5 Tips to Starting Your Monthly Budget
Starting to budget your finances can be really difficult at first. You probably have no idea where to start. Plus, what works for someone else, might not work for you. Totally understandable. Hopefully one (or all) of these tips and tricks that helped us, will be helpful to you!
Create Better Spending Habits
No matter how awesome your budget is, if you don't have good spending and saving habits, you'll be setting yourself up for failure. Don't worry I've got you covered! Check out the post where I share my 5 Steps to Creating Better Spending Habits first. Don't worry. I'll wait... Done? Oh, not yet... Okay, now you're finished? Cool beans! Now, let's move on to the next budgeting tip.
Don't Be Afraid to Use Technology
I love me a good spreadsheet! That’s why I made my family a super robust Google Sheet that tracks our budgets and all of our monthly expenses in one spot. It even tells me what areas are under, at or over budget so we can make changes to our spending in real time. Plus, I have an annual summary so I can see how things change mont-over-month. With a bunch of formulas and custom formatting, I got it set up so it does the nitty-gritty work for you! It really takes the monotonous nature of doing your budget away, and is extremely helpful for someone just starting the budgeting process.
Write It Down
Now it's time to get down and dirty. I highly recommend you write down everything you spend your money as individual line item. You can use a notebook, excel file, the Mint app, my pre-made printouts ;) . Whatever makes you happy, as long as it's written out so you can visually see where your money is going.
I also like to color-code mine into three groups: Living Expenses, Financial Security, and Fun Money. Based on my research, many financial experts recommend your total monthly income fit within the following general guidelines:
Living Expenses (40-60%): Whatever you're spending on your month-to-month expenses goes into this account. I include items like house payment, gas, electricity, water, groceries, our 2 car payments (since we use them to get to work), phone bills, internet, TV, insurance, taxes, etc.
Financial Security (20-40%): This is the income you're putting toward paying off debt like credit cards and student loans, as well as into your savings account/emergency funds, or toward your retirement.
Fun Money (10-30%): Just like it sounds, this is the money you spend on entertainment like dinner and a movie, cocktails with friends, vacations or trips home to see family.
For our budget, we are running pretty heavy on the Financial Security side right now. We spend about 55% of our income on living expenses, 35% on financial security, and an itty bitty 10% is our fun money. And I know some people are probably thinking, how can you put 35% of your monthly income toward financial security. Honestly, I would have been asking myself the same question a couple years ago. But, something we have been very good about the past two or three years is when one of us gets a raise, we do the best we can to keep our lifestyle the same. If we do increase our income and decide to add more expenses, we do it one at a time to ensure we don't get into a financial hardship later.
Determine What Your Bare Essentials Cost
I recommend everyone does this, but especially those who need to reign in their "Living Expenses" category to get it within the 40-60% range. This will definitely take you a couple hours, and you'll need a pencil, paper, calculator, and a glass of wine (or whatever your drink of choice is). You need to look at all of your essential bills for the month, and determine what is the least amount of money you will need to live on. What I consider essential bills are whatever you need to survive - housing, electricity, heat, water, food, costs for a car to get to and from work - not items that are there more for entertainment - TV, internet, going out to eat, etc. For example, you need to determine how much gas you would need to and from work, as well as 1 trip to the store per week. For me, in my current SUV it's $25 per week.
You'll also need to find out what the bare minimum you need for groceries per week. I know I can feed my husband and I on $25 a week, if needed. We don't eat anything fancy and we get sick of eating the same thing all the time. However, it's the bare minimum we need to get us by until our next paycheck. When we're tight on our budget, we're eating mainly Tuna Noodle Casserole, Baked Ziti, or Chicken Fried Rice, as well as drinking water from the tap for the majority of our meals. Not gonna lie... It sucks... BUT! I know if we ever find ourselves in a tight financial situation, I know I can cut costs instead of overspend. And that is the true meaning behind this exercise.
Make Separate Savings Accounts (and give them a name!)
If you are able to create a budget, and have money set aside to save, you'll definitely want to do this! This is something that I recently learned about, and it really changed the game on how I view my savings. I'm not sure if all banks do this, or just my credit union, but I'd recommend you check it out. What I was able to do was create separate Secondary Savings accounts that had no fees and no minimum or maximum limits. The best part is I was able name them whatever I wanted.
Now, in addition to my primary savings account, I have an Emergency Funds account, a Home account for renovations and updates, and a Kids account. You might be thinking, "Hayley, I didn't think you had kids..." Well, I don't. And, no, this is not how I'm telling my family we're expecting either. We made this account and put a very small amount of money into it ($25), and will continue to put small amounts of money($5-$25) into it every week or two. Everyone knows kids are not cheap. So, the sooner we start saving for those little rascals, the better off we'll be when we do start having them.
So, don't think you can't start saving for something that might be a ways down the road. It doesn't hurt to save money, as long as your not putting yourself into more debt to do so.
Happy Budgeting :)