"I started my first budget after graduating from college. I wish I could say it was because I was financially responsible and trying to be proactive with my money, but the truth was I was drowning in student loan debt. I needed a way to help me track the little income I had and the lot of expenses I saw hitting my bank account each month. Fast forward ten years, and I’m still using a budget to track my monthly income and expenses even though I’ve since paid off that debt. Why, you might ask? Because budgets work.
How To Budget for Beginners
A common misconception is that maintaining a budget equals restriction. But the truth is budgeting allows you to spend money on the things you care about (aka value-based budgeting). Tracking your income and expenses each month or pay period gives you a better understanding of where your money is going. It helps you remain focused and accountable for reaching your financial goals.
But because budgeting isn’t a skill many learn growing up, it can seem intimidating to get started. I’m here to tell you that you don’t need to be a financial planner or a money expert to create a budget that works for you. If you’re ready for Budgeting 101, let’s dive in so you can go from budget beginner to managing your money effectively and with ease.
Identify Your Values
The very first step you need to take when beginning to budget is identifying what you value. What is your motivation for creating a budget? Maybe it’s to save an emergency fund, pay off debt, plan for a vacation, begin saving for retirement, start investing, or get a better handle on your spending and saving.
Taylor Price, Afterpay Brand Ambassador and Founder of Savvy & Priceless Tay, is a globally-recognized Gen Z financial activist and money mentor. She’s helped over one million Gen Zers build a budget, start saving, pay off debt, and invest. “Creating a budget is like having a GPS for your money! It helps you keep track of those dollars and put them in their rightful place,” she shares. “Have you ever tried driving in a new location without directions? It would be quite difficult to do so! A budget is stress-reducing because you know exactly where your money is going and it helps you reach your financial goals more easily.”
Once you know what you care about and what you’re trying to accomplish with your budget, you can walk into the process with confidence and clarity.
Understand Your Income and Expenses
Before you begin crafting your budget, you also need to get a clear picture of your numbers. Understanding your cash flow, spending habits, expenses, monthly bills, and saving tendencies will ensure you create the most accurate budget to help you reach your financial goals. Identify your recurring bills and fixed expenses (i.e., the costs that are the same each month, like rent, car payment, etc.). If you’re at a loss for your numbers, create a money journal to track your spending for a week or a month to capture everywhere your money goes.
When I asked Taylor Price what’s the first step you should take when beginning to budget if you don’t know where to start, Taylor shared, “First things first, time to snoop on your own spending habits.” She elaborates on how to do this, “Go through your expenses – online banking, receipts, even that crumpled Starbucks receipt at the bottom of your purse. It’s like staring in your very own ‘CSI: Budget Edition.’ Figure out what’s a must-have (like your rent or your avocado toast) and what’s a “maybe-I-don’t-need-it-right-now.” This will help you prioritize your spending.”
Set Realistic Goals
Once you have an understanding of what’s important to you, your financial accounts, and where your money goes each month, it’s time to set goals. The key here is to set realistic goals. While you may want to tackle your thousands of dollars of debt or save three to six months in an emergency fund, the reality is that it takes time.
To set yourself up for success, you need to create SMART, realistic goals, like saving $100 a month or paying an extra $50 towards debt a paycheck. If you were to set a goal of saving $5,000 in an emergency fund, it could feel insurmountable, causing you to lose motivation when it feels like you’re barely contributing to the balance. But by setting a SMART (Specific, Measurable, Achievable, Relevant, and Time-Based) goal, you’ll be more likely to stick to your plan. An example of a SMART goal is, “I want to save $1,200 this year toward my emergency fund goal of $5,000 by contributing $100 each month.” That is a realistic goal you can stick to and you can feel confident knowing you’re on track.
Choose a Budget Plan
Now we’re getting into why you’re probably here: selecting and building a budget. I’ll start by saying the best budget is the one you can stick to. There is no one-size-fits-all or end-all-be-all-budget. You need to find one that works for you and your financial goals. “Dealing with your budget is no different than finding the perfect pair of shoes – it’s all about the right fit,” Taylor Price explains.” But everyone’s different! Find a plan that fits your lifestyle and financial goals.”
Let’s dig into a quick overview of a few popular budgeting methods you can leverage to get started.
- 50/30/20 Budget: This method divides your money into 50% needs, 30% wants, and 20% for financial goals (like saving, investing, and paying off debt). Take your total income and separate it into these percentages to know where to focus your money.
- Zero-Based Budget: This budgeting method allocates every dollar to a line item in your budget. This is an excellent method to plug into a spreadsheet. Start with your total income and then subtract all your upcoming bills, spending money, savings goals, etc., until every dollar is assigned to budget categories, and you’re left with zero.
