In this post, you’ll get 31 budgeting tips for beginners to budget like a pro.
After your health and relationships, money is the third most important factor in our life.
It greatly impacts your overall happiness and wellbeing.
Like if you don’t take care of your health, it goes bad. The same case is with your money and if you don’t manage it properly then your financial health goes bad.
For maintaining a good financial condition and getting financial freedom you need different tools and techniques. And the first tool that you use is budgeting.
You may know what’s budgeting but that isn’t enough. You also need to know crucial budgeting tips for beginners if you’re just starting or planning to start a personal financial budget.
After reading this guide you’ll not only learn important budgeting tips but able to build a successful budget for your finances.
So let’s dive into further details.
What is budgeting?
Budgeting is an estimation of your future income and expenses for a specific time period. For example, a week, month, quarter, semiannual or annual.
It is used by organizations, companies, small businesses, and individuals to manage their revenues and spending. The purpose is to get control and have a tracking system in place for cash inflow and outflow.
You can make changes to the budget and adjust it with a variation in income and expenses. That’s why it’s an amazing tool for managing personal finances and achieving financial goals in an easier way.
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Why is budgeting important?
There are dozens of benefits when it comes to budgeting. Here are some major benefits that get you to the point:
- It provides an idea and estimation for a specific time period income and spending
- Give a clear picture of how much you earned and where it goes
- Unnecessary expenses can easily be figured out and trimmed to save more money
- Spendings data is organized you can find out how your financial health is going
- Bad spending habits can be pointed out and avoided
- Helps to build retirement savings to confidently retire as early as possible
- You can focus emergency funds to cover unexpected needs
I think now you can imagine how important budgeting is for your finances. It’s the lifeblood of your over-financial prosperity.
Budgeting tips for beginners: How to make a budget quickly?
If you’re a beginner and didn’t budget money before then don’t worry. I make budgeting as simple as a cup of tea with the five steps below. You don’t need any sophisticated budgeting template or applications at the beginner level Just follow these steps explained below.
1. Gather necessary information
You require information for making a budget. And everything is not on your mind. That’s why you need to gather all those documents where required financial information is present.
Most commonly needed documents to include:
- Bank statement with transactions
- Shopping bills and receipts
- Credit card balances and payments information
- Food and groceries lists and receipts
- Utility bills including electricity, water, and gas
- Expected holidays expense estimates
- Travel, vacations, and outings expense data
- Mortgage, insurance, rent, and car payments data
- Amounts you save and invest each month
- Other miscellaneous expenses you spend on
In short, you need all of the data regarding your income and expenses. Make sure nothing is left behind to enhance the accuracy of your budget.
When all the information is on hand, you jump to the second point.
2. List down your income sources
In this step, you list income sources including the major ones and side hustles. The most common sources of income include small business, job, part-time side hustle, dividends, and interest on bonds and saving accounts.
But make sure to not include inconsistent and irregular income sources. There is a separate method for budgeting variable personal income. We’ll discuss that later in this post.
After mentioning the amounts you calculate the total of that income. Later on, the expenses are deducted from the total income.
3. List down your expenses
In step 3 you do the same as in step 2 but here you write down all your expenses with expected cost. They include your important expenses and wants. These expenses are further categorized into the fixed that don’t change like rent and the variables like food cost.
Here is a list of some common expenses you can include:
- Food and groceries
- Water, electricity, and gas
- Transportation and fuel
- Mortgage and credit card
- Student loan payments
- Holidays expenses
- Cable or broadband
- Vacations and picnic
- Fun and entertainment
When all expenses are listed down with their expected amounts, then you calculate the total expenses. This total is used to calculate the difference.
4. Find the difference
Here you actually know whether your budget is in surplus or deficit.
You subtract total expenses from the total income. If the difference is positive then congratulations you have a budget surplus and doing good. If negative that means deficit so here you either cut back some expenses or increase your income.
5. Update it regularly
Your budget is ready for the whole month. But the work is not done yet. Because financial changes occur all the time. You may have added any additional income source or trimmed down any expense. That’s why you are required to make changes in your budget on regular basis.
You should adjust those changes either in the number of expenses or their amounts. This way your whole budget is updated and provides accurate information.
43 Budgeting tips for beginners
Now onwards you get 31 budgeting tips for beginners. They help you increase budgeting knowledge, avoid mistakes, and stay on top of your spending. It’s possible that all of them may not apply to your situation.
