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A personal budget is a roadmap to achieving your financial goals. Whether it’s getting out of debt, paying off your mortgage, financial independence, or even retiring early; you’ll need a budget to get there. These 18 best personal budgeting tips for beginners will help ensure you have a successful budgeting experience.
Table of Contents
Why Do I Need a Budget?
Imagine you are on a ship at sea and you are the captain. You have a rough idea of the direction you want to head, but you don’t have a map or any navigational tools. Without an ending destination in mind and navigational tools to get there, you just float around aimlessly in a vast sea.
In this example, your net worth tells you where you currently are, your financial goals are the destination, and your budget is the navigational tool to get you there.
If you want a better life, you need to be intentional about how you spend your time and money.
To get ahead, each action you take should be one that makes your life just a little bit better and one step closer to your ultimate goals.
To be intentional with your money, you need a budget.
Click here to learn how to create a simple, monthly personal budget.
Start with the End in Mind: Set Savings and Debt Payoff Goals
As I mentioned before, your short-term and long-term goals are the destinations along your route.
To start, spend a little time thinking about what you value and is most important to you. What brings you the most joy? Where do you envision yourself in 5, 10, 20 years?
For example, if you imagine working for yourself someday, you may need to pay off your debt and save up a “business fund” that will support you for a couple of years while you build your business.
Another example could be that you are sick and tired of worrying about money and want to be financially independent. Well, to do that you’ll need to develop a long-term plan (financial independence) with smaller short-term financial goals (paying off debt, and saving & investing goals) along the way.
Taking the time to set good short-term and long-term goals is important because your goals will ultimately serve as the psychological fuel that keeps you completing a personal budget each month and tracking towards those goals.
Use Accurate Income and Expense Data When Budgeting
This should go without saying, but your budget is only going to be as accurate as the data you use to create it.
Income
Don’t just use your gross salary for the year and divide by 12 to get the monthly income unless you’re planning on deducting all of your taxes and other mandatory expenses (state/federal pension, social security, workman’s comp, etc.) each month.
Irregular Income
If you have an irregular income, definitely don’t just take your yearly income and divide it by 12 to get your monthly income. Look at previous years (if you can) to see if you earn more in certain months/seasons and use those numbers as an estimate.
Also, people with irregular income should plan on being more conservative with their income estimates for each month. This depends on the industry and why it’s irregular (overtime, commission, seasonal work, etc.), so ultimately it will be up to you to decide how conservative you need to be.
Expenses
When it comes to expenses, don’t just guess what you spend each month. Look back at previous months to see what you spend on average for each expense category and use those numbers as a starting point.
For irregular expenses, look at past data to get a better idea of what it might be each month.
For example, your electricity may be more in the summer and winter months, but lower in between. If you’ve been in your home for over a year and are preparing a budget for August, look back at your bill for August last year to get some idea of what it should be.
Don’t Forget Less Frequent Expenses
When planning a budget, don’t forget about those expenses that are less frequent than monthly.
Some examples include car insurance, car taxes, home insurance, property taxes, vehicle maintenance, home maintenance, income taxes (if you frequently owe money), tuition, etc.
To make sure you have the money when the expense rolls around, you should be saving a little each month towards each of these infrequent expenses.
Focus on Needs and Debt Payoff First
For most budgets, you’ll end up separating your expenses into three categories: needs, wants, and savings (this includes debt payoff, retirement investing, etc.).
As a general rule of thumb, you should aim to spend no more than 50% towards needs and 30% towards wants, and at least 20% towards savings (again debt payoff, investing, etc.).
However, to truly get ahead with your personal finances and accelerate your progress towards your goals, your budget should focus primarily on paying your needs first and debt payoff second.
The expenses that fall within the “wants” category should be an afterthought until you can pay down your debt (except maybe your mortgage).
Utilize the K.I.S.S. Method When Budgeting
You should keep your budget as simple as possible, especially early on. To start with, you can use something as simple as a budget planner or excel worksheet.
Free Budget Worksheet Sources
- Consumer.gov – Make a Budget – Worksheet
- Microsoft Office Templates (For Office 365 Subscribers) – Budgets
- Google Drive – Once you’re logged in, drop down under My Drive -> Google Sheets -> From a Template
- Mint – Free Budget Templates (they keep the files in the body of the post for each template)
Consider Using an Online Budget Tool
If you are more into technology and believe that would be easier, there are several great apps to choose from including:
- Mint
- You Need a Budget
- EveryDollar
- PocketGuard
- Clarity Money
- Goodbudget
- Personal Capital
I would personally recommend EveryDollar starting out as it’s simple and free. Similar to completing a zero-based budget on pen and paper, you tell each dollar of income to go each month.
Create a Buffer in Your Budget
Although you should be creating a zero-based budget, it’s smart to consider creating a financial buffer (especially early on).
To create a buffer, you should tell less of your money to go towards wants and more towards savings, it’s as simple as that. This will provide a small amount of money you can use when an unforeseen expense rears it’s ugly head.
Another simple tip you can use to provide a little more buffer is to round up all of your expenses to the nearest dollar. If you’re feeling particularly conservative you can round to the nearest 10 dollars (for example, $77 would round up to $80).
A word of caution, try not to dip into your buffer unless you absolutely need it and keep building it month after month until you have savings large enough to act as your emergency fund in case something happens.
Click here to learn more about what an emergency fund is, why you need one, and how to create one.
