Budgeting for beginners, Personal finance

Starting your budget

Budget, coins  and tools

     A budget is the most important aspect of personal finance. Having a budget makes it easier for you to track your spending as well as track how much you have to spend. Most importantly it helps you to keep track of how much you can save and invest. It took some time for me to learn how to make an effective budget. Keep in mind that this is meant to be a starting point. So be patient with yourself and tweak it until you get it right!
     First and foremost, you need to know exactly how much you bring in per month. This is all income that you receive per month from all sources.
     Next, you want to have a clear goal. This will help you stay focused. A goal of "I want to have 4-6 months of living expenses in savings in the shortest possible time" is a more specific and effective goal than "I want some money in my savings". 4-6 months of rent and utilities in savings was the first goal I chose.  Other specific goals can be things like, "I want to put $1500 down on a car in 6 months" or "I want to move into a new apartment in May". By being more specific, you will make the path to the goal more visible.
Now we must track expenses by category, these are the main categories that I usually track:

• Rent/mortgage- Your rent or your mortgage. This one is simple because it does not change very often.
• Utilities- Water, electricity, gas, cable/internet/cellphone are the main utilities add more if you need to. These often fluctuate throughout the year so find a monthly average. You also want to average in one fill up per week for your car.
• Household items/groceries- This category often changes, especially if you shop around and bargain shop. Create a reasonable amount to stick too based on your monthly averages. When I was single I was able to spend only $40 a week on groceries and household items. A family of four however would blow right through this. Now I spend closer to $400 monthly.
• Credit- Make a note of the minimum payments for revolving/installment credit, credit cards, store credit cards, car payments and rental stores for this category.
• Insurance-Your health, car, rental, and home insurance monthly payments general remain the same throughout the year as well so just check your statement.
• Savings- Chances are if this is the first time making a budget you do not have this category. If not commit to allotting $20 or so monthly for now.
• Miscellaneous- This category is hardest to track. This includes your morning stops for coffee, late night fast food frenzies and just all around random, unplanned and impulsive spending. To make this easy just alott a certain amount of random spending for the month and try to stick with it and use cash. Withdraw $40 or so from your account on payday and use this as your random cash expense. 

     Keep track of this on paper or on budgeting software. There are many apps to choose from, such as; Mint or Pocketguard if you prefer that route. I initially just chose to carry around a mini notebook that fit in my back pocket and a pen. 

      Learn how to stay out of the negatives. When you do end up there, it is time to cut back on spending. Some ideas for cutting spending are eating out less, finding cheaper entertainment activities, bargaining with utilities and creditors for lower rates or payment plans, or finding better companies to deal with. There are so many different ways to cut costs and save money. You will have to learn and experiment. 

     After a few months you will see where you will be able to cut costs. The more costs you can cut the more you can add to savings. The more savings you have the more you can invest but, before you worry about investing, generate an emergency savings account. This account should approximately equal 4-6 months of living expenses and used for emergencies only. When you have your emergency account fueled up you have hit the first milestone!

     Of course if you end up in the negatives every month it is time to cut back on spending. Some ideas for cutting spending are eating out less, finding cheaper entertainment activities, bargaining with utilities and creditors for lower rates or payment plans, or finding better companies to deal with.
Here is a sample on a $2000 monthly income.
                             

• Rent                                    $700                                
• Utilities                               $300                          
• Household items/groceries $200
• Credit                                  $120
• Insurance                            $150
• Savings                               $ 20
• Misc.                                   $150
• Total                                    $1640 

   This comes out to $1640 per month of living expenses and $360 left over per month. Now lets do the math to create the rent and utilities emergency savings. Rent and utilities equal $1000 per month. $1000 x 4= 4000 and $1000 x 6 = $6000. To get to $4000 in 12 months we could save $333 of the excess money per month.  This still leaves us $27 in excess. This also still leaves us with $150 in cash for miscellaneous purchases. With this totaling $177, we are now able to tweak and experiment to have more money to sneak into savings or sneak into our pockets. Keep on working it and drive on!

Don't get discouraged, drive on!