Let’s dive into the explanation.
1. Have solid reason and goals
Before making a budget you should have a clear answer for why you’re making it. This can make or break your budget. It can be buying a car, paying off debt, or building retirement savings.
Reason defines a specific goal you want to achieve.
The definition of your goal should be correct. In other words, it’s needed to be SMART that’s specific, measurable, attainable, realistic, and time-specific. Vague goals don’t work.
For example, I want to build an emergency fund, retirement savings, or pay off debt. These are goals but vague with no clear details.
While to the point goals sound like this; I want to save $1000 in the emergency fund after 12 months. Likewise, I want to pay off $1500 credit card debt in 6 months.
In the second example, goals are specific by time and amount. And attainable as well with the highest possibility depending on your income.
SMART goals give you direction for practically implementing your budget. You don’t feel uncomfortable or frustrated while implementing your budgeting approach.
Goals can fall into other budgeting categories like fun, entertainment, vacations, buying a car, getting a house, and many others. Try to focus on a single goal if possible so you have full focus and attention to better work towards achieving it.
Your goals can be small or large but a good driving force to practically implement your budget.
2. Keep budgeting simple
The second most important of all budgeting tips for beginners is simplicity.
As a beginner who has no idea of making a budget before, you should keep it simple. Because at this stage going for complicated apps, software, excel, and spreadsheet templates then you may end up tired.
The easy solution is to take a pen and paper and write down your goals. List your income, expenses, find differences, and you’re good to go.
For getting more information on making a budget you can watch YouTube tutorials. Practical videos make your job a lot easier to do.
3. Prepare a budget before the first date
If you want to make a budget for March then start making it in the last week of February. In short, create a budget before your month begins. This helps you stay on top of your plans and expenses for that month.
It also eliminates any worry about making a budget during the month because you prepared it in advance. Now you can easily make adjustments throughout the month and analyze your performance.
4. Prioritize important expenses
Your expenses fall into three main categories. Needs which are most necessary and you can’t live without satisfying them. For example, food, house, rent, transportation, groceries, debt payments, and medical bills.
Wants like fun and entertainment, vacations and picnic, buying a car, buying a house, and others.
The benefit of prioritizing expenses is to save more money for emergency funds and retirement. Paying necessary expenses first and if something is left then you can set aside money for satisfying wants.
5. Stay flexible in cutting costs
In case of anything extra like eating out money or you’re spending more on any category then cut it down. It saves you money in the long run and you can cover other important categories as well.
Usually, identify the spendings that didn’t have much need in your monthly requirements. For example, online subscriptions, eating outside in restaurants, expensive parties, and frequently shopping.
6. Regularly make adjustments
Another most necessary of all budgeting tips for beginners.
I discussed this thing above and repeating again. Making changes and adjustments throughout the month is important to keep your budget updated. These changes can be adding a new income source, cutting existing costs, adding a new expense, and replacing any existing expense.
This is upto you and depends on your financial activities. But makes your budget reflect original data.
7. Review your progress
Watching your progress means measuring how much of your goals are achieved. Ultimately the purpose of your budget is to meet a certain purpose. It can be building an emergency fund, paying off debt, buying a car, or getting your dream house.
Your goal is only achieved when you make progress. When you review the progress on regular basis then you can better plan on future budgets. It also motivates you for each step towards your end target.
8. Include miscellaneous category
Here you include any extra expense other than your regular needs and wants. For example, birthday gifts, wedding gifts, and a grand party for completing your degree. So they count in your budget.
9. Set inspirational goals
If possible keep your goals big that motivates you to plan and act on your budget. A goal of building a $1000 emergency fund may not be that attractive as compared with building a $10,000 retirement savings in 10 years.
Other inspirational goals can be buying a $20,000 car, apartment, helping your child graduate from a top university in your city, or paying $10,000 in loans.
10. Pay off debt fast
Debt is a greatly dangerous expense on your budget sheet if you have it. It can be a student loan, outstanding mortgage, credit card loan, or personal loan.
Spend as much extra money towards paying it off because as much as the time it takes the more interest cost will incur. When you paid it off then that money can be invested to build big retirement savings or increase the emergency funds.
