How to budget for beginners
“You need a budget.” It’s what you hear over and over again whether it’s the little voice in your head or your mom nagging you to get your finances in order.
But the idea of entering in every small detail EVERY MONTH…
It seems boring, pointless and complicated.
It can also be scary to get the reality check of how you’re spending your money!
When I was about to go on maternity leave and my income was changing dramatically, I needed to know if we could cover our basic expenses so I just did it.
And I have to say, the hardest part as a budget beginner was JUST GETTING STARTED.
Now that I’ve been working with a budget for a while, I know budgeting is valuable. I’ve also learned some tricks on how to make the process faster and easier.
How should a beginner budget?
Here are step-by-step instructions on how to budget money for beginners. It’s a simple and realistic budget that will help you achieve your goals.
In this post, we’ll cover:
- What is a budget
- Why you need to start a budget
- How to budget as a beginner
- How to stick with your budget including common mistakes and strategies
What is a budget?
A budget is a plan for how you spend your money. It’s a breakdown of your income (e.g. your salary, part-time job income) and expenses (e.g. mortgage, utilities).
It provides a financial picture of the flow of how your money comes in and goes out.
Why should you start a budget?
Tracking your money has many valuable benefits including:
- Knowing your cash flow: You don’t want to spend more than what you have in your bank account (have a negative balance) and get charged an overdraft fee at your bank.
- Having control of your money: Having a budget brings attention to bills (ensuring they’re paid on time) and limits your surprise expenses.
- Learning your spending habits and getting ideas for how you can improve your savings.
Think about every big business. They all have a budget!
The reality is that if you don’t know where your money is going, you might be overspending on something you don’t need. While spending on indulgences every now and then is fine, it can add up if you’re not paying attention.
More importantly, you will NOT be maximizing your savings. You will be that much slower at reaching your big financial goals like buying a home or retiring early.
How to start a budget as a beginner
1) Decide WHERE you’re putting your budget.
The first thing you should do is decide where you want to store your budget. There are a few options:
Which budgeting option should you choose?
For beginners, a lot of people recommend starting with paper, but I think you should go with the option you feel the most comfortable with.
That way you’re more likely to start your budget and continue with it.
If you’re still on the fence about which option to choose, here’s an analysis of each option:
If you have your to-do lists and planners on paper, using paper is probably the best option for you. What I like about paper is that it’s simple and you can easily place it on your fridge as a reminder and to make you mindful of your spending habits.
The disadvantage of using paper is that it takes more time to tally up numbers or do analysis on trends, especially if you’re comparing numbers over months or years.
In my day job, I use spreadsheets and so naturally, my current budget is on a spreadsheet. If you don’t know how to use Microsoft Excel or Google Sheets and don’t like typing, spreadsheets are probably not for you.
I love how with spreadsheets you can easily sum up numbers and see differences between your goals and actual numbers. You can also quickly create charts and graphs.
If you prefer using apps and feel comfortable sharing your banking information on a secure app, you might be better off with an app.
Personally, even though I know the app is encrypted, I still don’t feel comfortable entering in my banking passwords on an app. I also find it slower to type in information on my phone or tablet vs. a computer, but that’s a personal preference.
The advantage of using an app is that it has preset analytics. Once you enter in your information, it’ll automatically show you your trends and charts and highlight where you can save money.
However, if there are ever any issues with the app:
- You might not be able to access your information on the app or
- Worst case scenario – you might lose your information
There are a lot of pros and cons to each option. The key is to keep it easy (according to your comfort level) to start with. You can add complexity once you become familiar with the budgeting process.
I will go over how you can create and structure a budget below.
If you’re looking for a quick template:
1) Here’s a list of the best paper budget books.
If you’re looking for a more customizable option, here’s a simple, but extensive printable budget planner PDF file.
It’s a digital download so you can print only the pages you want to use – as many times as you want.
2) If you’re looking for a template that requires less manual work, here’s the budget spreadsheet I use today!
It has 3 different calculators to track your early retirement progress!
If you prefer to DIY your budget, here’s the basic budget structure for beginners you can use.
2) Create your budget outline
Now that you have your format decided, here’s the basic outline of a budget.
- Put your current month and year at the top.
- Create 3 sections: Income, Expenses and Savings.
3) Slot in your monthly income
Make sure you input your minimum monthly income – what you can expect to get every month. Don’t include bonuses or overtime pay.
Make a note of your pay days.
4) Input your expenses
List out every expense you had last month. If it’s a regular expense (e.g. mortgage), list it in a “regular expense” column. If it’s an irregular expense (e.g. gifts), list it in the “irregular expense” column.
For all of the regular expenses, indicate their due date.
5) Note any additional irregular expenses you can expect.
Think about your entire calendar year. What you spent last January-December e.g.:
- Christmas gifts
- Birthday gifts
- Car maintenance
- Driver’s license or car registration renewals
- Vet exams
- Medical exams
- Household maintenance expenses (laundry detergent, shampoo, light bulbs, batteries)
Under the irregular expenses you had last month, write a line and input any additional irregular expenses you can expect below it. If you know the general dates they occur, indicate it.
