The Straight & Simple Guide to Budgeting for Beginners
What to do when you don’t know where to even start with budgeting your money
We’ve all been there, many times 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 to do when you don't know where to even start with budgeting your money
- What budgeting isn't
- What budgeting is
- Budgeting 101 – the 9 steps
- 1. Manage your expectations
- 2. Identify your financial goals
- 3. Get your resources together
- 4. Pick your budgeting method
- 5. Figure out your income and expense numbers
- 6. Understand where you are over/under spending
- 7. Get a debt repayment plan
- 8. Get a plan for saving money
- 9. Tweak and adjust your budget
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.
Moving closer to your goals is just one of the top advantages of budgeting, but there are so many more things that will come from developing this one skill, like a full savings account and peace of mind!
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Budgeting 101 – the 9 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 research beginning budget plan info, 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 personal 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! Trust me, you will eventually “get it.”
If you’re finding it hard to keep sight of things be sure to check out the Top Budgeting Quotes Guaranteed to Inspire! You will absolutely find some gems that will stick in your head and keep you on track!
2. Identify your financial 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 life goals. What do you want? How can money help move your forward towards those goals? Need help with identifying and solidifying a good financial goal? 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!
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3. Get your resources together
You only need a few 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 your spending habits. You’ll be categorizing your charges into budget categories to make it easier.
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). Yet, there are lots of budgeting templates out there – here are 50 budgeting worksheets, spreadsheets, and templates.
Oh, and you’ll need a pen and maybe a highlighter?
Sometimes it’s easier to make a budget binder, then you have all of your info & supplies in one place. Honestly, making a budget binder is kind of fun! #nerdmuch?
Resources and supplies are usually physical items, yet with budgeting (and any skill-based activity), you may need some different kinds of resources. In order to be a good budgeter, you need some basic budgeting skills. Don’t worry, being a math wizard isn’t on the list. But some of the other skills may surprise you! Check out The 7 Budgeting Skills You Need to be a Rockstar Budgeter!
4. Pick your budgeting method
I want you to know that there are lots of good ways on how to budget, and the “best way” is the way that makes sense to you, and the one that you will continue to use. As long as the math is correct, and you haven’t forgotten any expenses then great! Here are the main methods
- 50/30/20 budgeting method
- Zero based budget method
- Cash envelope system
- Pay yourself first method
- The half payment method
- The budget by paycheck method
- Priority based budgeting method
I go deep into these methods and go over who each method is best for, because certain types of personalities do better with certain methods.
For example, if you are easily swayed by impulse purchases then the cash envelope system would be best, as once the money is gone, you literally can’t buy anything else. Another benefit is that it’s been proven by multiple research studies that when you pay with cash you spend less. Partly because it’s mentally harder to hand over that cash than it is to swipe a credit card. This is what makes envelope budgeting so popular!
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5. Figure out your income and expense numbers
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).
- Look at your living expenses and group them into budgeting categories. (i.e. food, transportation, debt repayment, etc).
- List out and total your must-have monthly expenses (use the free budget template). 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 (i.e. all the extras like shopping, dining out, etc).
- List out and total your variable expenses – 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 after your discretionary expenses, then you can use that for reducing your debt more or save more (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 habits by only buying what you “need.”
If you aren’t quite sure if your expense totals are “normal”, then be sure to check out Dave Ramsey’s Budget Percentages. He goes over how much you “should” be aiming to spend for each of the categories. I find it helpful to know a good range of where I should be aiming, so this is a great starting point.
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, 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!
I know this step can be a shock (as you didn’t know you were spending this much on sushi!) It’s okay, now that you know you can change changes. Just don’t get discouraged and quit budgeting, that’s not going to solve your problems or move you closer to your goals!
If you’re ready, you may want to cancel your subscription boxes or streaming membership that’s no longer needed. Keep that momentum and negotiate your insurance, cell phone, or internet bill.
Or, to save time, you can use an app like Rocket Money to quickly find and cancel subscriptions and manage your bills!
6. Understand where you are over/under spending
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 $4.69 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. Brutally honest. This is the only way to move forward.
7. Get a debt repayment plan
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.
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8. Get a plan for saving money
If you don’t have a savings account, now is the time to open one! Even when you are paying off debt, you need to have some sort of emergency fund. Getting out of debt guru, Dave Ramsey 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.
Once you have a full emergency account your savings goal should support your life goals – vacation, a new home, etc.
There! That’s it! You’ve made your household budget plan! Now that you’ve read all about it, get started on your own with my free budget template!
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!
9. Tweak and adjust your budget
As we talked about in Step 1, manage expectations, you’ll need to adjust your budget during the month, especially if this is your first attempt at budgeting. Either you’ll forget about some random expenses (i.e. annual amazon subscription), or you’ll find that you didn’t allow enough money to a category.
