How Should a Beginner Start a Budget

November 1, 2024 — Budgeting can seem challenging for beginners. Many people feel unsure about where to begin. But creating a budget is essential.

It helps manage money, save for future goals, and avoid unnecessary stress about finances. A budget is a plan for spending and saving your income. Here’s a simple guide to help beginners start budgeting.

Beginner Start a Budget:Why Budgeting Matters for Beginners

For beginners, budgeting is the foundation of financial stability. When you have a clear plan, you know where your money goes. This gives you control over your spending. Without a budget, it’s easy to overspend or miss out on important savings goals. Budgeting can help you:

Pay bills on time

Save for emergencies

Prepare for future expenses like education, travel, or retirement

Now, let’s go over the steps to start a budget.

Step 1: Determine Your Income

The first step in budgeting is knowing how much you make. Calculate your total income, including:

Salary or hourly wages

Freelance earnings

Side jobs

Any other income sources

If you have a fixed salary, this is easy. Just look at your paycheck. For freelancers or part-time workers, income may vary monthly. In that case, estimate an average monthly income based on recent months.

Step 2: List All Your Expenses

Once you know your income, list all your expenses. Start with two categories: fixed expenses and variable expenses.

Fixed Expenses
These are expenses that don’t change monthly. Examples include:

Rent or mortgage

Insurance premiums

Loan payments

Utility bills (if they remain mostly stable)

Variable Expenses
Variable expenses are those that fluctuate monthly. Examples include:

Groceries

Dining out

Entertainment

Transportation

Some people overlook small expenses like coffee, snacks, or small online purchases. But even minor expenses can add up. Include every dollar you spend.

Step 3: Categorize Your Expenses

Now that you have a list of expenses, categorize them. This helps you see where most of your money goes. Typical categories are:

Housing

Food and groceries

Transportation

Insurance

Debt repayment

Entertainment

Savings

This categorization is essential. It allows you to identify areas where you might be overspending. It also makes adjusting your budget easier if you need to cut costs.

Step 4: Set Financial Goals

Setting financial goals gives your budget purpose. These goals can be short-term or long-term. Examples include:

Saving for an emergency fund

Paying off a credit card debt

Building savings for a big purchase like a car or house

Saving for retirement

Start with realistic goals. For beginners, a small emergency fund of $500–$1,000 is a good goal. This can help cover unexpected expenses.

Step 5: Choose a Budgeting Method

There are several budgeting methods, and you should choose one that suits you best. Here are a few popular options:

The 50/30/20 Rule

This is a simple and effective way to budget. Here’s how it works:

50% of your income goes to needs, like housing, food, and transportation.

30% goes to wants, like dining out or entertainment.

20% goes to savings and debt repayment.

The 50/30/20 rule is easy to follow and doesn’t require tracking every dollar.

The Envelope System

With this method, you use cash for categories that you tend to overspend in. For example, if you set a dining-out budget of $100, place $100 in an envelope. Once the money is gone, you stop spending in that category for the month.

Zero-Based Budgeting

In zero-based budgeting, you assign every dollar of your income to a specific category. Your income minus expenses should equal zero. This method is best for people who want strict control over every dollar.

Step 6: Track Your Spending

Tracking your spending helps you stay within your budget. There are several ways to track spending, including:

Apps: Budgeting apps like Mint or YNAB (You Need A Budget) make tracking easy.

Spreadsheets: Some people prefer using Excel or Google Sheets to track spending.

Notebook: Writing expenses by hand can be effective, especially for beginners.

At the end of the month, review your spending to see if you followed your budget. If you overspent in any category, try to adjust for next month.

Step 7: Adjust Your Budget as Needed

Budgets are not one-size-fits-all, and they’re not set in stone. Your life and financial situation can change, so it’s essential to review your budget regularly. Here’s how:

If you earn a raise, adjust your income and increase savings or debt repayment.

If you have new expenses, like car repairs, update your budget.

If you overspend in one category, adjust another category to cover the extra cost.

Adjusting your budget ensures it remains relevant and achievable.

Step 8: Build an Emergency Fund

An emergency fund is essential for financial stability. Unexpected expenses, like car repairs or medical bills, can quickly derail your budget. Having an emergency fund can help you cover these without going into debt. Start with a small goal, like $500. Gradually, aim to save enough to cover 3–6 months of essential expenses.

Step 9: Avoid Impulse Purchases

Impulse purchases are a common budget buster. To avoid them:

Make a shopping list and stick to it.

Wait 24 hours before making a big purchase. This “cooling-off” period can help you decide if it’s necessary.

Keep your financial goals in mind.

Impulse spending often leads to regret and disrupts your financial progress. Staying focused on your goals can help reduce unnecessary spending.

Step 10: Celebrate Small Wins

Budgeting can be challenging, but celebrating small wins makes it rewarding. Did you stick to your budget this month? Celebrate! Did you save for an emergency fund? Reward yourself with something small, like a coffee or a movie night. Celebrating your progress helps keep you motivated.

Common Budgeting Mistakes Beginners Make When Starting a Budget

Budgeting takes practice, and beginners often make some common mistakes. Here’s how to avoid them:

1. Being Too Strict: It’s good to limit spending, but being overly strict can make budgeting feel like a chore. Allow yourself small treats now and then.
2. Forgetting Annual Expenses: Some expenses, like car insurance, come annually. Include these in your budget by dividing them into monthly amounts.
3. Not Adjusting: Life changes, and so should your budget. If your budget isn’t working, don’t hesitate to adjust it.

Final Thoughts

Starting a budget is one of the best steps you can take toward financial stability. At first, it may seem overwhelming, but with practice, budgeting becomes easier. Remember to start with your income, list your expenses, set financial goals, and choose a budgeting method that works for you. Track your spending and adjust your budget as needed. Most importantly, be patient with yourself. Budgeting is a skill, and like any skill, it improves over time.