A Beginners Guide to Budgeting

The primary goal of budgeting is to save money regularly, and this can be easily done if you follow a few simple steps: 

1. Enter your take-home income→ Your first step in budgeting is finding the numerical value of your income. Income is any money you earn through various sources, including your salary, interest income, share dividends, and other investment income. If you are including the paycheck you receive, make sure to use your net pay, which is how much money you receive after all taxes are deducted. Any tips you may make are also included in this value. 

2. Plan out your savings→ Make sure that you allocate at least 10% of your income into long-term savings. Your savings must be set aside before you are able to purchase your wants, things that are not of absolute necessity to you, but you enjoy having. It is okay to purchase things that are wants, but it is not okay to use money from your long-term savings for these wants. 

3. List out your fixed expenses→ These are the bills in which you pay the same amount each month. Examples of fixed expenses include rent or car payments. You also want to include your annual fixed expenses, but divide them by 12 to get a monthly value. For instance, if you spend $144 on a gym membership each year, you would divide 144 by 12 to get an expense of $12 per month. The $12 should be the value you calculate your monthly budget with. 

4. Calculate your variable expenses→ These expenses include coffee runs, movie tickets, or any type of expense that varies between days. When you start your budget for the first time, you will not know the total of your variable expenses, so you will need to put down an amount that you think you spend. For the next month, though, you must try and track your variable spending as diligently as possible. This can be done through saving your receipts, carrying a notebook where you write down your expenses, or even using an app on your phone. Regardless of your tracking method, once the month ends, you must compare your actual value and predicted value and adjust the value of your variable expenses to be more realistic. Once you have this value, it is important to try your best to stick to this amount each month. 

After you have put your money into savings accounts and your needs are taken care of, you can address your wants and purchase those new shoes you really wanted. However, it is possible you may need to re-prioritize your spending in order to not spend more than you make. If this is the scenario, you should try and split your purchasing up into 3 categories:

1. Items that create meaning and bring joy to your life 

2. Experiences you want to explore later in life, but for now can wait 

3. Technologies that you would love to have, but are optional. 

If you find a way to balance these three sections out in your budget, you will spend only what you can spend and build a foundation for wealth in the future.  By having a budget, you maintain clear spending limits, which may also decrease your chances of becoming emotionally involved in a purchase. Remember, even if your first budget does not work out, that does not mean budgets are not for you. You can always and should always re-evaluate your goals and adjust your values to fit your lifestyle. Budgets should not remain static and should be adjusted frequently.