Calculator on a table with caption Budgeting for Beginners

Budgeting for Beginners: 5 Steps to Building Your First Budget

Date Published : 06-04-2021

Maybe you feel you're floundering your way through your financial life. Or perhaps you have a financial goal you'd like to meet but don't know how. Either way, wants to help you learn how to budget and create a budget you can stick to, and that works for you. Here are five steps to improving your financial health.

1. Create a Goal

What are your financial goals? What's most important to you when it comes to money? You're more likely to stick to a budget if you have a reason that keeps you tethered. Examples of goals and budget categories include saving money for emergency savings, paying off a credit card, no longer living paycheck to paycheck and saving up for a vacation, car or home.

You may have multiple budgeting goals, and you may have a mix of short and long-term objectives. No matter the number or type of goal, prioritize which objectives are most essential to you. One good reason to have multiple targets is so that once you accomplish one, you have another reason to stick with your budget.

Once you create a financial objective, it's OK if you want to change or adjust it as you see fit. Sticking to a goal that doesn't fit your current chapter of life, your current financial means or your values may result in frustration and a false sense of failure.

2. Get the Lay of Your Financial Land

Once you know the target you're aiming for, it's time to get a snapshot of where you’re at. Sit down and note your monthly bills (such as utilities, groceries, and rent), bank statements, credit card balances, pay stubs and loan statements, etc. You’ll want to gather all the information on the money you have coming in and going out each month. 

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Don't forget to account for yearly payments like a credit card membership fee, car registration renewal, taxes and car maintenance. The goal is to be honest with your current financial state so you can get on the right track.

While gathering bills and noting income, you have a great opportunity to get an idea of where to make some changes. For instance, you may notice you spend too much money eating out or that you don't use all the monthly streaming services you pay for. Make a note of this information, for now, as you want to concentrate on accounting for every penny you make and spend. Look carefully through your bank statements for the past three months to better ensure you miss nothing. This will allow you to get a clear picture of how much you are spending on “extras” each month too.

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3. Balance Your Income With Your Expenses

One reason you may feel financially stretched every month could be that your income and expenses are out of alignment. If you’re in a place where you have more money going out than coming in, you need to find a balance.

Record all your streams of income and whether they occur bi-weekly, weekly, monthly or yearly. For a solid figure, account for taxes taken out of your paycheck, taxes you pay yourself if you're self-employed, child support, alimony and Social Security.

If your bills exceed your income, now's the time when you should decide where to eliminate spending. Even if you have no problem paying your bills, it still doesn't hurt to look for creative ways to save money. For instance, consider using services like RewardFish that give you gift cards for completing offers and surveys. Other ways to save money including using a discount card at the grocery store, reducing the amount you eat out, and paying any credit card balances in full at the end of each month to avoid interest charges.

4. Choose a Budgeting Method

You have several options for budgeting. With the envelope method, you put cash in different envelopes for everyday spending like gas, groceries, entertainment and shopping. When the envelopes run out of money, you're done spending in that category until the next payday. This is a good way to keep from overspending by swiping your credit or debit card all the time, which doesn't have the same psychological impact as visually watching your money shrink with every purchase.

With the 50/20/30 method, you use half your income on living expenses, 20% on debt and emergency savings and 30% on whatever you wish. If you don't make enough money for the 50/20/30 method, consider the 60/20/20 method. With the latter budgeting method, you devote 60% of your income to bills, 20% to paying off debts and bulking up your savings and another 20% to personal spending.

5. Understand Your Triggers

Part of creating a budget is understanding where you often stumble. For example, you may be someone who goes on a shopping spree when you feel stressed or anxious. Or perhaps you struggle with making impulse purchases you don't need. You may buy things solely for social status or to fit in with friends. Whatever it is, do not be afraid to face it and figure out where it comes from.

When you recognize your triggers for unhealthy or unnecessary spending and understand their emotional and mental underpinnings, you can develop healthy strategies to change and replace bad habits. Rather than spend money when you feel stressed, perhaps you can write your stressors and develop ways to deal with them that don't involve putting your finances at risk (such as using exercise or journaling to deal with stress rather than shopping). Before making a major purchase, take a few days to ask yourself how much you'll actually use whatever you want to buy.

When you break budgeting down into several individual steps, you may find it's an easier mountain to not only climb but also conquer. To reward yourself for a budgeting job well done, sign up for to continue to savings spree! With RewardFish, you can earn point while shopping, redeemable for gift cards to your favorite retailers and restaurants. It’s another great way to save!

Mollie has been writing for corporate blogs for nearly ten years.
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