How Beginners Can Create a Monthly Budget That Works
Creating a monthly budget that works for your personal financial situation can be more challenging than you think, especially if you’re new to budgeting. But a personalized budget is essential if you want to develop good spending habits and set aside money for long-term use. If you’re a beginner, here’s how you can create a budget that actually works.
Work Out How Much Monthly Income You Have
Budgeting is all about making the best use of your income, so the first step is to figure out how much money you have coming in on a monthly basis. If your only income is a regular paycheck, it will be easy to know how much money you have each month. But you may also need to consider things like automatic deductions for a 401(k), health and life insurance, and monies from side gigs or investments. Once you know how much after-tax income you have, you can come up with a budgeting plan.
Keep Your Budget as Simple as Possible
When you’re just starting out budgeting, it’s best to keep things as simple as possible. So, although there are specific budgeting apps available, as a first-time budgeter, you’re better off using a simple template to work out your budget and track it as you spend. One of the best free and easy-to-use budget spreadsheets is Google Sheets. It can handle the basic functions you need for budgeting, and it’s simple to share, copy, and improve as required.
The Best Types of Simple Budgeting Methods
Two simple budgeting methods are best for beginners. Firstly, you could choose the zero-based budget option. The approach involves making your income minus your outgoings equal to zero dollars. That means every dollar you have is assigned a purpose. Some of those dollars can go into your savings, while others are spent on other budgeting categories. At the end of each month, every incoming dollar will be in its correct place. That approach can be very helpful for meeting goals such as debt repayment and avoiding overspending.
The second simple budgeting approach is known as the 50/30/20 budget. That works by putting aside approximately 50% of your monthly income for necessities, no more than 30% for things you want, and at least 20% on debt repayments and savings. This plan is simple, and it means you can still find money each month to spend on things you enjoy doing while having manageable debt and savings to pay for unexpected expenses.
Common Budgeting Mistakes
The way that you decide to budget is ultimately up to you. But whatever type of budgeting method you choose, you need to consider common budgeting mistakes. Three of the most typical budgeting errors are:
- Having Unrealistic Expectations. If you create a budget that you cannot actually stick to, you are setting yourself up for constant dipping into funds and paying yourself back. That is not budgeting, and it will only end up in making you more frustrated.
- Budgeting Based on Your Gross Income Only. You must not forget to calculate what your take-home pay is, as, after taxes and other deductions like health insurance premiums, your income will be lower than the figure of your annual salary.
- Not Making Significant Changes. You may look to cut corners to help you budget better. For instance, you could cancel your cable TV or give up buying coffee while out. But small things like that may not give you much more income to save. So, it is usually better to think bigger. If you don’t have the monthly income to save or pay off debts significantly, you should think about making a major change like trading in your car for a cheaper model or getting a roommate to cut your rent in half.