Budgeting is so important today, especially as the economy gets tighter for everyone.
Some people think if you have a budget that you must be short on money. In actual fact, the opposite could also be true. Many rich people have budgets and for very good reason.
Let’s take a look at why someone would want to have a budget and how it can benefit you. This is the perfect place to start with budgeting for beginners.
What is a budget?
Simply put a budget (usually in a spreadsheet) helps you to keep track of all your income and expenses going in and out of your home.
This is extremely beneficial to you as you can easily see exactly how much money you are bringing in each month and how much you are spending each month.
I’m sure you can already see why it is important to keep a budget as a family. It doesn’t have to stop there either.
Budgeting also works great if you run your own business too.
It took years for my family and I to get serious about budgeting but when we did we were able to see the huge holes that we had in our finances.
We were most definitely headed for disaster without having a budget to hand. I can’t stress how important it is to have a budget as a beginner and someone who wants to get serious about their financial situation.
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How to get started with budgeting for beginners
1. Calculate your income
Obviously, it’s really important that you get this part right as it will either make or break your numbers.
Remember your income may not necessarily come from just one avenue.
You may get income from your day to day job but you may also get other income from things like a book that you have written or a part-time job that you do on the side.
You must include all of these things as part of your income, but you can list them separately on your spreadsheet.
You can find a free budgeting spreadsheet that you can download in the form below.
*TIP* Always readjust your budget each month because although you might be on a fixed salary, if you may have other income streams to list, those could easily change month to month.
You won’t want to cause a miscalculation here by missing off extra income.
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2. Note down your expenses
This part can sometimes be a little tricky because it’s easy to overlook an expense without actually realizing it.
I would suggest that you take a few days to go over this and come back and jot down any other expenses that you might have but may have missed along the way.
If you are a beginner and this is your first time creating a budget, I’m aware that this could get a little overwhelming.
Let’s break down some example expenses so that it can be clear for you.
- Rent/ Mortgage
- Mobile phone
- Gas bill
- Electricity bill
- Food shopping
- Lunch expenses
- Transport / Gas money
You can add as many other expenses to this as you need.
3. Don’t forget about miscellaneous
I see a lot of other budget spreadsheets out there that miss out a miscellaneous section but in reality, this section is really, really important.
If you have ever tried to budget in the past and failed at it, it is highly likely that this could be a reason why.
Having a miscellaneous section in your budget allows for little expenses that pop up during the month.
I discovered when I first started budgeting that it was really difficult to stick to it because no matter how much I tried to keep to the budget something would always tip it over the edge.
Once we implemented a miscellaneous section the budget just worked for me and my family.
You can look at your miscellaneous section as a pot you can dip into if a small expense pops up that you weren’t expecting.
What we discovered whilst budgeting was that sometimes we would have a budget for gas then someone would plan a trip which would take us over the edge of our budget or one of the children needed new shoes.
Again we would be over budget for the month. It’s difficult to predict these things so having a miscellaneous is a huge help to keep you on track.
4. Save, save, save
It’s really important to have a savings section in your budget too.
This is even more important if you have outstanding debts that need to be addressed.
Even if you can only squirrel away a very small amount each month, just getting into the habit of saving will be beneficial to you.
Even if you don’t have any debt you should still save for a rainy day. Having access to money when you need it is going to make a huge difference to your family in the future.
If one of your children falls sick and you have to go to the hospital or your car has to go into the garage unexpectedly, you’ll be glad you have already saved enough money that it doesn’t become a financial burden to you.
5. Take your expenses away from your income
This is the part where your financial standing comes to light.
It can be extremely interesting as often you think you are doing ok financially but when you look at your completed spreadsheet you can see that you are actually falling into debt.
When this happens there is usually a compounding effect as each month you sink a little bit deeper into debt. You need to try your best to avoid this at all costs.
If after having done this you come out alive, meaning that you end up with a positive number at the end of the month then you are doing just great.
I would simply suggest that you save as much as you can because you never know which way your financial situation is going to go sometimes.
You can take a look at some great financial saving plans or you can decide to invest the money for short periods of time.
If you find that you break even, just tread with caution as you could fall in either direction.
Do as much as you can to move over to the positive side where your income is more than your expenses.
Watch out for these budgeting pit-holes!
1. Have a realistic budget – Don’t try to manipulate the numbers by making them look good on paper only to have then be a disaster in real life.
2. Make sure you have all your little expenses in there too
3. Don’t forget to save
4. Adjust your monthly budget every month to make sure it fits with your upcoming expenses.
There is no point in having a ridged budget if you will always blow it each month.
Final thoughts on budgeting for beginners
Budgeting is not meant to make you feel bad. It is there to make sure that you stay smart with your finances.
If after you have finished your budget and it doesn’t look good, look at ways that you can improve it.
You may need a flexible part-time job, you might have to sell some things that you don’t need anymore to help with debts.
Whichever it is just know that it is not a lost cause and thankfully you have caught the situation before it got any worse.
Remember after you have completed this exercise your family will be so much more financially healthy afterward.
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