Landing your first real job and bringing in a steady paycheck each month is an exciting time. However, if you’re like most people, that’s shortly followed by a myriad of expenses. It’s difficult to keep track of all your bills and expenses — and if you over-spend, you could have trouble paying back that student loan or saving for emergencies. The best way to handle your money is by making a reasonable budget. With that in mind, here are 10 tips that are guaranteed to help you make your first budget:
Figure Out Your Goals
The first step to creating a budget is figuring out why you want one in the first place. It’s important to define your goals because that can shape exactly where your money goes. Do you want to save more? Get out of debt? Break the paycheck-to-paycheck cycle? These goals will serve as your motivation to stick to your budget.
Analyze Your Spending Habits
You can’t make a budget without knowing how much you’re spending every month. Experts recommend tracking your spending for at least 30 days to truly understand where your money is going. You can try entering your expenses in a spreadsheet or notebook, or use an app such as Mint or PocketGuard that tracks your spending for you. Credit card and bank statements can also help you figure out your spending.
Find a Way to Hold Yourself Accountable
Creating a budget is the easy part — sticking to it is more difficult. You need to determine how you’ll hold yourself accountable from the very beginning. For example, try putting your bills on autopay, including transfers to your retirement and savings account. Another helpful method is the envelope system, where you put cash inside an envelope for each of your spending categories; when the cash is gone, you know you’ve reached your monthly spending limit.
Make Savings an Expense
If saving money is your big goal for creating a budget, then you need to make savings one of your expenses. A good rule of thumb is to save 10% of your salary. Try putting that 10% directly in your savings if you use direct deposit — that way you’re not tempted to spend it. Try to save enough for three to six months of sudden unemployment.
Divvy Up Necessary and Discretionary Expenses
Your expenses include both necessary and discretionary bills. Your necessary expenses include:
- Rent or mortgage and utilities
- Auto and home insurance
- Healthcare costs
- Loan repayments
- Groceries, gas and more
You probably won’t have as much flexibility in your necessary budget as your discretionary budget. Discretionary expenses include eating out, entertainment, vacations and more. Add both up in your budget to see if there’s any wiggle room.
Cut Costs Where Possible
The key to any budget is making sure you don’t spend more than you earn; if you are, look for discretionary costs that you can minimize or cut out. For example, try packing your lunch instead of eating out or streaming a movie in your home instead of going out to the theater. While your necessary costs are more difficult to cut, you could look into getting a roommate to split rent and utility costs or talk to your insurance company about a lower rate.
Add Up All Income
In addition to your regular job, be sure to include any income from side hustles. When adding up your income, make sure you don’t include overtime pay or any bonuses; that isn’t regular income, and therefore you can’t rely on that money.
Periodically Readjust Your Budget
It’s also a good idea to periodically check your budget every month. You may find you’re over-spending in some categories and under budget in others. When this happens, take the time to balance your budget once again. It can take a couple of months before you have a good idea of where your money is going and how much you’re spending.
Build an Emergency Fund
If your goal is to pay off your debt and then save, it’s still helpful to tuck a little money away each month in an emergency fund. Try building your fund to $1000 in case your car needs emergency repairs, or other unexpected expenses pop up.
Take Time to Treat Yourself
Although budgeting is important, keep in mind that life is about treating yourself, too. If you want to stop and grab a coffee at your local coffee shop, go ahead. It’s okay to splurge occasionally, but make sure you don’t go on a frustration-fueled spending spree that will make you feel worse about your budgeting endeavors.
The Bottom Line
Now is the time to get your finances together and improve your financial health. By determining your income and expenses, you can then create a budget that will serve you for years to come.
Photo Credit: Got Credit
Excellent and well said. This should be a must read for anyone starting out.