I started my first budget after graduating from college. I wish I could say it was because I was financially responsible and trying to be proactive with my money, but the truth was I was drowning in student loan debt. I needed a way to help me track the little income I had and the lot of expenses I saw hitting my bank account each month. Fast forward ten years, and I’m still using a budget to track my monthly income and expenses even though I’ve since paid off that debt. Why, you might ask? Because budgets work.
How To Budget for Beginners
A common misconception is that maintaining a budget equals restriction. But the truth is budgeting allows you to spend money on the things you care about (aka value-based budgeting). Tracking your income and expenses each month or pay period gives you a better understanding of where your money is going. It helps you remain focused and accountable for reaching your financial goals.
But because budgeting isn’t a skill many learn growing up, it can seem intimidating to get started. I’m here to tell you that you don’t need to be a financial planner or a money expert to create a budget that works for you. If you’re ready for Budgeting 101, let’s dive in so you can go from budget beginner to managing your money effectively and with ease.
Identify Your Values
The very first step you need to take when beginning to budget is identifying what you value. What is your motivation for creating a budget? Maybe it’s to save an emergency fund, pay off debt, plan for a vacation, begin saving for retirement, start investing, or get a better handle on your spending and saving.
Taylor Price, Afterpay Brand Ambassador and Founder of Savvy & Priceless Tay, is a globally-recognized Gen Z financial activist and money mentor. She’s helped over one million Gen Zers build a budget, start saving, pay off debt, and invest. “Creating a budget is like having a GPS for your money! It helps you keep track of those dollars and put them in their rightful place,” she shares. “Have you ever tried driving in a new location without directions? It would be quite difficult to do so! A budget is stress-reducing because you know exactly where your money is going and it helps you reach your financial goals more easily.”
Once you know what you care about and what you’re trying to accomplish with your budget, you can walk into the process with confidence and clarity.
Understand Your Income and Expenses
Before you begin crafting your budget, you also need to get a clear picture of your numbers. Understanding your cash flow, spending habits, expenses, monthly bills, and saving tendencies will ensure you create the most accurate budget to help you reach your financial goals. Identify your recurring bills and fixed expenses (i.e., the costs that are the same each month, like rent, car payment, etc.). If you’re at a loss for your numbers, create a money journal to track your spending for a week or a month to capture everywhere your money goes.
When I asked Taylor Price what’s the first step you should take when beginning to budget if you don’t know where to start, Taylor shared, “First things first, time to snoop on your own spending habits.” She elaborates on how to do this, “Go through your expenses – online banking, receipts, even that crumpled Starbucks receipt at the bottom of your purse. It’s like staring in your very own ‘CSI: Budget Edition.’ Figure out what’s a must-have (like your rent or your avocado toast) and what’s a “maybe-I-don’t-need-it-right-now.” This will help you prioritize your spending.”
Set Realistic Goals
Once you have an understanding of what’s important to you, your financial accounts, and where your money goes each month, it’s time to set goals. The key here is to set realistic goals. While you may want to tackle your thousands of dollars of debt or save three to six months in an emergency fund, the reality is that it takes time.
To set yourself up for success, you need to create SMART, realistic goals, like saving $100 a month or paying an extra $50 towards debt a paycheck. If you were to set a goal of saving $5,000 in an emergency fund, it could feel insurmountable, causing you to lose motivation when it feels like you’re barely contributing to the balance. But by setting a SMART (Specific, Measurable, Achievable, Relevant, and Time-Based) goal, you’ll be more likely to stick to your plan. An example of a SMART goal is, “I want to save $1,200 this year toward my emergency fund goal of $5,000 by contributing $100 each month.” That is a realistic goal you can stick to and you can feel confident knowing you’re on track.
Choose a Budget Plan
Now we’re getting into why you’re probably here:…
Read More: How to Budget for Beginners