Beginner’s Guide to Budgeting Successfully

Pinpoint Your Monthly Income

Start setting up your budget by calculating how much money you earn in a month. Remember to include your salary, side gigs, and any other forms of steady income.




Extra income can be anything from freelance editing on weekends to moonlighting in your trade after hours. Every cent you earn is part of what’s known as your monthly net income.




Experts suggest it’s better to underestimate than inflate your net income. This helps you stay within the boundaries of what you can and cannot spend.




Make a List of Monthly Expenses

Once you know how much you earn every month, it’s time to determine how much you spend and where you’re spending it. The easiest way to do this is by making a list of all your fixed expenses and tracking your daily spending.




Your fixed expenses include all the bills you pay every month, such as your internet, utilities, mortgage, car lease, and insurance premiums.




Although your monthly spending includes fixed expenses, it also refers to your irregular, day-to-day expenditure. For example, you probably don’t buy a pair of cute boots or go on a weekend getaway every month, but it is still considered an expense.




There are many online templates and handy apps that help you list and monitor your monthly expenses.




Group Your Expenses

Place your expenses in categories, such as house, food, transportation, and recreation. Some groups may include subcategories. For example, food can be split into takeout and groceries. By grouping or “coding” your expenses, you can easily see when you go over your budget for something like dining out or movies.




Balance the Scales: Checking Income Against Expenses




When you’ve listed your income and all your expenses, add up the totals and compare them. Ideally, your earnings should exceed your expenditure. If this is the case, the extra money available after covering all your expenses is called a surplus.




Should your expenses outweigh your income, you have to evaluate where you can trim your spending. Look at luxuries or nice-to-haves, such as subscriptions, dining out, and takeout meals.




Pick a Budgeting Model

Use a budgeting method that aligns with your life and money goals.




The 50/30/20 budget is a good starting point for any lifestyle and financial profile. Split your expenses into necessary and nice-to-have items. For example, the money you spend on commutes to work is a necessary expense, whereas your subscription to Netflix is a want rather than a need. Then, divide everything into three groups, allotting 50% for needs, 30% for wants, and 20% for savings or debts.




Experts recommend using an envelope budget if you struggle to control your spending and frequently find yourself short on cash. Simply put the money dedicated to certain expenses in individual envelopes. Once the envelope is empty, that’s it; you cannot spend more.




A zero-based budget works with a set monthly income and diligent recordkeeping. With this budget, there’s no surplus or shortfall; your income and expenses simply balance each other out. This does not mean that you don’t save, but your savings are a fixed feature in your budget, such as paying $200 into a savings account every month.




The pay-yourself-first budget is applicable when you know you can cover what you must without the schlepp of meticulous recordkeeping. Here, you pay money into savings and cover all fixed expenses at the beginning of the month. The surplus is yours to use however you want.




It’s important to choose a budgeting model that suits your lifestyle.




Keep a Finger on the Pulse of Spending

Budgeting is not a one-time exercise. Once you’ve set up your budget, you must monitor your spending trends to ensure you stick to it. You can use apps or spreadsheets to make this task easier. These approaches enable you to immediately see if you’re spending too much money on something. This, in turn, creates the scope to adjust your spending so you don’t come up short before your next payday. 




Regularly Review Your Budget

Like life, your budget should be flexible. We’re often faced with unexpected expenses, such as a blocked drain that needs a plumber or a car that suddenly breaks down.




For these reasons, you should regularly adapt your budget as needed. Keep in mind that these adjustments do not just apply to unforeseen expenses. If you get a raise, review your budget and consider paying off debts or boosting your savings, for example.

General Budgeting Tips

Bankers recommend setting up automated savings transfers, where a fixed amount is transferred to a savings account every month. This practice forms part of the pay-yourself-first budget and helps with regular, disciplined savings.

Prepare for emergencies by trying to save for your fixed expenses. Experts recommend a three-to-six-month buffer so all your necessary expenses will be covered if something unexpected happens.

Finally, you need to budget realistically. Financial planning doesn’t mean anything if it’s not aligned with your specific needs, which include entertainment and fun.

Having a budget creates a financial lane with barriers for expenses. It helps you accurately monitor your expenses and adjust spending according to your income. Best of all, it’s easy to implement!

By: @Mark (Mark Reynolds)