Budgeting For Beginners

It is budgeting, not rocket science

Make sure you spend less than you earn – sounds simple enough, right? But for many, it’s easier said than done. Regardless of your experience with budgeting or financial management, it is important to develop a clear idea of how much you earn and how much you spend. A well-maintained budget can help you do just that.

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Creating a budget simply means measuring and spending your money in a way that ensures your basic needs – food, shelter, electricity, insurance, etc. – are met every month, while hopefully leaving enough to fulfill your wants: cable TV, Internet service, Little League fees, whatever.

Creating a budget, in short, helps you spend responsibly and achieve your financial goals, not to mention eliminating stress.

To create a budget:

Evaluate your income to start budgeting. How much money do you have coming in each month? Make sure to include all forms of income (loans, allowances, etc.).

  1. List your expenses. Again, make sure to include everything. Start with fixed expenses (payments that are the same each month), like your rent or mortgage payments, car insurance, student loan, etc. Next, look at your flexible expenses, payments that vary each month (phone bill, spending money, food, etc.).
  1. Do the math. After you have set up your income and costs, figure out how much of a cushion you are working with. Track your expenses and find out where your money is really going (personal finance software can help with this).
  1. Stick with it. Monitor your budget and make necessary adjustments wherever needed to achieve your goals. If you’re saving for a new car, for example, keep an eye on your budget to make sure you sock away money every month towards your new ride.
  1. Looking for a good rule of thumb for where to spend your money?

A basic breakdown looks like this:

  • 25-30 percent to housing
  • 15-18 percent to transportation
  • 16 percent to food.

The rest goes to discretionary spending and saving. If your spending is out of sync with this breakdown, you should work hard to make adjustments.

Most financial experts also suggest you save anywhere from three to 12 months’ worth of expenses in an “emergency fund” in case you lose your job, get in an accident or run into any sort of financial hardship. Go with an amount that makes you feel most comfortable.

Managing your budget

There are a number of tools available to help you stay on track — from personal finance software like Mint and Quicken, to online banking tools to help ensure your bills are paid automatically and help you avoid late fees. Find a budgeting for beginners tool that works for you and give yourself a month or so to get in the habit, before budgeting becomes second nature.

Benjamin Kniss is writer and editor specializing in business topics. He graduated from California State University, San Bernardino, earning a B.A. in business administration. Kniss is also studying to become a certified financial planner

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