I’ve talked about budgeting before, especially for beginners. However, I thought it was about time I made a complete guide on budgeting for everyone to make use of. After all, almost all of us are budgeting, but a lot of us have different needs for our budgets. This time around I’ll be covering just about everything I can when it comes to following a strong budget. If you’re interested in budgeting for a home gym or want to know common things people forget in their budgets I have separate articles on those.
Without further ado, let’s dive into this guide!
Figure Out Your Net Income
If your only source of income is a standard 9-5 job, from which you receive a paycheck (with taxes already deducted), your monthly income is just going to be the sum of that. Generally, this is referred to as net income or take-home pay. For those who don’t know, your gross income is how much you make before taxes. For the purposes of budgeting, net income is definitely the metric you want to use.
If you have multiple different sources of income it may be a bitter harder to calculate. If your income is a little sporadic, I would recommend taking a 3-6 month average. You may not like the sound of that idea, in which case you can go with an estimation – but try to steer closer to the lower side of what you can expect to make. It is better to be safe than sorry after all!
Look At Your Expenses And Check What You Can Reduce
Unlike your net income, if you have to estimate an expense I recommend erring on the side of higher costs to be safer. Of course, if your expenses are more static then that won’t be an issue.
It’s crucial to make sure you cut expenses if you need to. A lot of people can cut a significant part of their budget by focusing on the following expenses:
- Housing
- Transportation
- Dining out and food
If your rent or mortgage costs too much, downsize. If you’re spending too much on your car, just buy a reliable used car. Buying new cars or leasing is a fast way to jeopardize your financial security. Alternatively, if you eat out too much, try to reel that back in.
Irregular Expenses Are Important Too
Remember to factor in the expenses you may not have every single month. If you’re not sure what those may be, but think along the lines of annual fees, taxes, car registrations, maintenance, trash & recycling services, or any other infrequent expenses. Some people budget for them specifically in the month during which they usually occur. I prefer to estimate my irregular expenses for the year and divide by 12 so I can set aside money for them every single month.
Remember To Pay Yourself First
I hope this goes without saying, but make sure you’re constantly investing. Investing in your future, and your retirement, is the best way to pay yourself. Make sure your budget lets you hit your mandatory investment goals. Better yet, don’t wait for it. As soon as you get your paycheck take some money from it and invest it in your future. For the best results, set up automatic deposits to the brokerage of your choosing. If you don’t have one yet, try out M1 Finance. It offers great ETFs and index funds while making it easy to automate your investments.
For Simple Budgets, Try 50/30/20
The 50/30/20 rule doesn’t work for everyone. I’m not sure I’d even recommend it as the ideal budgeting tactic. However, it may work for you and it can be a great place to start from. If you don’t know what it is, it’s actually pretty simple. You spend 50% of your net income on your needs – things like food and shelter. You spend 30% on your wants, like subscription services. Last, but not least, you put 20% away towards your investments.
It’s not the perfect budget. It isn’t as aggressive as I’d like, and the distribution may not work for a lot of households. That being said, it is definitely something to jump off from, and it gives you a good minimum amount to start investing to set you on the path towards financial independence.
Choose The Right Technique For You
Of course, it’s important to note that you should use the best budgeting system for your needs. The 50/30/20 system may work for you, or it may not. Just know that there are tons of options and you should use whatever works best for you and your situation!
Zero-Based Budgeting
Another system I’m a fan of is zero-based budgeting. I wrote an article on it here. With it you’re basically making sure that every single dollar you make has a specific function. That helps give a much more detailed focus on what you’re using all of your money for. All of your money will be assigned to mandatory expenses, discretionary spending, savings, investments, and debt repayment. In short, your income minus your expenses (including investments) should always be zero. If that sounds complicated or daunting, then zero-based budgeting may not be for you. If you like the sound of an even more structured approach to budgeting, I’d give it a try.
Don’t Be Afraid To Get Creative
If you’re new to budgeting, try out different systems until you find one that works for you. Get a little creative and have some fun with it though. You may find that some weird tactics click for you and help you follow a good budget, or you may find that the best system for you is a combination of two or more other types. Either way, enjoy the process and don’t drive yourself nuts trying to be too frugal.
Routinely Update Your Budget
As you get more experience with budgeting, you may decide to adjust it a bit. Also, it’s perfectly normal for you to need to tweak your budget after major life events. Every now and then make sure you check in on it. It’s important to follow a budget, but it’s also important to make sure it’s updated for your current situation too.
Free Budget Template
Below you can see a picture of my free budget template! It has everything you need in order to get started. All you have to decide is how much you want to allocate to different categories each month. Of course, I highly recommend you use it, but you should also tweak it to perfectly meet your needs. To get a free copy, sign up for my newsletter and we’ll send out the budget template and a financial goals worksheet for free!
Other Good Resources
Once you have your budget set, you can expand to other areas of personal finance. You can go through our checklist, take steps to revitalize your finances if you’ve had hardships, or just find answers to common financial questions. For more information on saving money or investing, I have tons of articles on those for you too!
Conclusion
If you have any tips of your own, please leave a comment. Don’t forget to sign up to the newsletter for your free budgeting template and financial goals worksheet. Good luck on your new budget and personal finance journey!
