The easiest way to create a monthly budget is to collect your needs and monthly needs, subtract them from your income, and keep the rest. So why are so many of us failing in the budget? Maybe because a lot of us have never learned these budget tips for beginners.
Table of Contents
- What Is The Purpose of The Budget?
- Budgeting Tips For Beginners Why You Need A Budget?
- The Three Main Reasons You Need A Budget Are:
- Methods of Budgeting
- The Zero-Sum Budget
- 50/30/20 Budget
- The Budget 30-30-30-10
- Bare Budget Bones
- Budget Tools
- Pen and Paper
- Spreadsheets
- Apps
- Budget Planner
- Cash Envelope Wallet
- Budget Printable Templates
- Budgeting Tips For Beginners: Creating The Budget Reliable For You
- Step 1: Determine Monthly Income And Expenses
- Step 2: Itemize And Prioritizing
- Step 3: Make A Plan
- Step 4: Build Savings
- Step 5: Cut Yourself Some Slack
- Step Six: Change Your Perspective
- How To Budget For An Irregular Salary
- Average your paystubs
- Shake off Compensate To Make Up For Tight Months
- A Month-in-Advance Budget
- Pay The Most Expensive Bills (top priority) First
- How Do You Stick To The Budget
- Be Honest
- Know Your “why”
- Give Yourself Grace
- Change Your Mindset About Money
- If it doesn’t work at first
- Take Everything With You
- Pay Yourself First
- Beware of Common Budget-Busters
The Great Recession of 2007 was a wake-up call for our family. By the end of 2007, we had more than $130,000 in debt and lived on just over $40,000 a year for a family of five.
We needed an intense cycle around the budget and fast!
It took me years to figure out how to create budget our family (I’m a slow learner). And for longer to learn how to live a thrifty lifestyle.
I eventually learned to build the budget because it gives me freedom.
Since I finally learned to love the budget, my husband and I have paid back hundreds of thousands of dollars in debt and fully funded our emergency savings.
All this while continuing to live a beautiful life (within a budget of course)!
Did you know that two-thirds of Americans can’t budget every month? Let’s change that statistic, right?
Follow this simple 4-step budget plan to save more money and pay off debt.
What Is The Purpose of The Budget?
A budget is simply a plan that tells you where to spend your money. In his book, The Total Money Makeover, Dave Ramsey calls this “giving every dollar a name” or a specific task to do each month.
Budget doesn’t mean you’re waving a magic wand and all your financial dreams come true. But it’s a step in the right financial direction.
There’s not one right way to budget. It’s called “personal” finance for a reason.
Who Should Use The Budget? It’s all! Whether you’re making $4,700, $47,000 or $470,000 a year, you should learn how to create (and live by) a budget. It’s not too late to start!
Budgeting Tips For Beginners Why You Need A Budget?
without a budget, you can’t plan, which means you plan to fail.
Most budgets fail because people view them as prison. In fact, the opposite is true; Living on the budget frees you from the paycheck for the salary cycle!
I’m not going to lie, the budget requires some getting used to it.
Especially if you’re a “free spirit” like me. You don’t let people tell you what to do, so definitely don’t let a piece of paper with some numbers rule you too!
As long as you don’t accidentally overuse your bank account. Or drive to the gas station and find you don’t have enough money to fill!
Yes, the day will come when you will find out why you need a budget sooner or later.
The Three Main Reasons You Need A Budget Are:
- living on a budget makes you responsible for your money.
- The budget helps you live on less than you earn (allowing you to build wealth).
- A budget commitment will help you get out of debt faster.
Methods of Budgeting
Most people tend to use a combination of different types of budgets rather than strictly following a particular formula.
Here are some of the most common balancing methods.
The Zero-Sum Budget
Dave Ramsay’s system is based on a zero-sum budget. The primary goal is to budget for your income and expenses at the start of the month (or payment period) so that the threshold is zero.
It’s important to note that the zero budget doesn’t mean you won’t have any money left at the end of the month. Your savings (and spare money) are included in your monthly expenses.
The budget plan I detailed in this publication is an example of a zero-sum budget.
Cash-Based Budgeting
Another type of budget (ideal for overspending) is cash budget. A cash-based budget is exactly what it looks like… Based on criticism.
Another cash budgeting name is the cash envelope system.
A cash envelope system is a convenient way to “see” your budget.
While you may not want to use the financial commitment system for all your budget categories, it’s ideal for budget categories such as food (groceries and restaurants), clothing, entertainment and gas.
Here’s how it works: At the start of the month, set the right amount for each budget category. Then withdraw that amount from your bank account and divide it between specific envelopes by budget categories.
If you run out of cash in an envelope, you should either stop spending in that category for the month or transfer money from another envelope if you have enough money.
At the end of the month, reassess budget categories and adjust them as needed.
