Budgeting for Beginners: 6 Easy Steps to a Successful Budget

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Are you trying to break the cycle of living paycheck to paycheck? Have you determined that you are participating in too much frivolous spending? Are your credit card bills starting to get a bit out of hand?

If so, you probably need a budget. Budgeting for beginners can seem like such a daunting task. If you need some help getting started with creating a simple budget, you can download our free budgeting workbook.

This workbook includes everything you will need to create a simple budgeting system to help you get your finances under control. Just use these printable pages in a binder to help you get organized. This is what our budgeting workbook includes:

Free budget binder template with categories
  • Budget Binder Cover Page
  • Goal Writing Worksheet
  • Instructions for Creating Your Budget
  • Budget Worksheet
  • Budget Tracker
  • A Large List of Budget Categories

You can download this Budget Workbook here!

Budgeting is extremely important to understand exactly how much money is coming in and where your money is going out.

Creating a budget is not difficult. It just takes time and accuracy with your numbers and calculations. The hardest part is staying motivated and sticking to your budget!

Budgeting for Beginners in 6 Easy Steps

If you are trying to learn how to budget, you have come to the right place. Budgeting is the first step to curbing overspending and improving how you manage your money. A budget is simply a spending plan. It’s a tool you use to track your spending to help you live within your means. Work through these steps to make a realistic budget for your household.

Step 1: Write Down Your Financial Goals

It’s important to start by thinking about your financial goals and writing them down. Why is this important, you ask?

Everyone should have some goal in mind, as this will help you stick to your budget. Put your written goals somewhere you will see them and think about them often.

It is helpful to look back at your written goals to remind yourself why you don’t need that new purse or that specialty coffee every morning. Looking back at what you wrote and reading your goals often can help you stay on track.

Everyone’s goals will be different, and everyone has different internal motivators. Some different goals and reasons to create and stick to a budget are:

  • Pay off credit card debt
  • Start an emergency fund
  • Start a vacation fund
  • Make extra payments on your mortgage
  • Stop living paycheck to paycheck
  • Save for a down payment on a home
  • Fund a home improvement
  • Achieve financial wellness
  • Reach financial independence

The other thing I want to add is that it’s important that you sit down with your family or significant other and discuss your goals together. Everyone needs to be on the same page for a budget to work. You can’t have one person following the budget and another spending carelessly.

Communication is so important! So have a family meeting to talk about goals together so everyone understands the purpose of the budget.

Step 2: List Your Income

Grab some paper (or my Budgeting Workbook), a pencil, and a calculator, or get your computer ready to create an excel spreadsheet. The first thing you want to do is list all sources of income.

The important thing here is to list all regular or fixed amounts of money coming into your household. You want to use your net pay, the actual amount your check is for after taxes and other deductions are taken out.

For example, things like:

  • Regular paychecks
  • Child support
  • Pensions/401k distributions
  • Rent checks from tenants
  • Disability checks
  • Social Security checks

If you have variable income, in other words, it changes significantly from month to month; you could do one of two things.

You could opt not to include it in your monthly income list if it is a very small amount. The other option would be to take the lowest amount it could possibly be and use that number.

This will ensure that you are not overestimating your monthly income. If you do end up overestimating your income, you could run out of money and not be able to pay some of your bills, which defeats the purpose of having the budget in the first place.

A few examples of variable income that you have to be careful not to overestimate are:

  • Interest/Dividends from investments
  • Per diem or PRN work
  • Income from online sales platforms, such as eBay
  • Seasonal work
  • Side hustles that are not stable income

So go ahead and make your income list on your paper or spreadsheet.

Step 3: List All of Your Monthly Fixed Expenses

Now you will start listing all of your recurring monthly essential fixed expenses. These are those bills that show up like clockwork every single month.

Some examples of fixed expenses are:

  • Rent or Mortgage
  • HOA fees
  • Taxes
  • Utilities
  • Travel expenses (i.e., gas, routine car maintenance)
  • Car payments
  • Child Support payments
  • Credit card payments
  • Groceries

Write the name of the expense and then the usual amount next to it. You may have to dig out a previous statement to determine the amount you typically pay if you don’t know it. If you don’t have a statement, sign in to your account online to look it up.

This is where it can get slightly more complicated. Certain fixed expenses can vary significantly from season to season and month to month throughout the year.

For example, your electric, natural gas, propane, or oil bills may vary greatly between summer and winter, depending on what fuels your furnace and hot water heater.

If you have fixed expenses that change like this, you could change the amount you budget for every season for these expenses to the highest amount it could be during those months within that season. That way, you won’t underestimate the cost of the fixed expense.