- Pay Yourself First Budget: This method is just as it sounds. You take your paycheck and pay yourself first, meaning you immediately set aside money towards your monthly goals. This ensures you don’t spend the money so you can guarantee to make progress towards your goals. Then you use the remaining balance to pay your bills and spend.
- Envelope Budget: The envelope budget system is a cash-based budget approach. When you’re using a card to pay for your expenses, it can be difficult to get a clear picture of how much you’re actually spending. To maintain a better handle on your money, use only cash to pay your bills and assign each budget category an envelope. Determine your amount for each category and put that much cash into each envelope. Then once the money’s gone, it’s gone.
Again, the best budgeting method is the one you can stick to for whatever season of life you’re in. What works now may need to be tweaked and updated in five years to fit your future lifestyle. The best way to know what will work best is just to start, then iterate as needed.
Automate, Automate, Automate
If you’ve set savings goals, automation is your friend. It works for both contributing to savings accounts and investing for retirement or other future plans. To start, determine the amount you want to contribute each month or pay period, then set it and forget it. Automation ensures you have the funds available to contribute to your goals because you’re paying yourself first. This is especially important if you’re working on savings for retirement through an employer-sponsored retirement account, like a 401(k) or 403(b). When you automate your contributions to these investing accounts, you never even see the money hit your bank account, so you can be confident you’ll make progress toward your goals.
You also have the ability to automate your bills through most companies. Sometimes you can even select a payment date that works best for your schedule. This can help ensure you pay your bills on time and stick to your budget. But if you want more control over your money, you might want to hold off on automatic payments until you feel more comfortable. I personally prefer to hit that payment button each month to monitor the process of paying my bills, but there are people who swear by automatic payments.
Track Your Progress
The point of a budget isn’t to create it and never touch it again. Budgets are meant to be revisited, reevaluated, and adjusted regularly. The best (and most fun) way to do this is to establish a regular money check-in. Think of it as a money date where you get to sit down, check in on your money, and practice real self-care (getting your money right).
Make these money dates something to look forward to by grabbing your favorite takeout or drink or putting on some great music to enjoy in the background. You can have these dates once a month or every time you get paid. I have mine every time I get paid to ensure I track where every dollar is going. Do whatever you need to to make these money check-ins work for you, as long as you do them and do them regularly.
Best Budgeting Apps For Beginners
One of the frequently asked questions regarding budgeting is where you should track your money. While I’m a big fan of spreadsheets and use one to track my budget, there are a lot of helpful budgeting tools that will help you keep track of your money in an easy and resourceful way. Here are six budget apps to check out to get you started.
Mint
This free budget app allows you to link all of your accounts to monitor your spending, track your savings goals, and account for your debt payoff progress. You can set a budget within the app and easily see your progress at your fingertips. I love that the app creates a clear financial snapshot by linking all your accounts and separating them into categories like cash, credit cards, investments, property, and loans. It’s a very robust tool for all your financial needs. You have the option to upgrade from the free version for additional features, like no ads.
YNAB
Like Mint, You Need a Budget (YNAB) is a mobile app that syncs your financial accounts and easily tracks your spending. YNAB offers a 34-day free trial before you select either an annual plan or a monthly plan. The app offers goal tracking and loan calculator features, as well as spending and net worth reports. I like that the app allows you to think through your immediate, short-term, and long-term priorities so you can allocate and spend your money accordingly.
EveryDollar
If you’re using a zero-based budgeting approach, the EveryDollar app will be your best friend. The app allows you to assign every dollar, hence the name, to a budget category. I like that it keeps budgeting simple, especially for beginners. The app offers a free version or a premium version with a 14-day free trial before committing to a monthly or annual plan.
NerdWallet
The team of experts at Nerdwallet developed the Nerdwallet app so you know it’ll help you reach your money goals. It has similar features to other budget apps, like tracking your spending, saving, net worth, budget, and more, and it’s free. I really like that it allows you to track your credit score within the app, so you can keep tabs on improving your credit score if you’re looking to make big financial decisions like purchasing a car or a home.
Simplifi
Simplifi by Quicken credits itself to making personal finance simpler. You can connect all of your accounts to make budgeting easier. The app includes a budget planner and money management feature to help you stay on track. The app offers a 30-day free trial, so you can try it before you sign up for a plan. I like that the app was developed by Quicken, a trusted personal finance management application, so you know that they created it with the end user in mind.
GoodBudget
If you’ve decided to try the envelope method, download the GoodBudget app. This app has modernized the envelope method and lets you create virtual envelopes to organize your budget. Personally, I like that using the app can help you be more mindful of your spending and keep you on track to meet your goals without the physical use of envelopes. A free version of the app is available, and a premium version can be purchased for additional features.