Budgeting for beginners – Personal Finance

Budgeting tutorial for beginners

Can you control your finances? Do you spend more than your monthly income?

Budgeting.

Budgeting is the biggest tool to meet financial goals.

You want to save 10 to 20 percent of your income every month to meet your financial goals but instead you are running a deficit by spending 10 to 20 percent more.

You want to get out of debt, but you are stuck with more debt.

If these three problems coincide in your personal financial life, then keep reading this 10 minutes article and reach out of your financial freedom.

Today I will talk about step-by-step budget.

In this article I am going to discuss the details from making a budget to implementing the budget in reality.

Keep reading, hopefully by creating a good budget you can move towards your financial goals.

If you want to control your spending and move towards your financial goals, you must have a budget.

A written financial budget can help you calculate and control how much money you want to spend and how much you want to save.

It helps you track your spending habits.

Budgeting may be seemed very difficult at first. It may seem that it is not possible for you to budget. But it is possible if you can create a realistic budget.

By doing this regularly you can create a realistic budget and implement it.

But yes you must have an actual account of your income and expenses.

Step #1: Collection of all financial docs

The first step you need to do is to collect supporting documents usually you have.

There are some things you must do when making a budget. First, your bank statement, investment account or DPS information, a copy of the utility bill, credit card bill, bills for the last three months, various statements if you have a loan, etc.

Simply put, keep all the supporting documents you need to calculate your income and expenses.

Step #2 Calculate your income

If you are an employee, the amount of net income you receive per month, excluding taxes, and if you are a businessman, your average net income for the last six months.

And if you work on a commission basis or if you are a freelancer, then add the figure of the month in which you are earning the lowest income in the last one year to your income.

Moreover, if you have any other income, you can add that figure to the income column.

For example, tuition, consultancy, side business, etc.

Step #3: Arrange your monthly expenses

In this list, the basic costs must be written first,

Such as:

Home rent or home loan installment, Groceries or food,

Utility bills etc.

Then in the list, transportation, personal expenses, shopping, etc.

In this way, write down your monthly expenses in the form of a list and write down the amount to be spent next to it.

Keep in mind, if you have a loan that you must create a separate sector for the loan on your list of expenses.

If you don’t have good computer or mobile knowledge to create a budget, write it down in a notebook.

And if you understand Microsoft Excel Primary Label, you can download this budget template for free so you can download and customize it to your liking.

In addition to the income and expenses listed, if you have any other income and expenses, you can add it as you like.

And if you want to think of more shortcuts, then I have given the download links of some Android apps. Here I listed some of the best budgeting and spend tracking apps. You can download them and create a budget and keep a record of the expenses.

Step #4: Sort your fixed and variable expenses

For example, the expenses that are mandatory should be treated as fixed expenses which cost the same per month. House rent mortgage payment, car loan payment, fixed utility bills such as internet bill, gas bill.

If there is a regular credit card payment, include it.

Moreover, if you make a fixed corner mount deposit every month, or repay a fixed amount loan, you should also add it to the fixed expenses.

Then comes the variable expense,

Make a list of your variable expenses or expenses that go up and down in a month, such as groceries or entertainment or social expenses, going on electricity bills, and so on.

It is necessary to budget the type of expenses by changing the amount every month.

If you want to create an effective budget, you must have an estimate of the last two to three months.

It is not difficult to create a budget, but it is a bit difficult to implement the budget in reality.  The first thing you need to do when creating a budget is to figure out an average of how much you spent in last 2 or 3 months.

 For example, if you have spent 600$ on groceries in the last three months, your monthly grocery costs are 200$.  In this way you can calculate the average of each expenditure for the last three months and write it as budget expenditure.

 The most common problem with budget implementation is over-estimating or under-estimating a cost.

 For example, if you need to spend $200 which is not less than that, then you have written $150 in the budget.  And I wrote it down for 250, in which case the cost would be higher.  That could lead to a budget deficit.

 If you write less figures in the budget, you are more likely to do more, and if you write more figures, the cost may be less.

 The problem with this is that it can be difficult to keep up with the budget, or after a few months of budgeting, the frustration goes away.

 These are just some of the goal setting shareware that you can use.

 The budget is never the same every month.  How you might spend a month on social media.  This cost may not be there next month.

 If you want to stick within the budget, the budget needs to be updated regularly.

 Needless to say, another problem you have to face when it comes to budgeting is that if the expenses is higher than the income, you can reduce some variable costs.

 Even then, if your budget deficit remains, which means spending more than you earn, then you must reduce some fixed expenses.  For example, if you used to live in a $500 house, now you have to shift to a $300 house.

Bottom line: 

 The bottom line is that to make the budget realistic, spending can never be more than income.

 You created the budget but you are facing various problems while implementing the budget in reality.  In that case you need to note some financial mistakes.

 One of my favorite budget rules is 50/30/20.  Fifty percent means you can spend to fulfill your basic needs, Thirty percent discretionary which will make your life feel better, you can save for the rest twenty percent as savings.

 Or if you have a loan, you can use this 20 percent to repay your loan.

 If your income is much less than your expenses, then you must create a new way of income in which case no expenses are going to be deducted or reduced.  Or need to make any arrangements for side hustle.

 If you continue with a deficit budget for a long time, then one day your financial life will be ruined.

About the author

fakhruddin

Fakhruddin is working in personal finance industry for more than a decade. He's more expertise in making money, money management, personal finance & debt management.

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