Looking at all of the irregular expenses, make an estimation of how much on average you spend on irregular expenses every month.
My irregular expenses are usually around $200/month.
6) Input your savings
Take your income and subtract your expenses (regular expenses + average irregular expenses you can expect each month) to get your monthly savings.
Don’t worry if you realize you don’t have any savings or you’re in the negative.
We’re going to address how we can boost that savings number later on…
7) Set a goal
Now you know what your current financial situation is.
It’s time to set your budget goals!
Look at all of your expenses and decide on 1 category you want to focus on reducing this month.
I recommend focusing on food first because it’s the category you can usually make the most change in quickly.
Look at your food number and take off 10-20% – this will be your goal number. I don’t recommend going too far beyond 20% as you want to make the goal realistic and achievable so that you stick with it.
If you’re spending over $500/person, you want to aim for closer to the 20% mark. If you’re spending around $250/person, set your goal closer to 10%.
It might seem daunting or depressing to set goals on food. You earned your money and you want to reward yourself with good food. Cutting costs on food doesn’t mean you have to sacrifice on taste or quality.
Here are 11 easy ways to save money on groceries. There are many other savings tips I’ll go over below.
If you’re feeling ambitious…
8) Set a goal for another regular expense
Another way to make change quickly is to look for expenses you can eliminate or substitute for cheaper options.
Scan through your expenses and decide on 1 other category you want to focus on and set the goal.
For example, you can eliminate your home phone if you already have a cell phone. You can substitute your cable for Netflix or rent DVDs from the library for free.
If you’re looking for additional ideas, here are 18 things I stopped buying every day to save money.
Another idea is to go through a no spend challenge, which is when you don’t spend money for a certain period of time. I highly recommend this exercise as it stretches your limits and forces you to be creative to get around not spending money.
If you’re feeling EVEN MORE ambitious…
9) Set a goal to earn more money
Ultimately, you’ll reach the point of not being able to realistically save more money. If you want to reach your financial goals, you’ll have to focus on earning more.
Set an income goal.
There are many ways to earn a side income. For example, you can get an additional work from home job that’s flexible like being a Virtual Assistant. Here are over 10 other legitimate work from home jobs.
If you’re just aiming to make an extra $100/month like working as an , here are other ways to make money quickly.
There might be other quick wins to earn more money.
For example, if you’re not contributing to your company’s RRSP matching program, you should do this immediately.
10) Set your savings goal
With your income and/or expense goals in place, you now have a savings goal.
What if there’s still no money leftover after your expenses?
If even with your target income and/or expenses, there’s still no money leftover, go back through your numbers and try to find more ways to save and earn money.
11) Link your savings goal with a bigger goal
Now for the fun part!
Do you dream about going on a vacation or owning a home? Living debt free? Early retirement?
Prioritize 1 or 2 big goals and put your savings towards it.
12) Check your cash flow
Now that you have your budget in place, you can use it to not just track your goals, but to ensure you pay your bills on time and not go into overdraft.
Since you have all the dates of when money is coming in and going out, you can make sure you always have enough in your account to cover bills.
How do you ensure you pay your bills on time?
- Automate bill payments to ensure you never forget them or miss the email alert (but always check the bill to make sure the numbers are correct)
- Set up a bill payment system (I pay all my bills in 2 days of the month – the 1st and the 15th. If I get the bill notification close to the 15th, I’ll pay it on the the 15th.)
One mistake I’ve made is miscalculating the amount of savings I can move out of my checking account and accidentally going into overdraft.
Here are strategies I use to avoid overdraft:
- Closely review my budget and accounts at least once a month
- Leave an extra $100-300 in the account just in case
- Never use debit cards as it’s easy to lose track of what you’re spending and what’s remaining (I always use credit cards – plus you can collect points!)
If I accidentally slip up, I will move money around to get back in the black and contact the bank as soon as possible. If it’s your first time, they’ll usually reverse the charges.
13) Update and monitor the budget
Pencil it in your schedule to update the budget once a month.
Yes – this is a monthly task. Why?
Because every month is different. You might have extra side income one month or bigger credit card expenses because of Christmas.
When you enter in all of your numbers and see how much progress you’ve made, it’ll be a boost to your motivation!
You’ll also be able to check that you haven’t incurred any overdraft fees.
How to stick with budgeting
Now you have a budget in place, but how do you stick with it?
It’s one thing to start a budget, but it’s an entirely different skill to continue budgeting month after month.
You think once you know the general numbers, all you need is to refer to them and red flag any expenses that seem off.
You don’t think you need to look so closely at the numbers. No one wants to feel so restricted with their money. At least that’s what I thought, but…
Then I realized without a budget, “budgeting” would not be top of mind.
I would miss opportunities to save and make more money. While it’s important to have that occasional indulgence, I might go overboard with takeout meals or other temptations because I wasn’t tracking the numbers.
Without a budget, I wouldn’t be maximizing my savings. It would take longer to reach my goals.
How do you stick with a budget?
For me, the key to sticking with a budget is firstly, focusing on my goal.
Focusing on the why. The “why” you have a budget in the first place.
And then keep that goal forefront in your mind.
