What to do when you don’t know where to start with managing your money
We’ve all been there, many time over in our life. Where we sat wide-eyed at something, with no clue where to begin, and no notion of what we don’t even know, (This has happened to you, right?). When I first learned about budgeting, I thought it was about not going out and buying new clothes, silly me. Yet, the one thing that I had to my advantage is that I knew that I knew nothing, and I knew that something had to change!
So if you’re confused about budgeting or managing your money, then look no further! This post is going to take you through the 7 steps to budgeting for beginners. Yup, it’s Budgeting 101 and school is now in session!
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What budgeting isn’t
Many people hear the word “budget,” and they cringe, they immediately assume deprivation, and that all their fun will come to a screeching halt. Trust me; it doesn’t have to be this way! There are many extremists out there for any topic. Budgeting isn’t about living in a one-room shack while eating nothing but beans.
The first lesson in Budgeting 101 is to know that budgeting is simply having a plan for what you want your money to do for you! I want you to focus on that last part; “what you want your money to do for you!” Remember, you are in control of your money; it doesn’t control you, nor are you helpless to change the direction or flow of your money. It may not feel that way now, but as with everything else in life, the more you know, the more you can take control!
Don’t fall into the trap of thinking that money is evil, or you’re destined never to have enough. Or that you’re not capable of managing your money to get ahead. You absolutely are! The first thing you need to do is to get a handle on your money mindset. You need to shift your attitude and focus on what is possible (aka that means anything is possible!)
What budgeting is
Budgeting is like getting a raise, as you are limiting spending in one area (that’s not important to you) to give yourself more money in areas that are important to you. You are deciding where you want your money to go! Budgeting is about being planful and deliberate, it’s about making conscious choices that move you closer to your goals.
Budgeting 101 – the 7 steps
1. Manage your expectations
This might be the toughest pill to swallow, but it’s essential. No one is born knowing how to budget, and everyone learns and makes mistakes. (They too probably had to go through budgeting 101, just like you!) Guess What? You’re going to make mistakes, and you’re going to be mad at yourself for them. It’s okay; this is how we learn.
Usually, we learn best by making mistakes. No budget starts out amazing, so be prepared to make a budget, find a few things that don’t work, tweak them, try again, and then tweak some more.
It may take you three months to find your groove. What is important is that you don’t give up or think that you’ve failed and that you’ll never get it! You will trust me.
2. Identify your money goals
If you are learning about budgeting, that means you probably have an idea of where in your life you’d like to have more money. Maybe, you felt the pinch because you never had enough money to travel before, and you can see that you’re spending crazy amounts on eating out. Then try and eat at home more (which is, of course, less expensive) and then move that money into a travel/vacation fund.
Think of your goals. What do you want? How can money help move your forward towards those goals? Need help with identifying and solidifying your goals? No problem, I did a 6 part series on this, Your Goal Setting Master Series, which will take you through this exact process! But if you’re ready to get started on your goals then head straight to the Big Money Goals Planner & Workbook and you get going on it today!
3. Get your resources together
You only need a few things supplies in Budgeting 101, and the good news is that you already have most of the items at hand!
First, you need your past credit card or debit card statements so that you can see where you’ve been spending your money.
Secondly, you need a calculator, and it’s probably a safe bet to say that you have a phone, so you’ve covered.
Lastly, you need a budget template. You can get my pack of free budgeting templates right here! There are 13 printable pages in total to help you manage your money (but you only need the one monthly budget page to get started).
Oh, and you’ll need a pen and maybe a highlighter 🙂
4. Stop spending more than you earn
This step is simple. Yup, it’s simple because it’s addition and subtraction. BUT it’s not easy. That’s an important distinction, as those terms usually go hand in hand, but not with budgeting.
- Figure out your monthly income (if you have a variable income figure out the lowest guaranteed amount).
- List out and total your must-have expenses (use the free budgeting templates). Things like rent/mortgage, electric, water, gas, insurance, and essential food.
- Take your income minus must-have expenses, then that balance is the amount you have leftover for your discretionary spending.
- List out and total your spending wants – Netflix, gym membership, cell phone, fun money, eating out, and everything else.
- Take your total from #3 and then minus your total from #4. This final number needs to be $0 or a positive number.
If you have money left over, then you can use that for reducing your debt (see below). Yet, many find that they don’t have anything actually leftover and that they’re running in the negative. That means you have to do the hard part of giving up the extras that you “want” and focus your spending only on what you “need.”
