Budgeting is something many of us love to hate but with these budgeting tips you’ll be off to a smooth start.
Budgeting is incredibly useful and can help you achieve financial goals, but it’s also a lot of work and hard for beginners to grasp.
How To Set Up A New Budget
In this video I show you the basics of setting up a new budget along with a few budgeting tips. If you’ve never done a budget before I highly recommend you watch this video before you start.
Creating your first budget can feel a lot like guessing and failing in the beginning. You can save yourself time by using worksheets or an app that guides you through the process but the basics of creating your first budget are actually easy.
You need to figure out how much money you are bringing in and how much money you are spending. For most people you are going to budget your after tax post deduction income.
Basically you want to give the money you bring home an assignment so you can better optimize your budget to achieve all of your financial goals.
Here are the steps to creating your first budget:
- Gather Your Budgeting Supplies
- Write Out All Your Monthly Bills
- Order Your Bills By Calendar & Paycheck
- Categorize Your Previous Spending
- Set Reasonable Goals For Spending
- Plan Your Sinking Funds
- Add All Your Expenses Up
- Track Your Spending
You can do this same process shown on the video with either pen and paper, a budgeting printable, a spreadsheet or a budgeting app.
The process is what matters most, not how you write down and track the actual numbers.
How To Set Up Sinking Funds
One concept that is often new to people when they start budgeting is sinking funds.
Sinking funds are saving accounts with a purpose.
Setting up sinking funds is a great way to keep your budget together throughout the year so the ups and downs don’t derail you.
They are accounts you save into regularly for spending on expenses that are irregular expense, non-monthly expenses, unpredictable or big one time expenses. It’s a mini savings account for an expense you know you’ll have in the future. There are many different sinking fund categories you might consider saving for that are not regular expenses.
Sinking funds make saving for these hard to budget items strategic and stress free. You set a little bit aside each month until you hit your goal… and then you spend it!
So if you’re saving up for an event 6 months from now, you put a smaller amount aside into the sinking fund each month until the event where you spend it all.
Sinking funds are designed to let you spend without stress or worry. It’s one of the best budgeting tips most people ever learn.
Sinking funds will change how you budget and make like a lot easier as you start and refine your budgeting style.
Budgeting Tips For Beginners
Now let’s look at some of the best budgeting tips for beginners. If you’re new to managing your money and want to learn more about what you should be doing then these tips are for you!
Face the truth about your spending.
Tracking your spending is the key to budgeting success. Without tracking you won’t be able to budget.
Start at the beginning of the month and track everything you spend either with an app like Mint or Personal Capital. You can also do it manually so you are in control and seeing where you are really spending.
I usually recommend someone new to budgeting does it manually and writes out everything they spend for at least a month. It is eye opening because many of us spend without paying attention.
Write out a realistic budget for the next month.
You can base your first budget on what you were actually spending based on your tracking or research into your receipts and bank summaries.
For your first month you can make some realistic cuts budget don’t go overboard. Definitely don’t try to slash your entire budget in half the first month because it won’t work and you’ll likely abandon the process.
Be realistic about your budget and make goals to incrementally improve over multiple months.
Plan to set aside money for savings.
Pick a small percentage or amount of money that you will save into a savings goal no matter what.
Put this into your savings account first before you do any spending or pay any bills.
Setting aside money before anything else is a critical step to achieving bigger financial goals. You can plan your spending around this savings move at the top of your budget. Always pay yourself first!
Visualize your goals.
Think of the long term things you want to save for and either right it out, create a tracker, a vision board, or whatever you are motivated by to make your budget goals happen.
I love using debt payoff printables and savings trackers to visualize my progress with big money goals.
Use whatever budgeting method that appeals to you visually. Maybe that’s budgeting on paper with highlighters or maybe it’s an app with great reporting. Find what visually appeals to you and work with that!
Cut out more unnecessary spending.
For the majority of people out there you are buying something you don’t need. You have splurges in your spending that could be cut.
Look at your spending with a critical eye. Instead of trying to justify why you spent so much on restaurants for example, critically ask yourself if that was necessary or just happened because you were not paying attention.
Tell friends and family you are cutting back.
It can be more helpful to stick to your goals when you have people keeping you accountable. Let some of your close friends and family know that you are budgeting now especially if it will mean you have to cut back in areas that will affect your relationship.
Having friends and family who also manage their finances carefully makes it easier when you do have to say no to things.
You may also find that talking more openly about your finances helps you get better at budgeting and also helps others.
Leave your card at home if you aren’t planning on spending.
Some of us have to eliminate the temptation to spend entirely. This is one of the budgeting tips I did in the beginning since we started using cash for our variable spending and it really helps to not have that fallback option.
When you carry a credit card you can sometimes overspend because in the moment it is easier to impulse swipe. If you don’t have that credit card with you then there is no option to spend the money.
This is something that is helpful when you first start budgeting and want to stick to your spending goals. Over time it’s less necessary as you adjust your spending habits.
Have regular no spending days.
Set aside one day a week as a no spend day in order to flex the no spending muscle. This will just get you in the mindset and habit of not buying things which for many of us, is kind of foreign at first.
Knowing you can go one day without spending any money can help your mind recognize the fact that you can go more days or even weeks and months without spending. It builds a routine and you think more critically about your spending.
Try out a no spend challenge if you want to do more than a few no spend days in a row.
Always have an emergency fund.
You will need some level of emergency fund to get ahead financially because things are going to pop up that you did not expect.
Financial guru Dave Ramsey suggests at least $1,000 set aside for emergencies that will come up and I usually suggest at least 1-2 months of expenses set aside in savings before you do anything like pay off debt.
Having money will help you get in front on many emergencies.
Learn how to make easy, cheap, quick meals at home.
Listen, we don’t all have a ton of time to cook at night and many of us don’t want to anyway.
Ie’ve found quick and easy meals that we love and are affordable to repeat night after night. For us this meals simple stuff and some pre-made items from Trader Joe’s. If we can feed our whole family for an affordable price and less than 10 minutes then we are much more likely to make dinner.
It’s cheaper to cook at home if you are making good choices and planning around simple meals. This means we are more likely to stick to our spending goal for food.
Appreciate money and then give it away.
Part of managing your money is realizing that you likely have enough to give some away.
Even when I was at my lowest income ever I still found myself giving money to causes and people I cared about. Now we send a portion of our income to the local church as a tithe and then the local church supports a variety of causes and charities and families in need.
Money for us is a blessing but we realize it’s not ours to keep forever nor will it ultimately save us or fix our lives. It can make life easier to have more money but we never want our money to control us or our values.
Choose your spending splurges.
Budgeting does not mean you can’t splurge and spend excessively in some areas. In fact, you should budget in some splurges!
Pick the one or two areas of your budget where you want to splurge because it is important to you. Plan to spend a lot in those areas that give you the most value in life.
Then cut everything else where you don’t mind spending less! It’s ok to have splurge areas but you can’t make every category a splurge.
Think about what you value and what helps your feel like you are living your best life. Then keep that category high and lower the rest.
Budget and go enjoy your life.
Budgeting is not meant to make you feel like you can’t enjoy your life. It’s just meant to guide you so that you can enjoy life and hit all your bigger financial goals.
Hopefully these budgeting tips help you start off strong with your new budget.
Keep working on it and learn how to live the life you love on a budget!
Mary is the founder of Pennies Not Perfection where she shares her journey to build wealth through online income. She quit her day job in 2021 after she paid off her debt and doubled her 9-5 salary.
Mary's favorite free financial tool is Personal Capital. She uses their free tools to track net worth and work toward to financial freedom.