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How to Set a Budget for Novices

How to Set a Budget for Novices

After graduating from college, I embarked on my first budgeting journey. I’d love to say it was out of sheer financial responsibility and proactive money management, but the truth is, I was drowning in student loan debt. I needed a lifeline to help me navigate my meager income and the deluge of expenses pouring into my bank account each month. Fast forward a decade, and I’m still faithfully using a budget, even though I’ve bid adieu to that debt. The reason? Because budgets flat-out work.

A common misconception about budgeting is that it equals restriction. In reality, it’s a tool that empowers you to spend money on the things you genuinely care about – a concept known as value-based budgeting. Tracking your income and expenses during each month or pay period provides you with a clearer understanding of your money’s whereabouts. It keeps you focused and accountable for pursuing your financial goals.

But if you didn’t grow up learning how to budget, starting can feel intimidating. The good news is you don’t need to be a financial planner or a money expert to create an effective budget. If you’re ready to dive into Budgeting 101, let’s get started so you can transition from a budget beginner to a money-savvy manager with ease.

Identify Your Values

The first step in your budgeting journey is to identify what truly matters to you. What drives you to create a budget? Whether it’s building an emergency fund, conquering debt, planning a vacation, initiating retirement savings, entering the world of investments, or gaining control over your spending and saving – knowing your “why” is crucial. As Taylor Price, Afterpay Brand Ambassador and Founder of Savvy & Priceless Tay, explains, “Creating a budget is like having a GPS for your money! It helps you keep track of those dollars and put them in their rightful place.” Having a clear purpose empowers you to make the right financial decisions.

Understand Your Income and Expenses

Before crafting your budget, you need a firm grasp of your financial landscape. Understand your cash flow, spending habits, recurring bills, fixed expenses (like rent and car payments), and monthly bills. A money journal can help you track your spending for a week or a month, revealing where your money flows. As Taylor Price suggests, it’s time to “snoop on your own spending habits.” Go through your expenses, from online banking to that crumpled Starbucks receipt at the bottom of your purse. Distinguish between must-haves and nice-to-haves to prioritize your spending.

Set Realistic Goals

With clarity on your values and a snapshot of your financial situation, it’s time to set realistic goals. Remember, it’s not about tackling thousands of dollars of debt or amassing an emergency fund overnight. Success stems from creating SMART (Specific, Measurable, Achievable, Relevant, and Time-Based) goals, such as saving $100 per month or allocating an extra $50 toward debt with each paycheck. SMART goals keep you motivated and on the right track. For instance, “I want to save $1,200 this year toward my emergency fund goal of $5,000 by contributing $100 each month” is a realistic, achievable goal.

Choose a Budget Plan

Now, let’s delve into selecting and creating your budget. Remember, there’s no one-size-fits-all budget – it should align with your financial goals and lifestyle. As Taylor Price points out, “Dealing with your budget is no different than finding the perfect pair of shoes – it’s all about the right fit.” Different budgeting methods are available, each with its unique approach:

50/30/20 Budget: This divides your income into needs (50%), wants (30%), and financial goals (20%).

Zero-Based Budget: Every dollar is assigned to a budget category, ensuring your budget aligns with your income.

Pay Yourself First Budget: Prioritize savings by immediately allocating money towards your monthly goals, then use the remainder for bills and expenses.

Envelope Budget: Assign an envelope to each budget category, using cash to pay for expenses and provide a tangible overview of your spending.

The best budget is one you can stick to, and what works now may evolve in the future as your lifestyle changes.

Automate, Automate, Automate

For achieving savings goals, automation is your best ally. Whether it’s contributing to savings accounts or investing for retirement, automation ensures regular progress. Start by determining your monthly or pay period contribution amount, then automate it. This ensures the money is set aside for your goals, ensuring consistency and reducing the temptation to spend. For retirement savings through employer-sponsored accounts like a 401(k) or 403(b), automated contributions are vital. You can even automate bill payments, ensuring they’re paid on time. However, if you prefer more hands-on control, manual payments may be preferable.

Track Your Progress

A budget isn’t a one-and-done deal. It requires periodic revisions and adjustments. Schedule regular “money check-ins” – a time to review your financial status, evaluate your goals, and ensure you’re on track. Make these money dates enjoyable by adding your favorite takeout, music, or beverage to create a positive experience. Conduct these check-ins monthly or at each payday to maintain control over your finances.

Best Budgeting Apps for Beginners

If you’re wondering where to track your budget, there are various budgeting tools available to simplify the process. While spreadsheets are a solid option, budgeting apps offer convenience and features to help you manage your finances. Here are six beginner-friendly budget apps to consider:

Mint: Monitors your accounts, tracks savings goals, and debt payoff.

YNAB (You Need A Budget): Syncs your accounts, offers goal tracking, and provides spending and net worth reports.

EveryDollar: Ideal for zero-based budgeting and simplifies budgeting for beginners.

NerdWallet: Tracks spending, saving, net worth, and credit scores, helping with big financial decisions.

Simplifi by Quicken: Connects accounts for simplified budgeting and offers budget planning features.

GoodBudget: Modernizes the envelope budget method, enhancing spending mindfulness without the physical envelopes.

These tools provide a user-friendly approach to managing your money.

In summary, budgeting is a powerful financial tool that empowers you to reach your goals while maintaining control over your spending. It’s not about restriction; it’s about directing your money where it truly matters. Whether you’re a budget beginner or seasoned pro, the key is to find a budgeting method that suits your current needs and lifestyle. Start your budgeting journey today, and adjust as needed along the way.

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