Beginners Guide to Budgeting
January 26, 2023
A budget is a tool to help you become financially successful, giving you a way to handle expenses while still enjoying life. With a few simple budgeting principles, you’ll quickly see a difference in your financial management. Here’s how to get started.
Get clear on your financial goals
The best way to establish a budget that you’ll stick with is to get clear on your financial goals. Take some time to think about what matters most to you. Whether it’s determining how much debt you have and creating a plan to pay it off, deciding how much you’d like to save for retirement, or making a larger purchase in the future, such as a car or home.
Track your income and expenses
To set up a budget, start with your take-home pay and other income, then subtract ongoing expenses such as housing, food, and utilities. Also, include any goals you’ve established, such as saving a certain amount each month or paying off debt.
Set up a budget strategy
Once you have a clear idea of your income and expenses, you can implement a budgeting strategy. A common one is the 50-30-20 budget. It works like this:
- 50% of your income is allocated toward needs such as groceries, rent or mortgage, and utilities
- 30% of your income is used for wants such as dining out, travel, and entertainment
- 20% of your income goes to savings and paying down debt (beyond the required minimum monthly payments for credit cards and other loans)
While a budget strategy will help guide you toward your financial goals, it’s important to leave some room in your budget for something enjoyable now and then. This will help you stick to your budget by not making it unrealistic.
Add saving to your budget
Depending on your financial goals, you may have already established saving as a priority within your budget. To make this easier, set up automatic deposits to your savings account twice a month or each time you get paid.
It’s also a good idea to have an emergency fund that you contribute to each month. This can be used to cover unplanned costs, such as car repairs or medical bills, so you can stay on track financially when life happens.
Review your budget
Lastly, be open to modifying your budget. Take a look each week and make adjustments as needed. Remember, a budget you’ll actually stick with is a realistic one. Update your budget based on any priorities or expenses that change over time, and you’ll be on your way to achieving your financial goals.