You want to start a budget. Buuuuuut you have no idea where to start.
And I’m guessing you’re also not quite convinced that you want to start budgeting.
In this post I’m going to share with you the 5 simple steps on how to start a budget for absolute beginners. I’ll also give you all the juicy details on how a budget can actually change your life WITHOUT being restrictive.
You’ve probably thought … “Budgeting is just so restrictive and if I’m on a budget than I can’t have what I want…”
(This is so false.)
A budget actually gives you the freedom to CHOOSE where your money goes. Instead of wondering where your money WENT.
There are 5 key steps every beginner needs to start a successful budget:
1. Pick a Budgeting Template
2. Add all Monthly Income
3. Create Categories for your Expenses
4. Calculate Income – Expenses = what’s leftover
5. Eat Tacos, cause you just made your own budget!
Those 5 steps seem pretty easy to me (and delicious) so keep reading below to find out all nitty gritty details that go along with each step.
I’ll admit it, I used to hate budgeting.
It sucked. It was time consuming and we were horrible with it. We were inconsistent and felt guilty every single month because of our spending habits.
Of course I didn’t want to start a family living paycheck to paycheck and constantly worrying about how we would pay next month’s rent.
Not knowing where to even start I did what any rational human being does and Googled it. (trusty ol’ Google!) I read, watched and listened to everything on how to budget your money.
I spent weeks figuring out what would actually work for my husband and I.
Eventually I came across a life-changing book by Dave Ramsey about budgeting and saving money. I was hooked and determined to do whatever I could to help my family be in the best financial situation. (And when I say my family I mean my husband and I and all of our plants.)
Fast forward 3 years, we are no longer living paycheck to paycheck …
Saved up money for a Jeep Grand Cherokee …
On our way to having a down payment for a new house …
And living our best stress-free-from-money life.
(Don’t worry, we still have the same everyday stresses of what to make for dinner, never-ending laundry and too many people at Costco.)
All of this was accomplished from consistent budgeting a little bit of effort.
Now onto the how to actually start your budget stuff …
Step 1 – Pick your Budgeting Template
You need a place to write down your budget. You know those things that come up like changing the oil in your car, or your dentist appointment when you’re like, “No, I don’t need to write it down I’ll remember it. “
9 times out of 10 I don’t remember it. And neither will you when it comes to budgeting. Lucky for you, there’s thousands of ways you can keep track of your budget.
- Pen and paper. My personal favorite way, I still use pen (or rather a pencil) and paper. Don’t worry about mapping it out on your own, I’ve got a free budget template that you can snag here in the Freebies page.
- Spreadsheet. Don’t like writing it down? Spreadsheets can easily calculate your whole budget for you. There’s quite a few free ones, but the best one I’ve seen so far is from Google Sheets. (who would have thought??) Plus, you don’t even have to have Excel to use it.
- Budgeting apps. There’s an app for everything. Including budgeting (no surprise there.) Dave Ramsey came out with a free app called EveryDollar that is super user-friendly. He also has a paid version that will even connect with your bank account to track transactions, but the free one is just as good.
Pick something that you’re actually going to use when it comes to budgeting.
It’s okay if you’d like to just make your own homemade template or spreadsheet. Just as long as you have somewhere to write it down or type it out.
Step 2 – Add up all your Monthly Income
Now that you have somewhere to write/type your budget, the first thing you’ll do on whatever budget template you have is put your income.
This is ALL the dough that’s made.
Passive income, side gig, pizza delivery and your job. Put it all in there.
Step 3 – Create Categories for Expenses
We’ve got a budget template, recorded income and now it’s time to break up expenses.
You’ll have 3 different categories that your expenses will go in to; needs, wants and debt/savings.
In each of those categories you’ll have sub-categories to break up your expenses on a more deeper, personal level.
I want you to feel reeeeeeal comfortable with your money.
Needs
These are pretty obvious. Your first out of the three categories are your needs. Stuff that you need to survive.
These are categories such as:
- Housing/Rent
- Utilities
- Insurance
- Groceries
- Fuel
- Internet
- Tithing
Extras
Anything that’s not included in needs, goes in your extras (even though I feel Netflix should be a need sometimes).
The categories I have in my extras are:
- Eating out
- Money for each of us to spend on our own
- Entertainment
- Netflix/Hulu/cable
- Misc
- Home
Budget Tip: I have one category that is miscellaneous and use it for purchases that aren’t recurring monthly.
Debt/Savings
This is the last category you’ll have which is pretty self explanatory.
Starting with debts, you’ll list the minimum payment due for each (yes, your car payment is a debt not a need).
So it would look a little something like this:
- Student loan – $200
- Car payment – $375
- Credit card payment – $50
Then we’ll go after your savings goals. This could include vacations you’d like to fund, saving for a down payment or even saving up for a car.