Ditch the Credit Cards
Credit cards are an added complication to your life that you don’t need, especially when you are just beginning with your budget.
Credit cards are just a way to pay for something you can’t afford now. If you can’t afford it now, you don’t need to buy it.
Credit cards are notorious for high interest rates and fees that steal away your income.
Also, all it takes is one emergency for you not to be able to make payments on your credit card. One missed payment turns into another and so on.
If you can stick to using cash or a debit card (make sure the one you have has the same protections as a credit card). If you must keep a credit card, try to stick to one and make sure to pay it off each month.
Budget Before the Month Begins
This should probably go without saying, but you need to create your budget before the month begins.
If you create your budget a week into the month or even halfway through, the budget will have served you no good for the time you didn’t have it.
Use Cash to Stay on Track
Once you start budgeting, if you find there are expenses that you routinely overspend on, you may want to consider using cash for those items.
For example, if you consistently overspend on food each month, you may want to stick your food budget in an envelope in a safe place and use that to track your spending.
You’ll know exactly how you’re doing each time you spend money on food because the money will physically disappear each time you dip into the envelope.
For some people, this causes them to be more intentional with their spending.
Each Month is Different
Each month is going to be different, so each monthly household budget should be different.
Don’t just copy and paste your budget from month to month. Sit down and think about the income and expenses for that month.
Is it time to take the cat or dog to the vet? Are you earning a bonus this month?
Be present when doing your budget because your budget is only going to be as good as the data you put into it.
Take the opportunity to thoroughly plan ahead and you’ll be rewarded with less money emergencies and stress throughout the month.
Automate Your Budgeting as Much as Possible
The easier you make your finances, the better.
Use Direct Deposit
To start with, set up your paycheck for direct deposit. You don’t want to have to stop by the bank every time you get paid.
Pay Yourself First
When you setup your paycheck for direct deposit, you’ll often have the option to divvy it up as you see fit. Go ahead and setup any savings or retirement accounts, so that when you get your paycheck it’s automatically deposited into those accounts.
Automate Your Bills
To start, simplify you bill due dates by changing them to be due when you want them to. For ease of use, you’ll either have one day when everything is due, or break it into 2-4 different days each month, depending on how you get paid and when you can make the payments.
Next, for those bills that are consistently the same amount, you can go ahead and set up autopay with your bank.
This doesn’t mean you shouldn’t look at the bills when it comes budget time. Things happen (kids use too much cell data, water leaks, mistakes on the bill itself, etc.).
However, it does mean that it should be less likely that you’ll forget to make the payment.
Make Sure Your Budget is Realistic and Attainable
Starting off you’ll most likely be excited about budgeting because of the future possibilities you now see open to you.
This excitement about the future is going to make you want to set super challenging goals because you want to reach those goals as quickly as possible. Because of this, your budget will also be extremely challenging.
You know what’s possible for your family (at least you should have some idea after reviewing previous spending patterns).
Jumping in with both feet is fine, but don’t make a budget so strict that after a couple of months of doing it, you quit.
Your budget should be challenging, but attainable.
If you do this, two things will happen.
- You will feel a sense of pride and accomplishment because you were able to achieve a challenging goal.
- You won’t get burnt out before you even really begin.
Have A Budget Buddy
Whether it’s your spouse, another family member, or a friend; you need a budget buddy.
Similar to other programs like Weightwatchers or Alcoholics Anonymous, the key to staying on track is accountability and support. Your budget buddy will provide this accountability and support.
By having a budget buddy, you both have someone to share in your triumphs and defeats, encourage you, and ultimately push you to reach your financial goals.
Track Your Progress and Be Intentional with Your Spending
It’s important to track your progress along the way. You should track your progress throughout the month to ensure you’re staying on budget.
You should also take a step back from time to time to see how you’re tracking towards your overall goals. This will keep you motivated and excited to continue budgeting each month.
Be Flexible
When you’re tracking your progress throughout the month, there may be times where you overshoot a budget item or some unexpected expense comes up.
Don’t let this derail your entire monthly budget.
Instead, look for other budget items that you can undershoot to still meet your overall budgeting goals for the month (i.e. needs, wants, savings).
Stop the Comparisons
There is nothing more toxic to your finances than comparing your situation to someone else.
Be content with the things you do have and the actions you’re taking to achieve your financial goals.
Life is a marathon, not a race. As long as you keep making good financial decisions, your finances will improve incrementally, month after month, year after year.
Before long you’ll have reached that long-term goal you thought was impossible and be working towards a new goal.
Take It Easy on Yourself and Practice Patience
It takes a little while to get in the groove of making and following a personal budget.
You are going to have months where you succeed and some where you fall flat on your face.
In those cases where stumble or fall, you shouldn’t beat yourself up or even worse, give up.
Instead, get up, remember why you’re doing this, and get back to it.
Celebrate Small Wins and Treat Yourself
When you do reach budgeting and financial milestones, make sure to acknowledge and celebrate those wins.
By celebrating achieving your short-term goals, it will provide a feeling of accomplishment and provide you with fuel to tackle your next challenge.
Best Personal Budgeting Tips for Beginners – Conclusion
A budget is an important personal financial tool. It allows you to identify and take back control over where your money goes each month. Following these simple personal budgeting tips will help ensure your budget experience is a smooth one.
What personal budgeting tips for beginners do you have?