Beginners Guide to Budgeting
If you’re hoping to gain more control over spending and begin working towards your financial goals, you need a guide to budgeting to assist you with working out a budget.
A budget will show you how much money you expect to bring in against all of your expenditures from the required expenses like house payments and rent to discretionary spending like entertainment. Instead of viewing a budget as a negative, you can view it as a tool for achieving your financial goals.
Step 1. Start with why
Fact – You will never stick to a budget if you don’t care. Before we jump into the numbers, you need to know why you are here. Why are you reading a guide on budgeting? To get started, I want you to write down the below sentence and fill in the blanks: I need to get on a budget because (insert reason here), and I want to (overall goal for managing money).
Step 2. Create SMART goals
The next step is to write down some specific GOALS you want to achieve! Things like:
- Pay off Credit Cards
- Pay off Student Loans
- Save House Down Payment
- Pay Off Mortgage
- Quit Job!
But why do goals matter?
Think of your financial life as a roadmap. Your budget is the GPS, but if you don’t have a destination, what good are the directions? You need to put a pin on the map, and define exactly where it is you want to be.
When you create a SMART goal, you are not only defining the destination, you are saying exactly how far it is and how long it will take to get there. So give yourself something to be excited about on this financial journey, and let’s get started with your SMART financial goals.
Step 3. Write down where your money is going
Now that you’ve written down your Ultimate why and SMART goals, you’ll want to walk through the “Past Spending” exercise to see where all your money has been going. But the only way to create a budget that works, is to find out what your current spending habits are so you can change them.
Guide to Budgeting in 4 steps
- Choose a budgeting plan. Any budget must cover all of your needs, some of your wants and — this is key — savings for emergencies and the future. Budgeting plan examples include the envelope system.
- Track your progress. Record your spending or use online budgeting and savings tools.
- Automate your savings. Automate as much as possible so the money you’ve allocated for a specific purpose gets there with minimal effort on your part. An accountability partner or online support group can help, so that you’re held accountable for choices that blow the budget.
- Revisit your budget as needed. Your income, expenses and priorities will change over time. Adjust your budget accordingly, but always have one.