The other way you could account for these changing expenses is to use the highest amount for each month throughout the year.

If you can afford to budget for the highest amount throughout the year, you could take the extra money during those months when the bill is lower and use the money towards reaching the financial goals you wrote down in Step 1.

For example, you could put that extra money toward paying down your credit card debt or depositing that money to boost your emergency fund.

One other thing to think about for your expenses is those expenses that you pay yearly. For example, we do not have our property or school taxes escrowed into our mortgage, so we are responsible for paying those yearly.

If you have any large yearly expenses it would be helpful to divide that expense by 12 to figure out the amount you need to put aside monthly. Then you will have the money so you can pay that large bill when the time comes during the year.

You could create a sinking fund to deposit the money into that you are putting aside each month for your large yearly expenses. A sinking fund is a separate savings account that you use to hold the money you will need for future expenses.

Then you know you won’t accidentally spend the money you need for your fixed expenses that you pay yearly. The category on your budget would be called “sinking fund.”

To figure out how much money you should allocate into your sinking fund when figuring out your budget, you take all of your yearly expenses, add them up, and divide by 12 (as long as you are figuring it out 12 months in advance).

A good practice is to make a budget category for your emergency fund if you don’t already have one. If you begin to look at putting away money every month into a savings account as a line item in your budget, it will become more automatic, and you will have money saved in no time.

Step 4: Subtract Expenses From Your Income

Here is the moment of truth. Add up your fixed monthly expenses and subtract those expenses from your monthly income. If your number ends up positive, move to Step 5.

If your number is negative, you will want to go back to your expenses and see where you can cut back to get your income to cover your expenses. If you need to find ways to cut back on your monthly expenses, check out 20 Ways to Save More Money Every Month.

If you are still having trouble getting your expenses to be less than your income, you may need to find a way to increase your income. Some ways to increase your income are:

  • Ask for a raise at work
  • Look for a higher-paying job
  • Get overtime approved
  • Find a part-time job
  • Start a side hustle
  • Sell your stuff

If you break even or have a small amount left over after your expenses are deducted, you still may want to go back and find ways to reduce your expenses to give you a little extra wiggle room.

One of the biggest budget killers is food expenses. Luckily, this expense can be reduced through some planning and thought. If you want to try and cut back on your grocery bill, check out my post, 13 Easy Ways to Cut Food Expenses, for some ideas.

One way we keep our food expenses down is by meal planning and eating at home. If you would like to learn more about meal planning, here are some popular posts:

Step 5: List Non-Essential Items

If you have money left over after subtracting your essential expenses from your income, you can decide what other things you would like to spend your money on. Non-essential expenses, also called discretionary expenses, are the things you want but don’t need to survive.

Some examples of non-essential items include:

  • Clothing, shoes, and accessories (buying more than you need)
  • Eating out at restaurants
  • Entertainment (going to movies, clubs, bars)
  • Subscriptions (magazines, satellite radio, monthly boxes, etc.)
  • Toys (video games, kids’ toys)
  • Beauty or self-care expenses (nail salons, spas, facials, etc.)

You get the idea! This is the area you want to limit your spending on to quickly reach the financial goals you outlined in step one.

I’m not saying cut it all out because everyone needs to enjoy life while working towards their goals, but be picky and choose the things that will make you happiest.

Being intentional with your spending and thinking about and deciding what makes you happy will help you to cut back on your non-essential spending.

Frugal Living is all about being intentional with your spending. It’s about cutting back or eliminating your spending on things you don’t care about so you can spend money on the things that truly matter to you.

Want some tips on living more frugally? Here are some popular frugal living posts:

Step 6: Frequently Monitor Your Budget and Make Adjustments as Needed

It’s good practice to review your goals and budget every month when you are paying your bills and balancing your checkbook. You could start an excel spreadsheet for the year to visualize the amount of money you are spending every month versus the budgeted amount to see how you are doing as the year progresses.

If you don’t want to make an excel spreadsheet and prefer good old-fashioned paper and pencil, check out our free Budgeting Workbook.

It includes a budgeting tracker to help you keep tabs on how well you are staying on budget. You can print them out monthly and put them in your budget binder for safekeeping and easy access.

Also, the budgeting worksheet in my workbook follows the steps in this post to make it super easy for you to create your budget. I also included a large list of budget categories to help you to make sure you don’t forget anything.

Final Thoughts on Budgeting for Beginners

Creating a budget is essential to living below your means and reaching your financial goals. With some work and determination, you can make a budget that works for your household to achieve your goals.

If you would like the free Budgeting Workbook, you can download it here.

Do you follow a strict budget? How do you keep track of your budget and bills? Please let me know in the comments!

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