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11. Cut down extra credit cards
Like paying off debt, if you’ve extra credit cards then cut them down as well. Credit cards are one of the highest interest rate debt. They usually charge more than 15% upto 29% depending on your credit score and reputation.
If you’ve multiple credit cards then you spend more and more money. This builds your debt faster and takes years to repay. This can put a bad effect on the overall budget and your financial objectives may take longer to meet.
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12. Use Budgeting method
Budgeting methods make your task easy. They give a solid formula which you can act to build a budget fast. Below I will discuss 5 different budgeting methods for personal finance management.
Zero-sum budgeting is a method in which zero dollars remain at the end of subtracting expenses from income. This doesn’t mean that nothing left for your savings and investment purposes. Instead, it means you‘ve used all of your money to work for yourself.
This method is best for getting justification of your income and spending. But you need to make it each month from scratch.
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Pay yourself first budgeting
Using this method you prioritize savings overspending. You cut down unnecessary expenses and find ways to save money on them. After that what is left is used in covering your necessary expenses.
This budgeting method is used when your financial condition is worse. Like losing a job, cutting down on your salary, or a big financial loss. Here you cut down on wants and live on minimum necessities needed to survive. Here nothing entertainment, fun, vacations, or dining out.
A very common budgeting method. According to the 50/30/20 rule you spend 50% of your income on needs, 30% on wants, and 20% on savings and paying off debt. It’s the best budgeting method for a normal course of life. Here income means after-tax or disposable income.
Cash envelope system
You take multiple envelopes and label the name of an expense on each one. After that, you put cash inside the envelope and start spending it during the month. When the cash ends you no more spend on that expense. An envelope system cash is used that’s why you don’t have to pay credit card interest and your savings climb.
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13. Use budgeting tools
The best tip of all budgeting tips for beginners which making your budget making so easy.
For making a budget you need tools. Different types of tools have their own upsides and downsides. Let’s explain some common and important budgeting tools:
Pen and paper
This tool is best when you’re just starting out. At the beginner level, the ease will work for you and make you do the work. That’s why take a pen and white paper and follow the above steps to make your budget. Start by listing down your income, then spendings, and then find the difference.
Excel and spreadsheet
For getting more advance you can use MS Excel or Google spreadsheet. In MS excel you need to save the work by pressing Ctrl + S while Google sheets automatically save. You can download the Google sheets file on your laptop. This makes your job a lot easier and saves time as compared with pen and paper. Other tools like graphs and charts can better present the picture of overall budgeting activities.
Apps and Softwares
Apps and software are superlative options. Where you can connect bank and credit card accounts to automatically download the transactions from your bank account to the budgeting app. Which pulls down a lot of load from your shoulders and saves time. The accuracy is enhanced and you can access the app anywhere.
Another benefit of using apps is that both free and paid options are available. They work amazing and lots of functionality and features are present. The most reliable budgeting apps include YNAB, Mint, Goodbudget, Personal capital, and Everydollar.
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Online budgeting templates
Budgeting templates are available in pdf, Excel, Google Sheets, and other spreadsheet software. They are premade and you can enter your expenses and values. You can delete prewritten categories and add your own. The totals and differences are calculated automatically.
Some templates provide graphical analysis as well which makes tracking your progress easy. You can download and print them as well to keep a record in physical form in any file.
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Cash envelope wallet
It is a good tool if you use envelope system budgeting. Because cash is involved in that method so you need to keep it. You can purchase a cash envelope wallet with 10 or more small wallets inside and put cash for each category of expenses. When you go outside for shopping then use cash from the small wallet.
It’s also like budgeting templates and is also called a budget binder. A pdf version where you can write down budgeting goals, expenses, amounts, and many other things. It’s kind of a register that you can printout and keeps at home. Whenever needed write down your budgeting plan for the week or month.
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14. Keep cash in your wallet
Swiping credit cad for daily purchasing isn’t a good idea if you aren’t a wealthy person. It cost you interest, fees, and late payment charges while decreasing your credit score.
Keeping cash in your wallet for daily purchases whether for a cup of coffee or for groceries. Using this you only pay what is incurred. If you want more flexibility then use your debit card which deducts payments directly from your checking account.
Make sure to keep a record of how much money you spent using a debit card. This way your spending doesn’t go overboard to wash out your checking account.
