For most of us, our earnings do not match our spending. Often we find ourselves stressing over the fact that where has all our money has gone? Budgeting can be a great solution to get ourselves out of this stress and give us control over our money.
By having a budget plan you can have a way of seeing where your money is going each month and easily get track of your finances.
In this article, we will discuss some budgeting tips for beginners and how to make a budget for beginners.
What a budget is and its benefits
A budget is simply a plan that you create to spend your money. This plan includes managing income and expenses over a period of time. This time period could be a week, a month or even a year, that’s for you to decide. A budget plan allows you to get a clear idea of your income and spending and helps you prioritize your necessities.
Budgeting can help you in many ways. Such as
- You can have control over your money
- You can focus on your financial goals
- Let you have a clear idea of your spending
- Helps you to stop overspending
- Helps you figure out the issues you need to see through
These are some benefits of budget planning.
Importance of budgeting for beginners
If you have never tried to track your earning and spending as well, it could be really intimidating to get into the planned budget at first. But it is very important to know that your budget plan would make your life easier, not harder. A budget will help you find financial security and let you have control over your finances.
Here are some good reasons why you would need a budget.
- A budget will help you focus your money on the things that are important for you.
- It will help you figure out your long term goals and work towards them.
- It will let you know if you are in debt and how to plan to get out of it in time.
- Budgeting will keep you organized over your money.
- Budgeting can help you prepare for emergencies.
- It helps you to save money for the future.
- Budgeting can help you to maintain the lifestyle that you want.
The thought of creating a budget can be overwhelming at first, but you can overcome it by starting with some simple steps. Here are some budgeting tips for beginners given below.
- Reminding yourself why you need a budget
Maybe you are earning a decent amount of money but you have no idea where it is going and at the end of the month you actually have nothing in hand or you might even need to borrow from friends.
So to get a hold on your spending you need to start budgeting. You need to have a proper plan so that you can track your money.
- Determine your goal
You might have long-term and short-term goals. In your budget plan define the goals properly. It will help you figure out the savings plan that is suitable for you.
The next step is to plan your savings according to your goals.
- Separate your expenses
Some of your expenses are fixed and some are variables. Your fixed expenses can be your monthly rent, bills, loans, and others which you have to pay every month no matter what.
And on the other hand, your variable expenses are your entertainment costs, shopping, eating out, etc, which are not the same for each month. Now you can cut your costs according to your necessities and needs.
- Plan your monthly budget
So as you know all the aspects of your spending and your goals, now you can focus on planning a solid budget plan. This plan will include the amount of money that will be allocated for each segment such as savings, expenses, and another spending where it is needed.
A good budget will always help you spend less than you earn and let you have savings for future goals and emergencies. That’s why budgeting is so important.
So now we know why we need a budget, we can discuss how to make a budget for beginners.
To make a budget plan we need to follow some steps that are discussed below.
Understanding Your Finances
First of all you need to understand your Finances. What is your income source and how to manage your funds toward expenses?
Evaluating your income
Your source of income could be salary from your job, payment from clients if you are a freelancer, or sales of your business if you are a business owner. You also might add any kind of investments you have that gives you monthly increment or any other sources that give you money monthly. Make a list of the income sources and the amount of money you get from them.
Identifying expenses and categorizing them
Now it’s time to identify your expenses. You need to make notes of your fixed expenses( monthly rent, school fees, bills, and loans) and your variable expenses (entertainment costs, restaurant bills, shopping, etc).
Tracking your spending
Now you need to track your spending. How much do you actually spend for what reason? Your fixed expenses will be the same for every month but your other expenses will vary from time to time.
Setting Financial Goals
Now you need to establish your financial goals. It will help you prioritize what is most important for you. You need to list them according to your priority. Listing your goal will give you a clear perspective on your budget plan.
Identifying short-term and long-term financial goals
Identifying short-term and long-term financial goals involves setting specific targets that you want to achieve within a defined time frame.
Short-term goals typically have a timeframe of less than a year and may include things like paying off a credit card debt or building an emergency fund.
