Are you a beginner when it comes to budgeting?
Do you think it’s too late for a budget to help your current situation?
Have you considered how a budget can help you retire on time or even early?
If you’ve wondered about any of these questions, you’ll be able to find answers in this budgeting for beginners article.
Does the word budget send shivers down your spine? Maybe you think it’s too late to budget. You’re closer to retirement than you are anything else, so why start now?
It’s not too late to budget, but the longer you wait, the harder it will get.
Budgeting doesn’t mean changing your lifestyle dramatically. Instead, it’s a road map for your money. It’s your path to a happy and hopefully financially secure retirement.
Are you ready to learn how? Check out this great guide on budgeting for beginners.
Budgeting for Beginners
So how do you start? Try these simple steps:
Categorize your spending
Sit down with your last few months of bank and credit card statements. Break down your spending into categories. Make it simple; use categories such as housing, transportation, food, entertainment, household, and savings. Personalize the categories as you need.
Jot down your income
Track all sources of income. Write down your net income – the amount you bring home after taxes and other deductions.
Compare the two
Do you bring in more than you spend or is it the other way around? Be honest with yourself; this is an important step.
Choose your Goals
Before you create your budget, figure out your goals.
- Do you need to get out of debt?
- Are you trying to save for retirement?
- Do you need a larger emergency fund?
Knowing your goals will help you create your budget. A person trying to get out of debt will have a much different budget than someone saving for retirement.
You should meet all three goals at some point, but we’re focusing on baby steps right now. Jumping in headfirst only leads to failure.
Pick your Budgeting Plan
Here’s where it may get confusing. I said budgeting for beginners wasn’t overwhelming, but it requires some decisions, most importantly, a budgeting plan.
This is a personal decision, but here are a few of my favorites:
- Envelope budget – Using your categories from above, assign a dollar amount to each one. Put the designated dollar amount in each envelope and that’s your budget for the month.
Once you run out of cash in a certain category, you’re done spending there for the month.
- Zero-based budget – Give each dollar you bring in a ‘job.’ At the end of the month, you’ll have $0 sitting idle. The ‘jobs’ include paying your mortgage, utilities, insurance, car payment, gas, food, and entertainment.
It also includes saving for an emergency fund or retirement. Every dollar should work for you somehow to get the most out of this budget.
- 50/30/20 budget – You split your income into three parts. 50 percent covers your ‘regular expenses,’ 30 percent covers your ‘wants,’ and 20 percent covers your savings, both retirement and emergency savings.
If you can’t fit your expenses into these percentages, consider cutting back.
Get out of Debt
Debt payoff plays a big role in budgeting for beginners. Sure, you can budget and have debt, but you hinder your savings both emergency and retirement.
Including a debt payoff plan in your budgeting furthers your financial capabilities. Paying off debt seems overwhelming, but with the right plan, it can work. Try the debt snowball method.
Line up your debts in order of balance, smallest to largest. Note the minimum required payment for each and put them in your budget.
Next, figure out how much extra you can pay toward your debt. Once you have a number, apply that full amount to your first debt in line (the smallest balance). This is on top of the minimum required payment.
Continue paying the extra amount to your first debt until it’s paid off. Congratulate yourself on a job well done! Now move onto the next debt.
Take the FULL amount you paid to the last debt and add it to the next debt’s minimum required payment. Keep creating that snowball until you win the fight and are debt free.
I’ve created a simple to use Debt Snowball Calculator for Google Sheets that you can use to track your debt, see your debt payoff progress, and view your debt payoff dates.
You can get a free copy of the trial version by signing up below. You’ll be able to track 3 debts at a time (HINT: I had one for credit card debt, then student loan debt, then mortgage). Or you can upgrade the calculator for up to 20 debts in one Google Sheet.
Try it out here:
The Bottom Line
No matter how old you are, it’s not too late to start budgeting. Every one young and old needs a budget. It’s a guide for your money and it’s peace of mind for you. With a budget, you’ll achieve financial freedom much faster, no matter your age.
Financial freedom means not only getting out of debt, but having a fully funded emergency fund and retirement savings too.
When you can look at your finances and not worry – that’s when you’ve achieved financial peace. It all starts with a budget – are you ready to get started?