For now just put the name of the savings goal, don’t try to figure out how much to save until we finish calculating income and expenses.
Your savings would look like this:
- Emergency fund
- Cancun vacation
- House down payment
Step 4 – Calculate Income – Expenses
Now that you’ve figured up your income and expenses it’s time to calculate it.
With expenses, you’ll want to refer back to all of last months purchases (I know, not the funnest).
Go to your past months bank statements and add each purchase made into a category.
Once you know how much you’ve spent in each category you will add up ALL expenses. Your needs, extras and debts.
Now subtract your income – expenses = what you have left over.
Now when you see this number you’ll have one of two reactions:
Feel guilty and ashamed because you realized that you spent more than you made.
Or,
Pleasantly surprised that you spent less than what you expected.
Both reactions are okay and the first situation is not something you should feel guilty or ashamed of. It’s the motivation you need to improve next month.
What if the majority of your expenses are needs and you still spent more than you made?
Keep reading! I’ll give you a few tips below on how to increase income or cut expenses.
Have money leftover after making the calculations?
Continue reading and I’ll tell you how to divvy up the rest into savings.
Step 5 – Put your Whole Budget Together and Eat Tacos, Cause you’re Done!
Now is the easy part, put it all in a budget template!
Start a new budget template with whatever template you’re using mentioned above and based on the expense categories you made and added up you’ll want to create a budget for the next month.
So, if you spent $347 on groceries last month you’ll want to round UP to $400.
I’ve found that when planning for the month it’s best to expect the worst, so you could put $350 but since you were 3 dollars short your cutting it really close.
And you’ll more than likely have some leftover money in groceries the next month that you can use toward debt, savings or roll over.
Do this with each sub-category – write down the expected amount you think you’ll spend for the next month.
And you’re done, indulge in all the tacos!!
You’ve created your first, efficient budget.
Now you’ve got to follow through and be consistent.
And personally, I don’t like spending a ton of time on my budget. I have too much laundry to do.
Sooooo I’ve created a super simple and effective system and only spend 30 minutes a month budgeting.
You heard me right, people. 30 MINUTES A MONTH.
I wrote a whole detailed post with my exact time breakdown of how I budget in 30 minutes. You can find that helpful chunk of knowledge over here.
What if I spend more than I make?
This is way more common than you think.
I remember the first time I actually added up all our expenses for the month and we spent $200 OVER what we had made. I just felt sick and mortified that we couldn’t even manage our money.
And instead of feeling guilty, I decided to change how we handled our money. I never wanted to feel like that with money again. And that’s exactly what you can do.
You can feel empowered to make the changes necessary to create a stable financial future for your family.
If you find yourself in this situation of making less than what you’re spending there are two options:
1. Increase your Income
When someone says increase your income it doesn’t automatically mean get a second job.
This could be as easy as asking for a raise, starting a side hustle that you enjoy or doing easy work at home jobs.
2. Cut (Hidden) Costs
Cutting costs or expenses doesn’t mean giving up on things that you enjoy in life. You can start simple by checking out other insurance and internet companies to see if you can lower cost there.
Typically people spend over $900 a year on cable. We cut cable and now use Hulu and can still happily watch the Bachelor.
After going through your expenses for the past month for the budget above you’ll probably find 1 or 2 subscriptions that you totally forgot to cancel. If you’re not using them, don’t feel guilty quitting it.
If you want a full breakdown of how to cut costs for your budget you can check out this post here.
What if I have extra money in my budget? Where do I put it?
You’ve found yourself with one of the best problems to have! Where should you put your money if you have some leftover in your budget?
Number one place is an emergency fund.
I learned about the importance of an emergency fund from Dave Ramsey in his book The Total Money Makeover. There were countless stories of families who got out of debt by following his steps and they all had one big thing in common: AN EMERGENCY FUND.
Dave Ramsey teaches to start with $1,000. Once all debt is paid off (not including the house) you can then increase your emergency fund to 3 – 6 months of your expenses.
This is what it would look like:
1. Save $1,000 emergency fund
2. Pay off ALL debt (not including the house)
3. Build 3 – 6 months emergency fund
From there you’ll start focusing on retirement, kids college funds and paying off your house.
(And yes, this is totally doable! I read so many inspiring stories in Dave Ramsey’s book, The Total Money Makeover, about families and couples that followed these steps and have a paid for house.)
Stay Consistent
There you go! You have just learned how to budget your money even if you’re a beginner.
Be sure to adjust your budget accordingly for the next month.
Finally, by sticking to a budget you can then start to SAVE money.
After being consistent with your budget you can find out How to Start on a Successful Savings Plan.
What are some of your best tips on how to budget your money for beginners?
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