Creating a budget (and sticking to it) is the best way to start saving money, however it can seem overwhelming for those who don’t know where to start. Below I have some tips for how to create a seamless budget.
- Look at your previous month’s spending. Pull all bank statements, debit card, and credit card transactions to see where you spent your money last month. This will help guide you in planning your budget for next month. I prefer to download my statements into excel and categorize each of them. E.g. water, sewer, electric, and gas would all fall under “utilities”. I then sum up each category so I can see how much I am spending on groceries vs eating out or entertainment. This is usually how my sheet ends up looking (note- these are not actual numbers, I just made them up):
|Details||$ Spend||Category||Category Sum||Total|
- Follow the 50/20/30 rule for easy budgeting. This is a great way of thinking for someone creating their first budget. You should aim for 50% of your budget to be directed toward your fixed costs. This include rent/mortgage, utilities, car payments, gym memberships, and everything else you pay for monthly that doesn’t fluctuate much in cost. 20% of your take home pay should go toward savings and long terms goals. That includes contributing to your 401k, building your emergency fund, and making additional payments (beyond what is required per month) on debt. 30% of your take home pay should be spent on lifestyle choices. I mentioned gym memberships in fixed costs, but many would also consider this to be a lifestyle choice. Groceries and other expenses that change from month to month fall under this category. If your monthly fixed costs are taking more than 50% of your take home pay, you need to reevaluate how you’re allocating your pay check. Do the math with your own take home pay. If you make $3,000/month, no more than $1,500 should go toward fixed costs, $600 toward savings and long term goals, and $900 toward lifestyle choices.
- Start creating your budget. Now that you know how much you tend to spend each month, and how much of your take home pay you should be spending on each category, it’s time to put pen to paper. I prefer to do my budgeting in excel because I can manipulate it anyway I want. There are of course great tools out there as well to help you create a budget like Mint, but I find it just as easy to create an excel spreadsheet. When you’re just starting out with your budget, it also forces you to keep a closer eye on what you’re buying. For example, if I go to target and buy both clothing and groceries, I can look at my receipts and add them to the appropriate category instead of just labeling them entertainment OR groceries.
- Track your budget. Once your budget is created, make sure you’re tracking your budget. I look at my spending at least three times a week. My husband would say I’m obsessed, and I get it, not everyone is going to look at their budget that often but I do encourage you the first month to pay very close attention to your spending and how you’re tracking to your budget. If one area is coming in over (your car breaks down or you have another unexpected expense) try to pull money away from your lifestyle budget and not your savings and long terms goals if you can. If you’ve never followed a budget before it might seem difficult but I promise if you stick to it for a few months it really will become second nature.
Good luck and Happy Saving!