50/30/20 Budget
The 50/30/20 system was circulated by Sen. Elizabeth Warren in her book All Your Worth: The Ultimate Lifetime Money Plan.
The 50/30/20 budget plan is divided into the following percentages:
- 50% is for needs housing, food, transportation, healthcare, basic clothing, minimum debt payments.
- 30% of the budget is planned for needs – entertainment, streaming services, meals and meals, accessories, beauty services and gym membership.
- 20% is a scheme to save, invest and repay (additional) debt emergency fund, equities, investment funds, pension accounts and additional debt payments.
Here’s a free info chart showing how to budget by 50/30/20
The Budget 30-30-30-10
A 30/ 30/30/10 budget similar to that of the 50/30/20 where your budget “groups” are divided into specific categories.
Budget categories and percentages for the 30 30 30 10 rule are:
- 30% of the income you get from home is set aside for housing expenses
- 30% goes for basic expenses
- 30% is for current and future financial targets
- 10% is spent as “Fun money” or saved for holidays.
As you can see, the 30/ 30/30/10 budget method doesn’t set aside a great deal of money for a category “Desires,” which could make it an unwanted choice for some people.
Bare Budget Bones
The core budget is simply budgeting for your necessary expenses only (which have been reduced to the maximum extent possible).
The regular budget is a lifesaving if you or your wife are hit with a sudden pay cut, or if you have recently lost your job.
To create a simple budget, start by asking yourself the following question: Which of my expenses are necessary for survival?
The core budget includes only the following categories:
- Housing: Rent/Mortgage Utilities: Electricity/gas, water/sewage, garbage service
- Grocery: Not including restaurant meals and outdoor meals
- Transportation: to and from work, assignments, doctor appointments
- Insurance: home, cars, life, health
- Healthcare: If your income is cut/cancelled, check if you qualify for state-run insurance.
- Minimum debt payments: if possible, continue to make minimum mortgage/rental payments, cars, credit cards/loans, etc.
- Basic cell phone or landline phone
Any remaining money after filling these budget “buckets” should be used to save, offset late bills, and repay outstanding debts.
As you can imagine, the Bare Bones budget is not very fun. It’s designed to be used during tight financial times. If you find yourself needing to use this type of budget for over 6 months, you may need to look for additional ways to boost your income.
Budget Tools
As I’ve said before, there’s no “right” way to budget. You might want to try some different budget tools and see what works for you.
Pen and Paper
My favorite personal budget pen and paper is using a good old-fashioned pen/pencil and paper. A pen and paper budget is the easiest way to get closer and personal to your budget.
Better for everyone, it’s free!
If you choose to create a budget with a pencil and paper, you’ll need to choose a good desktop calculator.
Here are some free printable budget templates to get started!
Spreadsheets
Microsoft Excel and Google Sheets offer free budget spreadsheet templates. Simply enter your information, allowing the template to calculate the numbers on your behalf.
Apps
Our phone apps are always with us, which means our budgets can be too. Budget apps make it very easy to track your spending.
Some popular budget apps are:
Budget Planner
The budget planner will help you easily track your expenses. Using this budget planer, I love having pockets for each month so I can organise all my bills.
Here’s my favorite budget planners’ guide for 2022
Cash Envelope Wallet
If you’re using the budget cash envelope system, you’ll quickly learn that carrying all these envelopes in your wallet or pocket can lead to chaos.
This is one of my favorite cash envelope wallets. It’s not very feminine, so It’s perfect for men and women. This cash envelope wallet comes with 12 envelopes and 12 budget sheets, to help you keep your money organized.
Budget Printable Templates
If you prefer to organize your budget the old-fashioned way, you’ll love the free printable budget template. It’s designed to be used with a variety of budget methods, such as zero-sum, 50/30/20 or Bare-Bones budget method.
You don’t have a printer? No problem, text fields are editable, so you can open them with Adobe Acrobat (free software), write your own amounts, and save them on your computer.
You can snag the free budget template below!
Budgeting Tips For Beginners: Creating The Budget Reliable For You
Well I can help you learn from my financial mistakes by showing what I think is the easiest way to create a budget on any income. I say “easier” because the budget creation process is relatively easy.
However, putting your budget into practice and learning to live within your means is often easy. Take some paper, a pencil and a calculator. You can use an easy-to-use electronic device such as a spreadsheet or app for this step, but for now, we will make the budgeting process as easy as possible.
And what could be easier than paper and pencil?
Once you’ve finished budgeting, try different ways of budgeting to figure out which budget process works best for you.
Step 1: Determine Monthly Income And Expenses
Collect all receipts, invoices, credit card statements and bank statements from the previous month. Add up the totals. {I promise, it’ll get easier than here.}
Next, collect the total income earned from the home for the same month. This total will include your regular salary, money from side jobs, alimony, child support, social security, retirement, etc.
