Budgeting 101: What is a Good Way to Start a Spending Plan?

Each time you’ve pulled out your credit card this month, it’s bothered you more. This was supposed to be the year for starting a budget, building an emergency fund, and quitting living paycheck to paycheck.

But your New Year’s resolution to take control of your money lasted until the holiday bills showed up in the middle of January.

You’re proud you didn’t entirely give up though. You’ve done a pretty good job of cutting some expenses this year.

But there are still months where you can’t pay more than the minimum on your credit card debt. And that has to change if you want to get ahead.

Why A Spending Plan aka Budgeting Helps

Everything you read tells you budgeting and tracking your expenses is the first step in taking control of your finances. But a 2016 U.S. Bank study reported just over 4 in 10 Americans actually use a budget.

Here are a few reasons budgeting makes sense:

  1. Budgeting helps lower your stress levels because your monthly finances are no longer a guessing game. When you budget, you are intentional about saving and spending based on your financial goals.

  2. If your expenses are greater than your income, you can look at where you can trim your spending and consider ways to grow your income. Can you negotiate your next raise or reduce your cell phone costs? Is adding a side hustle or part-time job what you need to cover your budget gap? Your budget will help you see the difference each change can make to your overall financial situation.

  3. Growing an emergency fund helps to prevent using a credit card or loan against your home to pay for unexpected events. When bad things happen, the last thing you want to do is spend a tremendous amount of interest on the expenses you incur.

  4. A spending plan also helps by providing you the information you need to have talks with those you love about money. Whether it’s your spouse, your kids, your siblings, or your parents – being on the same page about your finances will help you meet your financial goals.

It Won’t Be Perfect, and That’s OK

It can be intimidating to do a deep dive into your spending and try to create a budget. But knowing how much money comes in and seeing where it all goes each month is the first step in effectively managing your finances.

You won’t just be making a list of your bills and checking off when they’re paid each month. To develop a budget, you’ll be looking at your monthly income and expenses.

Do you have a surplus after you pay your bills or isn’t there enough money to cover them?

Once you have that information, you’ll create a spending plan to pay down debt, grow an emergency fund, pay monthly bills on time, and start saving for the future.

This won’t be a one-time event either. Budgeting is an on-going process. But when you keep your end goals in mind, it makes it all worth it!

Budgeting is a skill you can learn, and you’ll get better at it as time goes on.

Set Money Goals

Before you start gathering all your paperwork to begin the work of budgeting, think about what you want from the process.

Paying off credit card debt, student loans, or your mortgage may make your list of money goals. If you owe a lot, just keep in mind it may be a long road. But with each payment, you’re moving in the right direction.

Don’t forget to think about your future too. Finding a balance between paying debt down and saving for your future is important as well. The earlier you start saving for retirement, the longer your money has to grow.

Knowing that working toward your money goals take years, think about setting aside some money for discretionary spending that really matters to you.

You can also consider starting a side hustle or taking an extra part-time job to grow your income.

Spending money on things you enjoy is important but doing it without taking on more debt is priceless.

Six Steps To Your First Monthly Budget

1. Get Organized

The more pay stubs, receipts, bills, and statements you can find, the easier budgeting will be. And don’t forget bills you pay online and electronic bank and credit card statements. If you’re struggling to find the paperwork, estimate the income or expenses as best you can.

You’ll be able to make better estimates of your average monthly spending if you have a few months of records. If you don’t, you may need to make a few more adjustments during the first months of budgeting.

Once you’ve found everything, make two piles – paperwork for money coming in and one for the money you spend.

2. What’s Your Monthly Income?

If you work a regular hourly or salaried position, this should be an easy step. But it’s surprising how many people don’t really know how much money they bring home each month.

While it can be difficult to estimate variable income from commission work, part-time jobs with fluctuating hours, and small business earning – try to make a conservative estimate.

Even though it may not feel like “income” – make sure to include any money you regularly receive such as child support, alimony, or any type of government benefit.

Add it all up, and you’ll have your monthly income.