants, and 20 percent to savings and debt payments. This means that half of your income should go to essential expenses like rent, mortgage, utilities, and food transportation, and about a third to luxury expenses.
What I like most about the 50/30/20 rule is that it isn’t too rigid. It gives you the freedom to enjoy the things you want in life while also being responsible with your money.
Step 4: Build an emergency fund.
When you’re just starting to build a budget, one of the most important things you can do is build an emergency fund. An emergency fund is a savings account that you can use in case of emergencies, such as unexpected medical expenses, car repairs, or job loss.
Why is an emergency important? Well, life is unpredictable, and unexpected expenses can crop up at any time. Having an emergency fund ensures that you have access to cash when you need it most.
When you have an emergency fund in place, you are less likely to dip into your regular spending budget to cover unexpected expenses. This means that you can stick to your budget more effectively and avoid overspending or going into debt.
I recommend aiming to save at least three months’ worth of living expenses. This may seem like a challenging task, but starting small and gradually increasing the amount saved each month can make it more manageable.
I believe that building an emergency fund is essential. I make it a priority by treating it like a non-negotiable expense. It gives me peace of mind when unexpected financial challenges come my way and allows me to stay on track with my spending.
Step 5: Automate your savings.
I can’t stress enough the importance of saving money. However, I must admit that even with the best intentions, sticking to your savings plan can be quite challenging at times. One way to make saving easier and more convenient is by automating the process.
When you manually transfer money to your savings account, it can be easy to skip a month or two when funds are tight. By automatically diverting a portion of your income to your checking account, you can steadily build your savings over time and avoid spending your money elsewhere.
Here are some simple ways to automate your savings.
Set up a direct deposit.
Setting up a direct deposit is a smart and easy way to build your savings. Start by contacting your payroll department to inquire about setting up a direct deposit for your designated savings account. Next, provide all necessary information, such as your bank account number and routing number, to make sure the direct deposit is properly set up. Specify how much you want to deposit in your account.
Keep an eye on your savings to track your progress and adjust your savings rate as needed to align with your financial goals.
Use a savings app or tool.
Savings apps offer a convenient solution to help you automate your savings. With just a few taps on your smartphone, you can set up recurring transfers to your savings account. This means that by simply linking your bank account to the app, you can stash a certain amount of money each month without having to do it manually.
Savings apps often come with tools and other resources to help you make smarter financial choices. Some apps offer budgeting features and investment options to help you get a better handle on your money.
Take advantage of cash-back cards.
Cash-back cards can be a great way to save some extra money while making everyday purchases. These cards offer a percentage of the amount spent on the card back to the cardholder, which can be redeemed as cash. For example, if you spend $300 on groceries and your card offers three percent cashback, you would receive $9 back as a reward.
Some cards allow you to set up automatic transfers of your cashback rewards to your account. Over time, these rewards can add up and provide you with more savings.
Step 7: Track your progress and tweak as needed.
When you’re just starting to budget, one of the things you may fail to realize is that it isn’t fixed. You may think that once you create a budget, you need to stick to it no matter what.
The reality is that life is constantly changing. Your priorities and goals may change over time, so your budget needs to be flexible to accommodate those changes. If you’re living on a fixed income, you may find it more challenging to create a budget that you can stick to consistently. With a limited amount of money to work with, it can be difficult to make room for other expenses such as savings, debt repayment, and emergencies.
To stretch your income, consider lowering your living expenses. Make some adjustments to your spending until your budget aligns with your goals. By cutting down on your expenses, you can free up more money to put towards other priorities.
Money-Saving Tips
I want to share with you some simple money-saving tips to help you lower your living expenses.
- Consider shopping at wholesale stores for bulk items, especially non-perishables.
- Opt for generic products over brand names.
- Use money-saving apps to cut down on grocery spending.
- Plan your meals ahead of time to avoid food waste and last-minute takeout.
- Adjust the thermostat to a more energy-efficient setting to reduce heating or cooling costs.
- Cancel subscriptions that are no longer bringing value to your life.
Ways to Grow Your Income
If trimming your expenses isn’t enough, find ways to grow your income. Here are a few simple and practical ideas on how to increase your income.
- Start a blog or YouTube channel and monetize it through advertising and sponsored posts.
- Become a virtual assistant.
- Participate in surveys to earn extra cash in your spare time.
- Sell things you no longer need.
- Create and sell digital products like eBooks and online courses.
- Take advantage of tax benefits.
- Rent out a spare room in your home on Airbnb.
When creating a budget, you need to make sure that it reflects your financial reality. What may have worked for you in the past may no longer work in your current financial situation.
By making necessary adjustments to your income and expenses, you can ensure that your budget is working for you, rather than the other way around.
Step 8: Practice patience and consistency.
Simply creating a budget is not enough; you must also stay consistent with it to see real results.
To stay consistent with your budget, make it a habit to record every purchase you make, whether it’s a coffee from your favorite café or a new pair of shoes. This way, you can identify areas where you may be overspending and make adjustments if you need to.
Be realistic about your financial situation. Don’t set unrealistic expectations for yourself or cut corners in areas that are essential for your well-being. Instead, focus on prioritizing your needs and identifying areas where you can make reasonable adjustments.
It’s also important to develop discipline when it comes to your spending habits. This means being mindful of your purchases and avoiding spur-of-the-moment buys. When you see something you want, wait a day or two before buying it. This will give you time to consider whether it’s something you really need or just something that caught your eye at the moment.
Make sure to reward yourself. When you’re sticking to a budget, it can feel like you’re restricting yourself from enjoying the things you love. This doesn’t have to mean going on a shopping spree or splurging on something extravagant. It can be as simple as treating yourself to a nice dinner at home or going for a walk in the park. The key is to find rewards that make you feel good without breaking the bank.
Staying consistent with your budget can help you manage your money better and build healthy financial habits over time.
Conclusions
Whether you’re trying to save for a significant expense or simply stay on top of your bills, budgeting can make a big difference in your financial picture. However, budgeting isn’t just about numbers, and it can take a lot of work, especially if you’re just starting to use a budget.
When I started my budgeting journey, I had no clue what to do. However, by changing my mindset and attitude towards money, I was able to figure everything out and feel more in control of my financial situation.
More than knowing how much you spend, budgeting is about getting a clear vision of what you want to achieve financially and what steps you can take to get there. To be good at it, you need to make a few sacrifices, build a healthy relationship with money, and stay focused on your goals.
