Budgeting 101 - What Are The Basics of Budgeting You Should Know?

By Sara

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Last Updated: July 1, 2022

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We have all been told that we need to start budgeting because it helps us keep track of our spending and can help us save money.

While this is excellent advice, the better advice is being told exactly how to budget. Budgeting does not come naturally for many. Not setting up a proper budget can set you up for failure and even lead you to never making a budget again. 

Budgeting does not have to be challenging, but every budget has fundamental aspects.

Understanding what a budget is can help you with it. A budget is not a tracker for your spending but a way to plan and evaluate how much you want to spend in specific categories.

Having a general spending idea and knowing your cost of living number can help you make a budget. Your budget should be made at the beginning of a month and evaluated at the end of the month to help you set up your next budget. Budgeting can be easy with the proper steps. 

 

 

What is a Budget? 

A budget is a financial plan that you create every month.

The goal of a budget is to determine where your money will go each month to ensure you do not go into debt and spend more than you earn. In its most simple form, a budget should be your income minus your spending.

The number left over should be zero; this is also known as a zero-based budget, or your budget can have extra money left over, which can go towards saving.

Creating a budget every month will allow you to adjust your spending if you went over in some areas or have specific events or expenses that are coming up that are not normal. You can set goals with your budget and also find areas to cut your spending. 

 

 

How to Start a Budget? 

Starting a budget is very simple, and you can even start today.

However, your first few budgets will be a learning curve because as you spend and evaluate your budget, you may realize that you budgeted too much or too little in specific categories. 

To successfully start a budget, you want to have a general idea of how much you spend every month and your Cost of Living number.

Track your spending for about three months to see your typical spending habit. With this information, you will be able to budget better because you know how much you spend on groceries, clothes, dining out, and more.

You also want to calculate your Cost of Living number, which is your basic needs in life. You can quickly put this as a line in your budget since this number should be the same monthly. 

Once you have these two pieces of your spending, you can easily create a budget without the guesswork. Most people struggle with their budget because they don't have a general idea of their spending or how much their basic needs cost a month.

One budget area that can be challenging for most people is how to handle non-regular expenses that come up. A monthly budget is best because you'll know when those non-regular expenses are happening. 

 

 

How to make your monthly budget? 

Making your monthly budget can be a fun and creative outlet for you to do.

There are so many ways to make a budget.

You can have a physical journal that you write in, you can use a digital planner on your iPad, you can create an excel tracker, or you can use online tools, like Mint or HoneyDue. You can change how you make your budget, but make it something that you'll enjoy because this is a task you will do every month. 

When you sit down to make your budget, use your spending tracker, cost of living number, and financial goals to help you plan your budget.

You may have to edit your budget while making it to ensure you have enough money for your basic needs like rent, your spending areas, and any financial savings you would like to have.

You should not be pessimistic about your budget. If you are, adjust your extra spending or savings to ensure you have enough for your basic needs.

 

 

How to evaluate your monthly budget? 

At the end of the month, it's essential to evaluate your budget for the month.

This will help you to know if your budget was successful or not.

If it's not, it's okay. Fix your allotment for the next month.

There are some common areas where people fail to hit their budget. Some people don't budget enough for specific spending categories, some people budget too much for some categories, and some people do not plan for particular spending at all. 

If you budgeted too little for a category, think about how you want to fix this.

You can either increase that budget line if you have room or decide to cut back in that area. You still want to adjust your budget if you budgeted too much and didn't spend all of your money in a specific category. Relocate the extra money you put into a category where you might have spent too much or into savings. 

Another area to evaluate in your budget is if you didn't plan for some spending. Things come up, so you might want a buffer and create an "other" category. You might not have thought about a spending area when you initially started your budget. If this happens, include that area in your next budget. 

 

 

Final Thoughts on Budgeting

Budgeting is an essential part of your daily life.

It shouldn't control your life, but it should give you some structure regarding your spending. Without a budget, it is easy to spend money and not know where it is going. With a budget, you can plan your spending and make sure you have enough money for all your needs and any saving goals.

A budget doesn't have to be complex, but it does need to be something you do every month. Evaluating your budget is just as important as that can help you adjust your budget to fit your spending and goals.

Photo by RODNAE Productions

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