I’ve noticed over the past few weeks that one of the main things people are looking for when they click to this site from a search engine is tips on budgeting. I have talked a lot about budgeting on the site, but given the current state of the economy, many people are just starting to read personal finance blogs, looking for help on how to create their first budget.
There isn’t one specific right way to make a budget. That’s the great thing about budgeting! You do what works for you. Some people like very specific budgets. “I will spend X on breakfast groceries and Y on lunch groceries…” Others like more general budgets. “This month, I have X to spend on food at the grocery store and at restaurants.” I go for a bit of both. “X for dining out, Y for groceries.”
Just because you make a budget doesn’t mean it’s set in stone. You can change it monthly if you want. You might find that the categories you set up for yourself don’t work. You might find that you’re regularly overbudget in one category and always have money leftover in another and you can tweak that.
But maybe you’re just starting out. My best advice? Sit down and write out some numbers.
- What’s your take home pay every month?
- What are your regular monthly bills? This includes rent/mortgage, utilities, credit cards that have a balance, and any other bills.
Now, from that, what’s left? That’s how much money you have to spend and save this month. Now, you shouldn’t save all of that money. After all, we haven’t bought food yet. But you’ve never budgeted before? How do you know what anything costs?
Instead of worrying about a specific budget for the first month, my suggestion is to pay attention to your spending, and keep track of where your money goes. We already know your regular bills. But every time you go to the grocery store, write down how much you spent. If you regularly pop into the grocery store on the way to work for a pre-made sandwich, note that. Track every time you go to Starbucks, every time you grab a soda from the vending machine. It seems tedious, but it’s a very important step. Once you know where your money is going, you know better how to budget your money, but also where you can stop any leaks in the budget.
I’m not going to tell you that you should never eat out or give up your daily lattes. In fact, I have learned that your budget needs a little fun in it. Just not too much fun!
I think you’ll notice that just by tracking your expenses, you will automatically be spending less. You’ll start thinking twice about some of your purchases, debating whether or not you really want or need it. This is a great first step to budgeting. And once you figure out where your money is going every month, you can figure out where it needs to go and where you want it to go. Maybe you will have no trouble sticking to a grocery budget of $150/month. Maybe you’ll need closer to $250. You just have to make it work for you.
I recommend always setting aside a bit of money every month for an emergency fund or for savings. Some people say you should set aside 10%, which is a great goal number, but probably not one that’s going to work for you. So save what you can. 5%. 2.5%. Whatever you can.
I still write down everything I buy, and do so by keeping receipts and little slips of paper in my wallet and updating every few days. When I first started budgeting, I had to look at the budget daily. Now it’s more automatic. I log everything once a week or so, and find that I’m naturally better at sticking to the budget. But my method might not work for someone else. The most important thing is that you find what works for you. Unless your budget is user friendly, you’re not going to use it.