Budgeting Tips for Beginners [The Best Way to Get Started]

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Hate budgeting? I feel ya. Personally, it used to feel like cheaping out. You’re not allowing yourself to enjoy anything. But, as I’ve grown to learn, that isn’t what budgeting is about. You can still enjoy life while having a budget.

What Is a Budget?

A budget is a planned allocation of your funds. It doesn’t matter if you earn $3,000 or $30,000 a month. It’s easy to lose track of how much we spend each month, but it’s particularly essential to know your spending habits in order to start putting yourself into a good place financially.

Budgeting is for everyone, believe it or not. Just because you earn a healthy six-figure income doesn’t exempt you from the need to budget. You’re doing a disservice to your own time and money.

Why Should You Budget?

Everyone has different reasons for having a budget — the most common one being to pay off debt.

The average American has $5,313 in credit card debt and $16,458 in personal loans, according to the 2020 Experian Consumer Credit Review. On top of that, you’ve got student loans, car loans, and mortgages. It is imperative that you allocate your money to the most critical categories before spending it on anything else.

Furthermore, you may be saving for retirement or for that dream vacation. Sometimes we forget about saving money when it’s so far ahead of us. It’s too easy to spend money you were supposed to be saving on a new jacket or bag. These purchases add up, and could very likely cost you the ability to retire by a reasonable age. If you’re a high-income earner, you’re more likely to fall into debt and live paycheck to paycheck than someone earning an average income. This is due to an ever-so-slowly growing lifestyle creep, until one day you come to a realization too late that perhaps you’ve been spending more than you intended to a decade ago.

How do I start budgeting?

Starting a budget can be overwhelming and downright depressing. But it doesn’t have to be. Take some time to think about what your goals are. The first step is the hardest. But most importantly, you’re taking it. Follow these simple budgeting tips for beginners. Be careful though, lest you find yourself enjoying the process too much!

Budgeting Tips for Beginners #1: Figure out your spending

Take some time to organize your bank statements and see what you are already spending on. This can be a daunting task, depending on how many credit cards and debit accounts you possess. But it’s more than half the battle. Do this well, and you’re golden. Be sure to categorize your expenses in a way that isn’t too specific. Don’t do “Streaming Apps” or “Books” or anything too granular. Instead, try “Entertainment & Subscriptions”. This allows you to get a better picture of your overall allocation of funds.

Hopefully, along the process, you’ll find that the amount of money you’ve been spending differs from what you thought it was. Maybe you thought that you spent $300 dining out each month, but it was actually $500. but spent about $500 instead. Or perhaps you spent $200 on utilities instead of that $400 you always thought it was. Both are valuable pieces of information to have.

Furthermore, group your categories into unavoidable monthly overhead, i.e. rent, utilities, groceries, vs. avoidable spending, i.e. dining out, electronics. You may call these “Overhead Spending” and “Discretionary Spending” if you’d like. Once everything is laid out in front of you, you may start to see a clear spending pattern.

Budgeting Tips for Beginners #2: Set a goal

Now that you have a better snapshot of your spending, focus on figuring out what you’d like to accomplish. It may be tempting to say, “I want to pay off debt, save for a down payment, and start a college fund for my kids”. Instead, try focusing on one goal at a time. As you get increasingly proficient at this, you may then tackle multiple goals.

In general, if you have any debt, focus on paying that off first. You may be spending more than you realize on interest alone, and you wouldn’t want that to hinder your other goals. However, always make sure you consult with a certified financial planner or advisor to help you out on this if you aren’t sure.

Budgeting Tips for Beginners #3: Be realistic

Take a moment and ask yourself if you’re being realistic with your goals. If you’re regularly spending $500 dining out every month, don’t suddenly make the budget $200. Making such drastic changes can backfire on you, as you may end up quitting early on. Remember, you didn’t accumulate your debt or form your spending habits overnight either. It takes time.

Instead, take baby steps and reduce your spending over a few months. This isn’t the time to go cold turkey. It’s better to feel accomplished and celebrate the small victories.

Budgeting Tips for Beginners #4: Track your progress

Keeping track of your monthly progress is extremely important for staying on budget, especially in the beginning. Luckily, no matter how you like to keep track of things, there is an option for you.

