Learning how to budget is essential to becoming financially healthy. Many people are intimidated by budgeting simply because they have never learned how to budget. Budgeting is simple. It?s a process where you write down what you make each month, what you spend each month and what?s leftover (or overspent) each month.
The whole goal of a budget is to tell your money where to go each month. If you haven?t been budgeting or just simply don?t know how to budget yet, you?re likely not in control of your finances. There is hope in learning how to budget your money. Let?s dig in to the five steps of learning how to budget:
- How to Budget, Step 1 ? Track Your Income
- How to Budget, Step 2 ? Track Your Expenses
- How to Budget, Step 3 ? Estimate How Much You Will Spend in the Next Month in Each Budget Category
- How to Budget, Step 4 ? Give Your New Budget a Try For a Month
- How to Budget, Step 5 ? Keep Working at it and You?ll See a Difference
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How to Budget, Step 1 ? Track Your Income
Yes, you will need to track everything. Do you know how much you make each month? No is not an acceptable answer. Get out those pay stubs, log into your company?s online pay stub system or just look at your bank statement. Note: If you?re income is irregular, you should do additional research on how to budget with an irregular income. There are some great articles out there. For those of you who get regular paychecks, make sure to get your numbers and do the basic calculations on what your income is each month. Once you have your income number totaled, write it down at the top of a blank sheet of paper.
How to Budget, Step 2 ? Track Your Expenses
This is the hardest part of budgeting. Learning how to budget won?t do you any good if you?re not tracking your expenses. It?s important to track everything you spend each month because then you can make educated guesses on how much you think you?ll spend each month. The goal of making a budget is to to learn how to estimate your expenses and allocate a specific amount of money each month to certain categories.
A typical budget is broken down by categories of expenses. Some common categories of expenses are:
- Mortgage and Rent
- Bills & Utilities
- Loans and Payments
- Shopping (clothing, gifts, toys)
- Giving (church donations, non-profits)
- Cable TV
- Cell Phone
- Internet
- Gasoline
- Insurance
To successfully learn how to budget, you?ll need to get a feel for how to categorize your expenses. Mint.com does a great job of breaking your expenses into categories, In fact, Mint.com has a budgeting tool set which can greatly speed up the process of learning how to budget and get your first budget going. I would highly recommend getting started budgeting with Mint.com.
If you decide not to use an electronic system to learn how to budget, an old fashion paper and pencil will definitely do the trick. Write down your budget categories, which are categorized expense types, down below your income on your piece of paper. There could be anywhere from 10 to 50 budget categories. Try to lump them into around 15 or 20 categories as this will make it simpler in figuring out how to budget.
How to Budget, Step 3 ? Estimate How Much You Will Spend in the Next Month in Each Budget Category
Once you have your categories decided upon. Try to estimate how much you will spend during the next month in each category. If you haven?t been tracking your expenses up until this point, you?ll likely be WAY off, but that?s okay. If you have been tracking, you may still want to estimate higher than you initially think for each category. When I was first learning how to budget, I tried cutting down many of my category allocations because I thought, ?Oh, I don?t need to spend all that?, but I was wrong. Just allocate a number that you regularly spend. Don?t try to short change yourself and make it hard on you to hit the numbers. Budgeting should be a real number, not a fake one that?s too low to realistically hit.
How to Budget, Step 4 ? Give Your New Budget a Try For a Month
During and after the first month of learning how to budget, you will likely get frustrated. You likely won?t stay below your estimates. We usually spend way more than we think we do. We just never have tracked how much all that eating out costs us each month. So, if you?re shocked on how much you spend in some categories after learning how to budget, don?t worry. It will take a few months to get this stuff right. For the next couple of months, try tweaking your budget in the direction of over or underspending and see how that goes.
How to Budget, Step 5 ? Keep Working at it and You?ll See a Difference
Budgeting is hard at first when you?re first getting started, but after you learn how to budget effectively, it can start getting fun. The results of telling your money where to go each month and being in control of your spending can be huge. I learned how to budget only a couple of years ago and have since gotten out of debt, built an emergency fund of 6 month of living expenses and have saved a significant amount of money that I plan to use either toward a home purchase or toward an investment portfolio over the next few years. I?m definitely glad I took the time to learn how to budget and hope you will too.
For those of you who already know how to budget and have been doing it for quite some time now, what advice do you have for those just getting started? Is there a certain way that you do it that?s unique and helpful? How do you set up your categories? We?d all love to hear about it!
Source: http://www.youngcheapliving.com/2012/08/27/how-to-budget/
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