Budgeting is a bad word to a lot of people. Young people especially don’t like to hear that they need to create a budget. It can be discouraging when they only have a certain amount of money each week or month. But it is essential to know how much money you have to deal with each month so that you can plan your spending. Planning your spending is really what budgeting is all about. If you can start to think of budgeting as taking control of your money, you will be well on the way to creating wealth.
7 Steps to Budgeting for Beginners
To create a beginning budget, start with these seven steps.
- Write down all of your income in a given month. Include anything that is a fixed income as well as a reasonable estimate of your extemporaneous salaries such as freelance jobs or extra money.
- Write down all of your expenses. Create categories for each type of expense and put the details underneath it. For example, a category called “Utilities” might include your water bill, electric, gas, and cell phone.
- Add up your income as well as your expenses. If you are in the negative column on income, you will either have to bring more money into your life or cut an expense or two. Cut anything you do not have to have. You can always add it back in later when your situation improves.
- Make a “dream list” of things you prefer to do with your money. It can be vacations, saving for a new car, and so forth. Keep these things in your mind as you are saving each month. Make sure you allow for at least 3-5% to go to savings and investments.
- Create an emergency fund and a savings account using automated savings tools such as Simple.com or Acorns.com. This way you have a certain amount of money being saved each month without having to remember to set money aside.
- Alter and change your budget each month as your priorities change. You do not have to stick to the same budget every month if it is no longer working for you. The key is to have a plan each month and adjust it as you become more able to control your money.
- Reward yourself once in a while. You may feel restricted at first, but with time, you will love the idea of being free by being able to choose how to spend your money and take control of your life. Reward yourself when you pay off things and make little steps toward your goals.
There are some great tools out there which automate the savings and investment process. Try Acorns.com for investing and Acorns Later for IRAs and retirement funds. Then check out Stockpile.com or Stash.com for individual stock investments. Creating a passive income is a key to building wealth, and today there are many ways to set this up automatically. If you create a budget that works, stick to it. Set a goal to pay off debts, creating sound savings and investment plan, and work toward your dream list. With time, it will pay off. Be patient. It will work if you never give up.