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Budgeting Tips for Beginners

I’m a firm believer that budgeting is necessary on my journey to becoming financially independent. Creating a budget was the first thing I did that got my butt in gear to save money and put more towards my debt. I couldn’t manage my money until I knew how much I was spending on what.

Why is budgeting important?

A lack of budgeting is the reason why people living in upper-middle and upper income social classes making six figure incomes STILL live paycheck to paycheck.

It is simple: they don’t know how much is coming in and they sure as heck don’t know how much or what is going out.

If you don’t know what you’re spending your money on, how are you supposed to save any of it? You could be increasing your savings rate exponentially by cutting out mindless spending.

My first steps toward budgeting

The very first step I took toward budgeting was downloading the app Mint: Personal Finance & Money. Mint is a free app that can be found on google play for android or the iPhone app store. Mint brings together all of your accounts (savings, credit cards, investments) in one place so that you can better manage them and see every transaction.

Mint has made it easy for me to set up a budget and stick to it by seeing every transaction. It is best practice to set aside 5-10 mins every day to log into the app online or via mobile to check things out. Mint will also tell you when you have a bill coming up.

Mint is a great tool, however, it does have some glitches. There are other apps out there that you can use to manage your money as well. Personal Capital is a well known app where you can bring all of your accounts together, as well as, it offers free investing advice! Definitely a plus.

Next Steps

After using Mint for one year and listening to close to a bazillion podcasts on personal finance and Financial Independence, I finally decided to create a budget for myself.

My First Go Budgeting

This is my first budget from November of 2018.

Step 1: List out all of your MONTHLY expenses in the item column and the amount for that expense.

*Pro Tip* – I always include a miscellaneous category to cover any unexpected expenses during the month (i.e. dog food, laundry soap). You can also date these items to see how long it takes you to go through them. I didn’t think it was value added to create a pet and home furnishings category so I just lumped them all into miscellaneous.

Step 2: Create a list of all the ANNUAL expenses that you incur each year

(i.e. Amazon Prime membership, Canva, etc.). As a Dietitian, I have quite a few professional license expenses I have to pay every year at the same time. It is helpful to build those into your budget and perhaps put that money into a separate account for when it comes time to pay those expenses.

Step 3: Total your expenses.

Step 4: Write down your income streams.

*Pro Tip* – Figure your NET income.

If you’re a W2 earner and get paid every other week, this is easily done by looking at your pay stub. Multiple your net amount by 26, then divide by 12 months to figure your monthly income.

If you’re an independent consultant like me, I get paid monthly and I immediately take 25% of my income and set it aside in a separate savings account.

*PRO TIP* – Set money like this aside in a HIGH INTEREST SAVINGS account! Let it make money for you before you have to pay it back in taxes. Some people are loyal to their local bank and want to keep everything there, however, that bank doesn’t deserve you or your money with their measly 0.15% APY.

There are several high interest savings accounts out there (Ally, Discover, Marcus by Golman Sachs – just to name a few). Many of them have a $0 minimum balance to open the account also.

My money resides in HSBC Direct Savings Account which was making me 2.25% APY, however, it just recently went down to 2.05% APY to be consistent with the recent federal rate change.

The book: Broke Millennial: Stop Scraping by and Get Your Financial Life Together by Erin Lowry is a great resource for helping you choose the bank account that is best for you.

Step 5: Find the difference between your expenses and your income.

If it isn’t zero, do you have a deficit of money or a surplus?

If you have a deficit, go back through your monthly and annual expenses and find where you can reduce your spending to make it equal zero.

If you have a surplus of money, (meaning you’ve budgeted your monthly and annual expenses and still have some left over), you need to figure out where is the best place to allocate that extra.

For example:

  • Are you putting any money in savings to go towards an emergency fund?
  • What does your debt look like? Maybe you want to throw a little extra at your consumer credit card debt so you can pay it off quicker.
  • Are you investing for retirement? Could you use that money to max out your 401K contributions (if that is something you have as an option).
  • Or maybe you want to open a new account through Vanguard and start investing on your own. My friend Cody at Fly to FI has a great article about Vanguard Investing 101 if you’re interested.
Budgeting Tips for Beginners. 5 Simple Steps to Create your first Budget
My current budget for November 2019!

How Budgeting has changed for me

Credit Card

You can see that I no longer have a credit card category, yay! I’ve now allocated those funds to business expenses. So, I’m investing to have a return on that investment.

gift

I was also allocating quite a bit for “gift” in this month because I had not been saving all year for gift giving at Christmas time. This year, I created a Christmas Club account for $50 to go into every month.

This is a good practice if you are a Christmas gift giver. However, I wouldn’t put it in the same account again next year. I will put it in a high interest savings account, because, why not?

total income

I’m making about the same income except for now I have two days off per month and my commute time is significant less (hence less gas expense).

investments

You can see that there is no “investment” column. One of my employers automatically takes 6% of my check to go to an IPERS (state of Iowa) account, that is a line item you could always add. Once I am able to save my emergency fund to a higher amount, I plan on putting into Nutrition Care Systems IRA.

Baby

This is a pretty big line item that I did have last year at this time as I was planning for a new baby then! I’ve had to increase it now as daycare and diapers are a for sure monthly expense. I’m fortunate in that my husband splits daycare and diapers with me so this is my cut.

Student Loan

I pay a bit extra on my smallest student loan debt to mimic the debt snowball effect. Small wins will help my psychy.

Other

My internet went down because I called and asked what I was being charged for and got rid of unnecessary charges. I paid off my phone which really helped my phone bill. As well as, I have been on the look for insurance companies that are able to get me a better insurance quote.

Miscellaneous

Right now I have annual expenses and some monthly like Netflix, Microsoft programs, etc. lumped into miscellaneous. However, that may be something I change in the future, which leads me to…..

Step 6: Don’t get too comfortable with your budget.

Try to set aside time (15-30 minutes) weekly individually or with your partner and discuss the budget. What is working and what isn’t working. I’ve had to increase my food bill when I saw that $75 per week wasn’t cutting it. Also, I value having nutritious foods for my baby son to eat so I do spend a little extra on items for him I might not buy for myself.

I used to pay almost $20 a month for Sirius XM radio until one day I called them and said I was going to cancel if they didn’t give me a better rate, it went down to $7! I could’ve been saving $13/month for A LONG TIME. Don’t wait! Do those things now.

I might even cancel it altogether since all I listen to in the car are podcasts now :). I like to be productive.. Anyways…

Bye For Now!

I hope this article was of interest to you and helped you in some way.

If you want to read more about how my story started you can check out my first blog post here.

Beth Ferguson
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