This is the part where people get down on themselves. As you want a lot of fun, cool and great things! (I would love to have a subscription box to the places that do organic, super healthy smoothies, but they are super expensive, so I don’t get them). I know this is rough. But you need to start living within your means or you will never achieve your big goals. I repeat, this is the most essential step in Budgeting 101, if you don’t master this step then you will never succeed in budgeting!
There are quite a few different budgeting methods, so if one doesn’t make total sense to you, or it just doesn’t fit your lifestyle, then try another! Here are The Top 7 Proven Budgeting Methods. Just don’t quit budgeting, that’s not going to solve your problems or move you closer to your goals!
5. Understand what is holding you back
Let’s talk a little bit more about wants vs. needs. As people can really get stuck on “things” and think that they must have something.
Yes, you probably need a car, but do you need Mercedes? Nope. The only person that needs a Mercedes is the mechanic who is learning how to fix one. Sure, it would be fun to have a nice car, but if your goals are traveling or owning your home, a large monthly car payment will not help you reach your goals!
Another common overspending category is food. Yes, you need to eat, but do you need to eat out four nights a week? Absolutely not! Meal Kits can be a huge time saver, and they don’t need to cost a lot. Try Everyplate at $4.99 per meal, about 1/2 the price of the others (but you pay shipping). It’s a lot less expensive than eating out and a lot healthier for you too!
People also get tripped up when buying large ticket items. There’s an important distinction to be made regarding assets. It’s important because some assets continually go down in value until they are worth zero. These are called depreciating assets, things like cars, boats, timeshares, low-quality houses (or are in bad neighborhoods) are all things that you shouldn’t really invest your money in.
Collectibles are another common pitfall, especially items that have a very small target audience. Yes, your South American stamp collection may have cost you $11,000 to put together, but it’s only worth that much if you can sell it to someone who actually wants to buy it. Be thinking about the demographic of someone who would buy this; is it getting bigger or smaller?
When looking at your purchases and assets, you need to be honest with yourself. Even brutally honest. This is the only way to move forward.
6. Get a plan for reducing your debt
If you find that your debt numbers are higher than you would like (let’s be honest, no one wants more debt). Then we need to find a way to attack this debt and get it out of your life for good!
There are two main strategies for this…
- Debt avalanche – getting rid of the highest interest rate debt first (usually credit card debt). Using this method decreases how much interest you’ll pay overall.
- Debt snowball – getting rid of the lowest balance debt first. I encourage you to choose this method, as it gives you quicker wins, and thus increases your motivation to continue on your debt repayment journey.
Yes, paying less interest overall sounds like the best choice. Yet, when you take action, and you don’t see some sort of results right away, you will be more likely to quit. It’s all about your mindset here! I wrote a whole post comparing these two debt payoff strategies, so if you want to see some numbers & examples be sure to check it out!
Or if you’re just looking for a way to keep it all organized then grab a worksheet to track your debt payoff.
7. Get a plan for saving money
Even when you are paying off debt, you need to have some sort of emergency fund. Getting out of debt guru, Dave Rasmey says you should start with a $1,000 emergency starter fund. Which is a great place to start. Then after you get rid of your debt, you should work up to having 6-9 months of an emergency fund.
There! That’s it!
If you’re ready to take the next step with budgeting, I want you to check out Your Ultimate Guide on How to Budget. It’s a 5 part series that goes in-depth on how to budget for significant financial growth! I walk you through how I have been budgeting for the past four years, and how we can afford everything my family needs, all without crazy high salaries!
Budgeting 101 resources
There are lots of people that you can learn from. One of the most popular is Dave Ramsey. He’s outspoken, and doesn’t hesitate to say what needs to be said. He’s religious, which isn’t for everyone. Yet, his success rates cannot be argued with! If you are in debt then you will absolutely benefit from his teachings! Yes, the books below go into a lot more than just budgeting, but it will help you connect the dots and make the bold moves that need to be made.
My Budgeting 101 introduction was listening to his podcasts during my commute to work, I had two hours in the car round trip, dedicated to learning how to budget. So if you’re not thrilled about reading a book then start with his podcasts, but you will eventually need to read the book too.
At the end of the day
As a budgeting beginner, this is all you should be focusing on! Don’t try to master too many principles at once. Don’t try to move too fast to learning about, and understanding, and then implementing the next thing. That will just set you up for failure. Remember, slow and steady wins the race!
Related articles to Budgeting 101:
- Your Ultimate Guide on How to Budget
- Financial Literacy – the Proven Path to Freedom from Your Money Problems