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15. Avoid social comparisons
Social comparison is poison. Stay happy with what you’ve and how you live. If anyone in your friend has Lamborghini then don’t get stuck in lower status felling for yourself.
Keep following your budget and financial discipline. Don’t overspend while watching other people, instead watch your pocket and spend what you can afford. This is a great way to live frugally in tight financial conditions.
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16. Set income as budgeting base
Budget according to when you receive income. Let’s say you’re doing the job and receive a paycheck each week then your spending pattern is weekly. Here you can choose to prepare a budget on weekly basis.
If you get a paycheck after two weeks then choosing a biweekly budget is a good option. Other than that not go beyond the monthly budget.
17. Keep patience and work forward
You may not see any rapid success with your budget. The trick here is to move forward and give yourself the time of upto 6 to 12 months while practicing different budgeting methods. This helps you find what works best and you get enough time to track your progress. Add this tip to your list before following the other budgeting tips for beginners.
18. Avoid non-essential spendings
If you watch your spending throughout the month, I’m sure you find out multiple non-essentials. In fact, Americans spend $1500 dollars a month on non-essentials which cost them $18,000 a year. These non-essentials include dining out, purchasing meals from outside, expensive parties, bottled water, coffee, and drinks with friends and colleagues.
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19. Build your emergency fund
Around 50% of American adults face difficulty in paying $400 for emergency expenses while 19% are unable to pay at all. But you need to keep the emergency fund in mind and give it a priority in your budget. You can lose a job, business, or any other incident. So instead of swiping your credit card, you can use money from the emergency fund.
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20. Make a realistic budget
Realistic budget means don’t go overboard and underboard on both sides. In short, don’t trim expenses too, and don’t stretch spending beyond your means. Create a balance because if you make your budget too tight then as a beginner you may get frustrated soon. While if you make it lose then you may get short of money to spend in retirement and emergency funds category.
21. Set aside money for fun
Budget isn’t all about restrictions on spending money. It’s a way to wisely spend and manage your money to achieve your financial goals. That’s why you should set aside fun money for whatever you love.
This doesn’t mean that you put a big amount in fun money. Instead $50 to $100 is a fair amount so that you stay focused.
22. Make Budget accessible
This means whenever you want to review your budget it must be easily available. Many people love to write budgets with pen and paper in a notebook or budgeting binder. But it is difficult to open a budget register each time you want to review it.
The best way is to make a budget in Excel and upload it to Google Drive or Dropbox. When you need to review or make changes to it then you can easily open the app and edit your budget.
Another best trick is to make a budget in applications. They’re easily accessible on android, mac, tablet, and laptop. So open it anywhere with a few clicks.
23. Watch your habits
Habits play a big role in how you spend money. Some habits are good which provides benefit for your money. While others are bad habits that waste your money. For example, smoking, drinking alcohol, gambling, and dancing in clubs every night are bad habits. Avoiding these types of habits makes your budgeting plan more successful.
24. Keep a spending schedule
In the spending schedule, you set particular days of week or month to go shopping. For example, you shop groceries and food items each week or two times a week. The schedule lowers frequent shopping tours. And as minimum times you go for shopping the less money yo spend overall. Multiple shopping tours takeout extra money in impulse purchasing which isn’t a good idea.
25. Include sinking fund category
If you want to purchase some big items in the future like 6 to 12 months from now, the sinking fund’s category really helps you. These funds mean you set aside some money in savings each month to pay for that item.
For example, purchasing a big LED, AC, refrigerator or freezer, washing machine, car wheels, etc. So at the time of purchasing you can easily spend money from sinking funds without using a credit card.
26. Keep savings away from checking account
An interesting tip from the 31 budgeting tips for beginners list.
If you don’t have a separate savings account and using a checking account for all purposes is a major sin. Because with a single checking account you can’t always analyze how much you spent and how much is left in savings. It is possible that you through off saved money on regular expenses.
The best tip is to open a separate savings account and use checking to save the system. This helps you automatically save a certain amount of money each month your income is deposited into a checking account. So you don’t need to worry about deposits and your savings will grow on auto.
27. Include a category for retirement
Retirement is another important category. After all, you need money to live after retirement. If you only depend on social security then remember it only covers around 40% of income needs after retirement. That’s why having big savings for retirement is crucial.
You should include the retirement category in your budget and mention how much of your income goes into it each month. It can be an IRA or 401k account. This will also help you track your retirement fund regularly to meet the goal.