Budgeting Apps for Beginners

If you are someone who’s always on your phone or your computer, a budgeting app is a lifesaver. The choices are abundant, and some are even targeted toward specific people and needs. It’s important to do ample research to see which one is right for you.

Some are completely free, such as Personal Capital. Personal Capital tracks your spending and your wealth, be it your 401k, investment accounts, or debt. It allows you to place all of your accounts under one app and gives you an accurate view of your overall net worth. Others require a monthly membership fee, such as YNAB (You Need A Budget). This app uses the zero-based budgeting method, which requires that you assign a purpose to every dollar. Personally, these two are my favorite and can work in tandem with each other.

Budgeting Excel Sheets for Beginners

If you are Excel-savvy, creating or purchasing an existing budgeting excel sheet is an excellent way to go. It does require a little more work to input every transaction to the excel sheet manually. However, taking a more active approach is oftentimes more effective in forming a habit. Formatting excel sheets can get a tricky, but once you get the hang of it, you’ll be able to customize your sheets exactly how you want them to be.

Budgeting Planners for Beginners

Even in this day and age, digital tracking isn’t for everyone. Some prefer to put pen to paper the old-fashioned way. Writing things down commits ideas to memory more effectively. If this is you, you can purchase a physical budget planner or journal to help you on this journey. There are many great options out there, and you can find one anywhere you go. If you are buying one through your local store, flip through the pages to examine the categories and layout of the journal. If you are purchasing online, find reviews, or even better, find video walk-throughs of the journal to see if it works just right with your style. Take this budget planner by Erin Condren, for example. Not only are there trackers for your goals, debt, and spending, but also additional sections for you to journal your thoughts throughout.

Budgeting Tips for Beginners #5: Reexamine frequently

Once you have everything set up, get in the habit of checking your progress. Reexamine your spending goals regularly. In the beginning, you may want to take your time and set new spending goals every 1-3 months. Adjust your spending goals as you get closer to your ultimate goal. As stated before, if you used to spend $500 dining out regularly, adjust it to $450 for the first 2 months or so, then scale it down to $400 and so on until you get to your goal.

Keep in mind that certain months may also have additional expenses and take this into account. A big one is the month of December, due to the holiday season. Most of your expenses can be anticipated and planned for. However, unforeseen expenses do occur. Such is the nature of life. Brush it off and move on. There’s no reason to get discouraged. However, do make sure that you keep an emergency fund worth at least 3-6 months for unforeseen circumstances.

Budgeting Tips for Beginners #6: Keep yourself accountable

Remember, it’s your choice whether you want to be responsible with your money. However, if you’ve made the decision to start budgeting, you are already better off than most on that fact alone. Keep yourself accountable, set a budget, and stick to it. If you find yourself having a hard time sticking to the budget for the month, just keep at it, and reexamine at the end of the month. There’s always room for adjustments.

Perhaps, budget for a small victory reward after the first month just for starting a budget! None of this going to become a habit overnight. Keep experimenting with what works for you, and never give up on it. Whenever you’re ready, be sure to check out some more advanced budgeting tips.

Popular Budgeting Methods

There are many different methods when it comes to budgeting. Below you can find a few of the more popular methods.

Zero-Sum Budgeting

The zero-sum budgeting method, used by the popular app YNAB, allocates a purpose for every single dollar that comes into your bank account. With this method, you would have to stick to the budget, since there is no left over money at the end for wiggle room. However, you do have the ability to reallocate funds from one category to another if something really important comes up.

70/20/10 Budgeting Method

The 70/20/10 budgeting method splits your income into three main categories. You will allocate 70% to necessities, 20% to savings and 10% to charity or paying off debt. It is one of the most popular budgeting methods, and a great method to begin with. It allows you more freedom in your spending since you are spending 70% of your money on regular shopping.

Envelope System

With this method, you allocate cash to different envelopes labeled for specific categories such as groceries, entertainment, or transportation. Once the cash in an envelope is gone, you can’t spend any more in that category until the next budget cycle. This method is great for people who find it easier to control their spending with cash.

50/30/20 Budgeting

This method allocates 50% of your income to needs, 30% to wants, and 20% to savings and debt repayment. This approach is a good option for those who want a simple and flexible budgeting method that doesn’t require a lot of tracking.

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