Getting your budget “wrong” for the first handful of months is normal, don’t feel bad. Just adjust and keep going!
Weekly budget meetings
Now that you’ve made a budget plan you need to keep it current, which means holding weekly budget meetings (at a minimum), even if you’re the only one in the family, you need to keep up on it.
During the week, you’ll be spending money. Then, ideally, you’d come home and log your spending on an expense tracker. This is so you can keep tabs on your spending so you don’t spend too much. Again, ideally, you’d do this daily, but weekly is the minimum. Why? Because if you’re overspending you need to know ASAP, so you have time to change your spending pattern before the end of the month. There’s no sense in saving all your receipts, then on the 28th you log them, and figure out you’re $234 overspent. That doesn’t give you time to adjust. And no, you can’t pull the overspend amount from your emergency fund, you’d just be cheating yourself.
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.
He’s got a lot of books out on the market, so check out the complete Dave Ramsey book list to find the perfect one for you!
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 about 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.
A great way to get a jumpstart on budgeting is to grab a budget planner! They make it so easy to track & plan your money, many of them have financial goal setting sheets too!
Another great option for money newbies is the Ultimate Bundles Master Your Money Super Bundle. It’s offered 1-2 times per year for an unbelievably low cost for the number of resources that you get. Be sure to check them out!
Another popular resource is to use a budgeting app. In the very beginning, I am going to urge you NOT TO USE AND APP. The budgeting process is something that you need to engrain in your brain, and writing it out by hand is key to help get all aspects of your brain around it. It’s been proven that writing by hand improves memory retention. After you’ve done it on paper for six months you can switch to a budgeting app.
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You’ll have a lovely, super simple spreadsheet, exactly how you like it. The best part is that it automatically updates daily, so you know you’re using accurate figures when spending and saving during the day.
They have budgeting and saving templates ready for you to use if you just want to jump in. They even have a great tutorial library on YouTube to help you customize things.
They offer a free 30-day trial for Tiller Money, so you have nothing to lose!
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 for beginners:
- Your Ultimate Guide on How to Budget
- Financial Literacy – the Proven Path to Freedom from Your Money Problems
- 5 Proven Printable Monthly Budget Planners
- 15 of the Best Budget Planners to Run Your Financial Empire!
- The Ultimate Budget Categories List – Perfect for Every Budget
- The Best Budgeting Tips to Help You Crush Your Monthly Budget!
Wow is all I can say. This article is a comprehensive guide to getting started with budgeting!
Thanks so much for the kudos! So glad you liked it!
such a wonderful post on budgeting for beginners
so helpful, thanks for sharing!
So glad you liked it! Thanks for stopping by!
That phrase “what you want your money to do for you” really resonated with me.
Thanks for these tips for getting a better grasp on budgeting. It really comes down to prioritization and being money conscious.
Good call out! So glad it stuck with you!
This is great! I’ve spent a ton of time working on my budget and use the YNAB method & app! I love it so much and it works well for me!
I’m glad you are helping people with their budgeting needs!
So glad you found a resource that you love!
Budgeting is so important – I think many people don’t realise that a budget doesn’t have to be controlling! It’s just about being aware and making conscious decisions about where your money is going!
Absolutely! A conscious decision to spend & buy is key!
I love how you flipped the switch in the beginning and said what budgeting isn’t. I love tracking my money but I suck at sticking to a budget. But I am doing the debt snowball to pay off debt so I can buy a house within the next year or two. Thanks for the great tips.
The debt snowball is by far the best way to get out of debt. I know you’ll do great, and congrats on the soon to be new house!
This is such a detailed and informative post on budgeting! And that budget planner looks super helpful too! Thanks for sharing!
So glad you liked it Faith!
I love this very simple yet very informative guide!
Thanks for stopping by!
I have a family member who is super into collectibles and I 100% agree with you that they are bad for your budget. There’s nothing wrong with collecting a few things that you love but spending thousands of dollars on something is kind of scary to me!
Ohhh collectibles are a marketers dream, and a mom’s nightmare! I don’t want to spend the ongoing money on them and I certainly don’t want to clean them!
I love #4! It’s such a simple concept, but I think it’s an easy one to forget.
It’s so easy to lose track of it of earn vs. spend, especially when it’s revolving!
For long term savings and financial independence budgeting is necessary.
Budgeting is absolutely necessary! 🙂
Great advice! Once you start getting your money to work for you, you feel like you can do anything. It’s no fun when your money controls you.
Being controlled by your money (be it debt or otherwise) is so defeating. You need to break the cycle!