Long-term goals, on the other hand, have a timeframe of more than a year and may include things like saving for retirement, buying a house, or funding a child’s education.
Prioritizing goals based on their importance
You will need to prioritize your goals based on their importance. Some goals will need to be achieved before others. You need to maintain a timeline for your goals and plan to execute them by allocating funding according to their respective timeline.
Creating a plan to achieve your goals
Only knowing your goals would not let you achieve them in time, but you must plan your steps to achieve them.
Creating a Budget
Now it’s time to create your own budget. You need to know how to create a budget plan. Here are some budgeting strategies for beginners.
Choosing a budgeting method that works for you
As there are so many options or methods to create a budget, you need to choose the one that suits you the best. That may go well with your income or you may feel more comfortable using it, it’s your call.
There are some budgeting tools for beginners also. You can use Excel to manage your budget or use zero-based budget, Cash envelope budgeting, or simply use a paper budget planner. You can use any handy apps that are available on your phone.
Allocating money to different categories
After choosing a method you need to allocate your money to different categories as per your need. Not all the categories in your list will need the same amount of money. You need to prioritize them as well as distribute them according to their needs.
Setting realistic spending limits for each category
Creating a realistic budget is the most important of all. You might have big plans or goals but your income must support what you will be needing at that time. After allocating money for all your daily expenses only then you can save money for future goals.
Sticking to Your Budget
Sticking to your budget is not easy. You might have an emergency or simply have distractions that can have an impact on your budget.
Tips for staying motivated and disciplined
You can use some tips that keep you motivated and disciplined.
- Determine the cost-effectiveness of any big purchase.
- Evaluate your savings first before spending
- Challenge yourself not to spend time to time
- Have a proper plan of spending before you start your day
- Keep Track of Your Progress
Strategies for reducing expenses and saving money
There are some strategies that you can follow to save your money.
- Keep notes of each spending
- Stick to lower credit card limit
- Plan your shopping list beforehand going to the market
- Stop paying too many subscription fees
- Compare brands before any purchase
Dealing with unexpected expenses and emergencies
No matter how much time you spend on planning a budget you might encounter any kind of emergency at any time. To deal with unexpected expenses and emergencies you must maintain an emergency fund that can help you manage your money in case of emergency.
Reviewing and Adjusting Your Budget
You will need to review and adjust your budget from time to time. Consistently monitoring your budget will give you a clear perspective toward your goals and will make you confident.
The importance of reviewing your budget regularly
You will need to review your budget regularly to maintain a properly functioning budget. You may get a raise, your expenses may change or you may reach a goal and want to plan for a new one. Whatever the reason is you might need to do some adjustments to your budget according to your need.
How to identify areas for improvement
Even if you have a budget plan that is in use and working for you well you might find it surprising that you will always have areas where you can improve. Try to fund your expense a little differently for a month and see if it gives you any benefit. It will give room for improving your budget or give you insight.
Making necessary adjustments to your budget
You should never miss the chance to improve when you get one so you should keep an eye on your budget. If you find any loophole or any area where you can improve you must make necessary adjustments to maintain a proper functioning budget.
Budgeting Tools and Resources
Depending on your needs, there are budgeting tools out there that can help you to plan and maintain your budget. You can simply use pen and paper if you are comfortable with that. You can use spreadsheets like Excel or google sheets to maintain your budget if you are handy with them.
There are mobile apps that can help you with your budget plan, such as Mint, Goodbudget, EveryDollar, etc. You can check with your bank or credit card company to learn if they offer budgeting tools that automatically assign categories to your expenses for you.
I personally use Excel Sheets to maintain my budget and it helps me a lot to track my spending.
You can easily choose your own style that suits you best.
Conclusion
Budgeting can help you maintain a debt-free lifestyle with financial stability, an emergency fund, and proper savings for your retirement.
According to Rosette Mugidde Wamambe from African Development Bank, “Budgeting is not just for people who do not have enough money. It is for everyone who wants to ensure that their money is enough.”
So to ensure enough money for yourself and your family and have a stress-free life for now and in the future, you can start making a budget right now.