Budgeting For Beginners - How Do I Start?
We’ve all heard about the importance of budgeting, and why it’s essential if we want to have control of our personal finances. But, as with any other pursuit, budgeting is a practice that can easily be abandoned if done incorrectly (for instance, by setting too high requirements for oneself). To get started and achieve your financial goals, here are some guidelines for succeeding with budgeting for beginners.
Become Aware Of How You Spend Your Money
Before you know what you spend your money on, you can’t budget properly. Checking your bank statements is one of the best ways to become aware of your spending habits. Nevertheless, most people never do it. Looking through your bank statements can be a bit intimidating at first, given the (probably) large number of transactions. Not only is it intimidating; the many transactions can also make it difficult to keep track of your expenses. But if you will spend a little time each month looking through your bank statements, you’ll be taking a critical step towards effective budgeting: knowing where the money goes.
By looking at your bank statement, you can see:
- What you spend money on
- What your loans cost
- Where you can improve
Many banks make it easy to get an overview of your transactions by grouping expenses into different categories like food, clothing, and transport. Check with your bank to see if they do so as well - and if not, whether they can help you set up a useful budget.
Start Building A Healthy Budget Today
Based on personal experience, budgeting can be a daunting task, especially for those who have a lot of expenses and a limited income. It also doesn’t help that there are so many places to keep track of your spending, from your bank account to your wallet. But sometimes it can help to just have a simple plan, with some simple steps to follow. Here are five ways to start building a healthy budget today:
- Know what you spend by tracking your expenses each month
- Identify non-negotiables - the things you will not negotiate on buying (or limiting yourself from buying)
- Understand the importance of saving
- Set up an account for automatic savings and, potentially, investments
For the last point, it’s useful to be specific about how much you will save and invest each month; how you will allocate your income.
How Should I Allocate My Income?
In the book Smart Women Finish Rich, the American financial author David Bach shares the advice that, to allocate your income well, there are three baskets you should prioritise putting your money into: the security basket, the retirement basket, and the dream basket. The final goal with your security basket is to be able to cover six to twenty-four months of expenses, in case of emergencies like job loss; the goal for your retirement basket is to secure your retirement by investing in a retirement fund, and the goal for the dream basket is to spend money on whatever you want to spend it on.
A big part of allocating your money correctly is deciding what you will spend it on (and not). Ingvild Aagre, financial writer at Lan for deg, says there are lots of people who have expensive loans that they could easily refinance to save more money. Other unnecessary costs include subscriptions you no longer use, as well as expensive coffee brands. Checking where your money goes will enable you to better see whether you can cut any expenses, she concludes.
Best Personal Finance Apps For Beginners
Personal finance apps are one of the best ways to manage your money. They are easy to use, have great features, and are designed keeping in mind the beginner level users.
Here are some personal finance apps that will help you manage your money right from the start:
Mint: It's definitely one of the most popular personal finance apps among beginners. It has a neat UI with smooth navigation and simple navigation between screens. It also includes budgeting tools, financial calculators, and lists for categorising your expenses.
Digit: Digit is an app that lets you effortlessly save and invest your money. It's used by many private individuals, but also many professionals, including real estate agents who want to maintain their client portfolios, and investors who want to track their investments & ROI (return on investment).
Acorns: Acorns is an app that lets you invest your spare change in a low-fee portfolio of index funds. It provides an easy way to save money while also investing for retirement or other major life events.
The most useful piece of advice we can give when it comes to budgeting is that, once you start, you need to go all in. Set aside a specific time each month to allocate your income, track your expenses, and keep track of how you’re doing financially. Your future self will thank you once your consistent effort starts paying off.