This total will not include money received in the form of gifts, as this type of income is considered additional money.
Is your total income greater than your total expenses? If so, great! You’re on the right track. If not, you have two options:
- Find ways to increase your income. Maybe you can take a second job, start a blog, sell handicrafts, do paid surveys, or sell items you no longer use.
- Find ways to reduce your expenses. Look at everything you spent money on last month and know what you can get rid of or reduce. Hint: Start with a grocery budget or try 30-day no-spend challenge.
Next, divide these items into categories, collect totals, and write them down.
Step 2: Itemize And Prioritizing
What I mean by this is simply listing the most important element of your budget first. Think about what you need to survive; Shelter, food, transport to and from work, clothing etc.
As such, your mortgage or rent category will be the number one item in your budget. Everything that fits into your residence such as electricity/gas, water/sewage and garbage service will then be listed.
These are your necessary expenses and you will have to pay them first every month.
The following is an example of budget categories organized in order of importance:
- Mortgage/rental
- Electricity/gas
- Water/sewage/garbage
- Medicine/toiletries
- Food
- Car payments
- Fuel
- Car insurance
- Phone (Phones)
- Loan/debt repayment
- Savings for future expenses
- Internet
- Apparel
- Entertainment
* Everyone’s list will be different because each person’s priorities are different.
For example, you may not have an internet category within your budget if you choose to do without it or if you simply cannot afford it.
Also, you’ll notice that clothes rank low on the menu because I suppose you have enough clothes (most people own them). After all, maybe don’t read this post in your underwear!
Plus, clothes (in America at least) are plentiful and very cheap if you’re buying second-hand. So, it’s easily achievable.
Let’s talk about the “entertainment” category.
The entertainment category will have everything that is unnecessary. Cable or internet TV, cigarettes, alcohol, lottery tickets, dining out, going to the cinema, gym memberships and magazine subscriptions are just some of the items considered extra or “entertainment”.
This is where the main differences between living on a modest/high income versus living on a low income lie.
If you’re budgeting for a low income, once you get to the end of your priority list, you may find that you have no money left to entertain.
You may have to live without this category for a while as you find ways to increase your income and/or create savings and/or repay debt.
Knowing how to create a budget is something… Following her is something else.
Step 3: Make A Plan
Each year, your vehicle’s registration bill (your cars) is mailed. When your kids go to school, they need school supplies. If you have a car, it needs to change oil, brakes, tyres, etc. Your kids may want to play an organised sport (or two).
Birthdays, holidays and other occasions should be planned. If you own a home, no doubt it needs routine maintenance.
The prospects for future spending are endless.
How do you make sure you have room in your budget to handle these undated expenses so you don’t sneak in?
The answer is to turn them into monthly expenses. Do your best to calculate how much you will spend on “Expected” expenses annually.
Divide the amount by 12 and add that amount to your budget each month.
Don’t leave it in your checking account because it’s kind of lost! Either you withdraw money from the bank and put it aside until you need it, or you put it in a savings account.
Step 4: Build Savings
The only way to avoid falling into debt is to build an emergency fund. Financial expert Dave Ramsay recommends saving at least $1000 in emergencies.
When you’re trying to creating a budget for a low income, the $ 1000 can look like more than $1 million.
So, instead of targeting $1000, your goal should be to put at least $500 into an emergency savings account and provide it as much as you can. You should just withdraw money from this account in case of a real emergency.
An unexpected mechanical problem in your car is an emergency. There’s no dinner at TGI Friday’s.
The best way to raise emergency funds quickly is to sell things around your home or garage. You’d be amazed at the items people would buy at the right price.
Also, if you’re lucky enough to be eligible for tax refunds each year, consider allocating a lump sum once you’ve received the refund.
Another (largely painless) way to form your emergency savings is to put any extra money or windfall into the bank.
For example, if you’re paid once a week, there are four months each year when you get extra pay. If you get paid every two weeks, you get two extra checks a year.
Resist wanting to spend that money and build your own savings account instead.
If you’re lucky enough to get a premium or get a gift of money, put it in the bank, and don’t waste it. Trust me, one day you’ll be glad you did.
Step 5: Cut Yourself Some Slack
Once you’ve mastered your budget on paper, execute it. But don’t expect it to work the first time. You may need to adjust your budget more than once to find what works and what doesn’t.
You may also need to Draft a new budget each month as your income and expenses change.
If you find yourself constantly exceeding your budget, you need to identify which categories you overspend in and find ways to cut or transfer money from other categories to make up the difference.
Step Six: Change Your Perspective
Once you learn how to create a budget and stick to it, you’ll discover a freedom you didn’t think was possible. Living on the budget is liberating, not constrained. You can finally control your money rather than control you.
Paying off your debts saves more space in your budget to save or spend as you see fit.