Here are ways you can do this:
- Create a visualization board that includes your big goal. Put in images and motivational words.
- Place your goal in an area that you see everyday like your phone or desktop wallpaper, or a whiteboard or chalkboard at home.
- Share your goal with your family and friends to create public accountability. It also helps to explain when you have to say no to going out for dinner or drinks.
Your goal is your driving motivational force and your budget is the tool to make it happen.
Secondly, make budgeting a habit and system that’s easy and works for you by avoiding…
Common budgeting mistakes
Here are budgeting mistakes beginners often make.
1. They set unrealistic expectations.
The most common reason why people stop budgeting is because their budget is unrealistic. Ensure that you’re setting goals that are achievable.
Don’t set yourself up for failure at the start. Recognize that where there’s room for improvement, habits take time to change. Understand that for some categories, you might have already maxed out your savings.
2. You budget based on gross vs. net income.
When we’re asked how much we make, we often think of our annual salary before taxes.
When it comes to budgeting, the only numbers you need to focus on are what comes in to your bank account – what you actually get paid after taxes and any employer deductions if applicable.
If you have any of the numbers wrong – your income or expenses – it can be demotivating. Make sure you’re working with the right numbers to begin with.
3. Spend your monthly budget right away.
If you have a tendency to spend money as soon as you get your paycheck, break it up over the course of the month.
For example, if you have $100 to spend for entertainment, allow yourself $25/week. If you have money left over, that’s great! You can carry it over to the following month or just put that extra bit into savings!
Here’s another tip to stick with budgeting…
Use a budget strategy
If you’re looking for more ideas for your budget, there are a few other common budget strategies you could apply.
1) 50/30/20 rule
This is when you allocate your income as follows:
- 50% to necessities
- 30% to wants
- 20% to savings and debt repayment
One of the most difficult parts to setting a budget is knowing how to set your goals. If you feel overwhelmed by the prospect of setting goals, the 50/30/20 rule offers a realistic framework for how much of your income can be put towards bills.
To clear up any confusion over needs vs. wants, here are a few examples:
- Needs: housing, utilities, insurance, groceries, transportation
- Wants: take-out coffee, restaurant meals, cinema tickets, travel, sports game tickets
When you dig deeper into these categories, some choices might be viewed as more of a luxury – more of a want vs. need. For example, driving a car vs. taking the bus.
Do what you’re comfortable with. It’s your decision how you want to categorize your needs and wants.
2) Dave Ramsey’s Zero-Based Budgeting
Another popular budgeting strategy is zero-based budgeting, which is when you aim for your income minus expenses to equal zero.
This means you have to know exactly where all of your money is going in advance. This includes savings which is lumped under expenses in this context. It’s a shift in mindset.
Just to confirm, this doesn’t mean you’re aiming to spend every dollar of your income every month (you’re still aiming to boost your savings!). It means you have to assign a category for every dollar you make.
For example: if you finish your budget and you have $50 left over, it means you haven’t fully assigned your income.
A couple of things to consider:
This method is challenging if you have irregular income or expenses.
It’s useful if you’re living paycheck to paycheck and have very little savings. Zero-based budgeting helps ensure you’re never spending more than what you’re making.
Eventually, once you get a handle on your expenses, you can start “paying yourself first“.
You’ve probably heard this term before.
The ideas is that you set up an automatic bill payment to your savings account on a regular basis. It forces you to prioritize paying yourself as you would any other monthly bill. It forces you to save.
Related: Here’s how to maximize Dave Ramsey’s financial “Baby Steps” Checklist.
Final Thoughts on Budget Tips for Beginners
All of these practices and systems – they’re all tools and tips to help. You can adapt any of these systems to fit your lifestyle or create one yourself.
What’s important is that you just get started, keep working at it and be mindful of the distractions that might take you off course.
Think of budgeting as part of your routine. Make it a part of your journey. You’ll get to your goals that much faster.
Resources for Saving Money
Looking for other ideas to save money?
Here are my favorite money saving resources:
Rakuten (formerly Ebates) is great because you can get up to 40% back for shopping online at over 2500 stores – many of which you would normally shop at like Amazon, eBay, Macy’s, Kohl’s etc. It’s FREE to sign up.
For U.S. residents, Rakuten will give you a welcome bonus of $10 after making your first online purchase of $25 or more. For Canadians, it’s a $5 welcome bonus for signing up. You can read more about how to use Rakuten here!
If you spend hours meal planning every week only to stress out some days and eat out, you might be interested in the $5 meal plan. For $5/month, they send you a weekly meal plan where every meal will cost approximately $2/person! They save you time and money so that you can focus on doing things you enjoy like hanging with your kid!
They offer a 14 day FREE trial (approximately 40 recipes) – regular or gluten-free – that you can cancel at any time with no questions asked.
This membership has 2 great benefits: free 2 day shipping and free access to movies, TV shows, music and books. You no longer have to worry about last minute items. You can cancel your other movie, music and book subscription services. You can also get 20% off diapers and baby food when you have more than 5 subscriptions.
Get the Amazon 30 day FREE trial here. You can cancel at anytime. No questions asked.
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