28. Use automatic savings
I touched on it early and repeated it again. Use automatic transfer from checking account to saving account. This will deduct a certain amount of money each month from your checking account and deposit it into your savings account. With a manual way of savings, you may miss out on making deposits in any month.
29. Give yourself a no-spend challenge
This doesn’t mean that you don’t spend money at all in any month. Instead, it means that you mark days on a calendar for no spending at all. You may spend on any basic necessity but the purpose is to stop impulse buying.
This works amazing and people sometimes do week and month-long no spend challenges for cracking down on non-essential and impulse purchasing. You can adapt to it each month for specific days and see the results.
30. Overestimate food budget
The average food budget for American families is $550 a month. But it may vary depending on your family. So keep the food budget flexible and include some overestimation like 10% of what you estimated. For example, your estimation is $550 and you can overestimate it by $50.
The reason is that food prices fluctuate each month. The food prices may be more in the next month. So getting rigid and tight on the food budget may not work for you because it is a basic necessity.
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31. Try spouse budgeting
Are you married? Then making a budget together is a good option. As a married couple, you may share monthly expenses and income so building a budget together and discussing it is a good option. It helps you eliminate any mistake and use the point of view from sides to better manage and work towards your financial goals. You also become accountable to each other.
Budgeting tips for beginners for budgeting income with fluctuations
According to Statista, between the years 2000 and 2020 13.6 million people were hired on a temporary and contract basis.
These contracts can be freelancing, government contract, gigs, and commission-based earnings.
If you’re like one’s then your income throughout the year is irregular. But how do you budget that income?
The process for budgeting is the same as explained previously. But here you need to rely on averages of total earned through each month for the whole year.
Calculate a total of 12 months’ income and divide it by 12 to get a monthly average. Now you can use that to budget for the month.
What are the common budgeting mistakes?
The above 31 budgeting tips for beginners work only when you avoid these budgeting mistakes.
You spent hours planning and making a budget for the next month but how does it feel when you fail on practically implementing it. There are certain common budgeting mistakes that ruin the whole effort and mind you invest in the budget.
- Not spending money as planned in your budget
- Doing wrong calculations like guessing on monthly expenses and not estimating properly
- Do not save for emergencies to cover unexpected expenses
- Forgetting about taxes and using pretax income in your budget calculations
- Failing to review, adjust, and make necessary changes to the budget
- Having no money set aside for fun and getting rigid when it comes to fun
- Making budget too tight that it becomes hard to implement and follow
- Having demotivation to follow the budget
- Do not count each and every expense which results in false calculations
- Do not cover each expense category with your weekly, biweekly, or monthly paychecks and allocate all money to just particular expenses. Which results in no money or tight budget in some weeks when you pay mortgage or credit card bills.
- No tracking of spending on daily basis leads to overspending and blow your budget
- Misclassification between needs and wants results in greater spending on wants
- Do not count irregular and unexpected expenses throughout the month
- Complicating the budgeting process especially when you’re a beginner
If you avoid these mistakes I am sure your budget will work effectively. It becomes easy for you to act on your budget and achieve your goals in the long run.
How to separate wants from needs?
It’s so simple to differentiate between needs and wants. Needs are all necessities which you can’t live without. For example, food, clothes, shelter, water, utilities, transportation, and education.
While wants are what improve the level of your life and you can live without them. For example, dining out, fun plus entertainment, drinking alcohol, vacations, picnic, traveling to tourist places, and watching movies.
How to stick to a budget?
Just follow the above tips throughout the month. Here are a few good tips from the above list:
- Review your budget
- Make changes
- Control spending
- Avoid impulse purchases
- Save in emergency funds
These are all the tips which develop your habit to follow the budget. When you repeatedly do this exercise for a long period the results will be amazing.
Budgeting is the first step when you go for building wealth and getting your dreams achieved.
You learned 31 budgeting tips for beginners for managing money and achieving financial goals.
Following these tips will help you make a realistic and successful budget that drives your goals to come true. You can keep a handy list of all these tips while making a budget to avoid pitfalls.
In the beginning, you need to keep your patience and practically test different budgeting methods to find out what works. Along with that avoid budgeting mistakes that can fail your budgeting efforts.
Now tell me in your comments which budgeting tip you really love and follow next time?
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