But the most important thing is to be happy with your life, whether you have a little or a lot. And remember, it’s not too late to improve your financial situation…
Are you struggling to budget with irregular income? We’re here to help you!
How To Budget For An Irregular Salary
An irregular income budget is very similar to a regular income budget. You just need to make some important adjustments going forward.
1. Average your paystubs
Collect the last three salary slips and divide them by (3) to find the average your salary. Or you can be careful and budget on another basis your lower salary.
Then, use that amount to create a Bare-Bones budget. Once you create the budget, you can split the remaining funds into the “savings” and “wishes” categories.
2. Shake off Compensate To Make Up For Tight Months
Whenever your monthly income exceeds the amount you came up with in the first step, save it. Building an emergency fund of at least $1000. Once that’s done, go to Step 3.
3. A Month-in-Advance Budget
Your ultimate goal when setting the irregular income budget should be to save on monthly living expenses. That way, don’t rely on current month income for this month’s bills.
4. Pay The Most Expensive Bills (top priority) First
These bills are usually your rent/mortgage, followed by car and utility loans. Take care of these bills once you have enough money. Then pay the small bills in the order you paid.
Living on the budget feels good!
How Do You Stick To The Budget
for that, you put your budget together. It certainly looks good on paper, doesn’t it? But how do you actually stick to the budget?
What happens when you cross it? What do you do with the extra money you generate?
Be Honest
One of the main ways to ensure you stick to your budget is to be honest with yourself from the start. Make sure you budget for what you’re actually spending (not what you think you should spend).
For example, if you usually spend $600 a month on groceries, don’t set aside $400 for groceries because that’s how much you want to spend. If you do, you will lose your budget altogether.
If you want to cut your budget in any area, it’s better to plan small, growing changes than an all-or-nothing approach.
Know Your “why”
If you don’t set financial targets to work on, your budget is likely to be fail. Not setting goals like a runner without an finish line. What’s the point?
Maybe you want to get out of debt, build an emergency fund, or save for a down payment on a house. Whatever your financial goals, big or small, keep them in mind when creating your budget. This will motivate you to stick to your budget even when you don’t necessarily want to.
Give Yourself Grace
When it comes to budget, practice makes it perfect. Expect failure in the first or second month (or three). Everybody does that!
Cut yourself some slack and hang on. I promise you will find yourself sooner or later looking to budget and wondering how you lived without it.
Change Your Mindset About Money
Sometimes we have to “trick” ourselves into getting an unwanted job done. And let’s face it, most people don’t find the budget a pleasent activity!
If you go to budgeting with a negative mindset… Believing that the budget is a sinister, restrictive and comprehensive document, it will fail!
Remember you’re in full control when it comes to budget! Instead of focusing on all the things you can’t do because it’s not “in the budget.”
Instead, look for ways to incorporate your favorite activities/shopping (with smaller, affordable options).
Of course, nobody can own everything! Living on the budget, however, should not be expensive to torture.
If it doesn’t work at first
Try something else. Seriously, I wouldn’t tell you to try the same budget method over and over again if it didn’t work for you.
For example, if you find yourself exhausted with the cash envelope system and try and fail multiple times, go to zero budget instead.
You might find you like some of the ingredients of one way mixed with parts of another, and that’s perfectly fine!
Also, if spreadsheets aren’t your thing, don’t force yourself to learn Excel. Try using the budget Planner instead.
Take Everything With You
When my husband and I first started budgeting, I’ll admit that because I was the one who paid the bills every month,
he had no idea how much we earned, let alone how much money we spent each month.
I would say that Creating a Budget forced us to talk about money, but unfortunately it didn’t happen until much later.
We recently started having monthly “finance meetings” and all I can say is I wish we had done it sooner!
We are finally (after 24 years of marriage) on the same page when it comes to our shared income budget. OMG … What took us so long?
We’ve even started to include our two teenage sons in regular budget meetings. They are finally starting to realise that money isn’t really growing on trees!
Dave Ramsay will be proud of how we stopped (mostly) making stupid financial mistakes!
Pay Yourself First
The important ways to stay motivated when sticking to the budget to pay yourself first. Even if you live on a budget, try to put away a little “fun money” every month.
Your “money” can be up to $10 or up to $100, depending on how much wiggle space is available in your budget.
Take that money in cash (or put it in a separate account) and spend it on something special every month. Or you can save for larger “guilt-free” purchases during this time.
Beware of Common Budget-Busters
There’s also a good chance your car will need tires, your child will need braces, or the washing machine will give up at some point.
These things are very likely to happen at the same time!
Don’t let yourself be surprised, but plan for general budget losses before they happen. That’s why the emergency fund is so important.
It helps to learn the budget and then live by it. Keep in mind that by living on less than you earn, you can pay down debt faster, build wealth and eventually control your money!
Imagine being happy with where you are and what you have. These budgeting tips for beginners can help you get there.
