Budgeting for beginners is a fundamental exercise in taking control of your finances.
Many tools you’ll find are confusing –this one is perfectly simple*.
My tool is intended for people who are goal-oriented but are often afraid to check their credit card statements for fear of what they might see. Believe me – I’ve been there.
If you value your money and want to have more of it going forward, setting up a budget is fun!
Well, for fear of sounding like your third grade math teacher trying to tell you multiplication tables are fun, I’ll admit – it’s not fun. But having more money is fun, so I’m sticking with it.
Now that that’s out of the way, let’s get started.
Track Your Expenses
Want to know the best secret for starting a budget? Getting a grip on your spending habits.
No longer will you be afraid to check your credit card statements or bank account. Starting today, you need to be a budget hawk.
- Using this Budgeting Tool, you’ll want to first track the recurring monthly expenses. This could be your gym membership, car payment, cell phone bill etc. These numbers should stay the same each month, so you can copy them over for each month in the applicable category for the rest of the year.
- Next, nail down the things you pay for on a yearly basis, like a car registration.However, there’s a plot twist – instead of tracking these expenses once in the year, average them out over twelve months (a $60 yearly payment becomes $5 each month) and log them for every month, just like you did in the previous step.
- For the next three months, record your purchases in the applicable categories, and use miscellaneous when nothing else applies. If you need to add a category, you can do so by right-clicking on a category and selecting “insert” and then “OK”.
- After three months, calculate a monthly average (on the far right past “Year”) for the expenses from #3 and pencil them in for the upcoming month. I like to get an average over a three-month period to get comfortable with my spending habits while accounting for some fluctuations. Based on this history, you can expect to spend roughly that amount this month. This serves as your budget estimate.
- For the upcoming month, all your estimated expenses should be written already. As you continue tracking expenses, you will substitute these numbers with the actual amounts at the end of the month. Are you spending more or less than your estimate? Note the estimated total expenses for each month at the bottom – this is your monthly cash outflow.
Analyze Your Expenses
Hopefully your monthly income is at least higher than your monthly cash outflow.
As you analyze your expenses for the first time, it’s common to be surprised at how much money you’re spending on particular things. Let it sting. Use that pain to identify things you’ll cut out completely or partially moving forward.
If you’re spending more than your estimates, look for ways to cut down! You spent how much on eating out? Naughty, naughty.
Set a Monthly Savings Goal
Now that you’ve laid the groundwork for your budget, it’s time to decide how much money you want to save each month.
What are you saving for? Do you want to save $1 million by the time you’re 35 to retire early? If you saved 35% of your monthly income, how much would you save every year?
Base your monthly savings goal on an ultimate savings number somewhere down the line. For example, if you wanted to save $1 million in 20 years, that would be $50k per year, or $4,166 per month.
You can estimate your retirement date by saving enough to live your desired lifestyle using the 4% rule. Set a realistic goal on the right side in the bright green box and work towards it every month.
Cut the Fat and Look for Bargains
Now that you’ve envisioned yourself in retirement sitting poolside with unlimited daiquiris and nachos, let’s look for ways to cut back on spending.
This can be a hurdle of budgeting for beginners because they’re not used to making financial sacrifices that affect their lifestyle.
Firstly, identify things you aren’t using that you can eliminate. I’m willing to bet there’s at least one recurring monthly expense that you can get rid of. You might also waste more money than you should on alcohol and eating out.
Looking for bargains doesn’t mean you should be clipping $.25 off coupons with 8 people behind you in line or picking up pennies in the parking lot. What it does mean is to be opportunistic about what you purchase and when.
Be judicious with purchases you need to make and find ways to save money when possible. Some of the most common ways to save money are to:
- Start carpooling to work
- Downgrade your cell phone plan
- Stop eating out and buy store-brand food products
- Reduce or eliminate your cable package
- Cut back on any drinking/smoking
Get Comfortable Telling People “No”
No one said budgeting would be easy.
In fact, the hardest thing about sticking to a budget is turning down opportunities you’d love to say yes to. I firmly believe that to be successful in life, you have to be comfortable telling people “no”. If you’re easily convinced to do things that fall outside of your plan, you can kiss your plan goodbye.
When you’re pursuing a certain future lifestyle, a true friend won’t make you feel bad for staying true to it.
Save, Save, Save
A budget serves to provide clarity about your financial situation. You have an obligation to hold yourself to the highest standard possible so you can achieve your financial goals.
Retiring early isn’t for everyone, but it could be. Building wealth isn’t for everyone, but it could be.
If you want to be financially independent one day, you’ll need to make difficult sacrifices along your journey until you can feel that freedom every morning as you wake up.
Stay vigilant, keep pushing, and keep saving.
Analyze the Results
On the spreadsheet, you should only edit the lightly covered boxes. Do not manipulate the “Year”, “Total” or “Savings” sections, as these are calculated automatically.
If you input your results throughout the year, you’ll be able to see whether you’re reaching your monthly savings goal by a “Yes” or “No” in the “Goal Achieved” section. If you keep getting a “No”, keep finding new ways to cut your expenses!
Have you started your first budget yet? Are you pursuing financial freedom? Tell me about your journey in the comments.
Budgeting for beginners is easier when you throw ideas off people, so don’t think you have to do it alone. Please subscribe and share below.
*Note that this spreadsheet does not factor in investment returns, retirement accounts, interest on savings, or home equity. This is strictly focused on basic income and expenses to highlight spending habits. It is not an assessment of your total net worth.
All opinions expressed on this blog are solely those of Home at 30 and are in no way affiliated with any other organization or institution. The purpose of this blog is to give general education and information about investing, wealth, careers, and college; It is not intended to be professional advice.
After earning an undergraduate degree in Economics and a Master of Arts in Management at Wake Forest University, Josh has paid off over $90k in student loan debt in 3.5 years. By founding Home at 30, Josh wants to help you make the most of college, build a successful career, and achieve financial independence.