One question I repeatedly get is “How on earth do you start budgeting?”. I have to admit that budgeting came naturally to me because I am nerdy and I have always been keeping track of our bills each month. But when you’re starting from scratch and have no idea what you’re doing, it can be extremely overwhelming! So today I’m going to go over how to make your first budget and share some practices I’ve put in place along the way to make it easy!
How to Make Your First Budget
Step One: Commit to Doing a Budget Every Month
This seems obvious, but it is very important. You can’t just decide you’re going to do the budget this month and then use that same budget every month for the rest of your life. Every month is going to look completely different and will come with it’s own set of bills, expenses, and income variations that all need to be accounted for. You have to decide you’re going to make this a new routine, a habit that you never break, in order for it to do the most good in your life!
If you’re single, congratulations. You only have to convince yourself to do this whole budgeting thing. If you’re married – congratulations! You have someone to help you stay accountable to your budget! If you need help starting the conversation about money with your spouse, be sure to check out this post for some tips!
Step Two: Set Up Your Budget at the Beginning of the Month
A budget is all about telling your money what to do each month instead of looking back at the end of the month and wondering where it all went. The only way it will work is if you set it up before your month begins and have your budget meeting at the beginning of the month. We’ll get more into detail about how to set your budget up in a second, but the key here is really getting in the mindset of financially planning a month ahead, instead of a month behind!
Step Three: Look at Previous Month’s Expenses
The best way to get an idea of how much money you’re spending in certain categories is to look to your past spending habits. There are some expenses that are the same every month, like your rent, and some that vary greatly, like groceries and your electric bill. Pull your bank account records for the previous three months and start making a list of the average price you paid for all of your expenses.
Step Four: Decide How You’ll Set Up Your Budget
Now that you have an idea of your regular monthly expenses, it is time to actually set up your first budget! Yay!
There are a BUNCH of different ways to budget. You can use an app, like Every Dollar or YNAB, spreadsheets, which can get complicated, or just a notebook and pencil. I like to keep things as simple as possible, so I stick with a notebook and a pencil. You can get a good look at what our budget looks like in this post all about having a budget meeting. I simply make a list of all of our expenses for that month and write out the estimated amount in one column and then what it actually cost in the next column. After a while, I didn’t have to do the estimated/actual because we just got in a rythm but to begin with I wanted to be sure I had some wiggle room in case I underestimated on anything!
The benefits, for me, of having a paper and pencil budget is that it is super easy to change up and forces me to write out our entire list of expenses every month, so that I feel more of the expenses. It helped me to physically see and write out what our debt payments were costing us in order to get them out of our lives faster!
If you’re more likely to enjoy an app, and need the accountability of sharing your day-to-day financial decisions with a spouse or accountability partner, you might try YNAB or Every Dollar. I don’t care what you use – but I do care that you pick something and stick with it!
Step Five: Get Out Your Social Calendar
Pull out your calendar for the month and see what you have going on. If you have a dinner planned with friends one weekend, you’ll need to plan for that and put it in your budget. If you have a road trip to visit family coming up, you’ll need to estimate your costs for that trip (gas, snacks, entertainment, lodging, etc) and put that all in your budget. Knowing what is coming up in the month before it actually happens is key to having a successful budget!
Now, all that being said, you will forget something – or likely – a few things. You can avoid this trap by giving yourself a specific item in the budget to help cover these expenses. Set aside $100 or so to sidestep things you missed (a coffee date you forgot to write down, school pictures, etc.). This also means that as these events and expenses come up, you will have to decide if you still want to pay for them or if you want to politely decline and save that miscellaneous fund for something else.
Step Six: Be Ready to Make Adjustments
Your first month of budgeting will likely be a disaster – but don’t let that deter you. It is perfectly normal to spend the first month really getting your bearings and figuring out what your spending habits actually look like! So be prepared to do some erasing or deleting of numbers and recalculating things as you go. The first month is all about learning more about yourself so that you can put that new knowledge towards your second month’s budget.
Like I mentioned above, you’re going to forget things, way over-budget for some things, and way under-budget for others.
Step Seven: Keep Going
This is probably the hardest step of all, but now that you’ve survived your first budgeted month, you have to do it all over again the next month. (Refer back to step one!) However, the next month will be a little easier since you have some experience under your belt. Pull out last month’s budget, look at your calendar, and do it all over again! By months three and four, you’ll be an old pro at setting it up and anticipating expenses.
Budgeting is very much like riding a bicycle – it is kind of difficult at first, but not impossible, and gets better and easier the more and more you do it. However, getting through those first few months will change your life and give you a control over your money you’ve never had before. Ever. I want to really encourage you to give it a try for three months and see how it goes. Let me know what questions you may have below!
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