How to Budget: A Beginner's Guide to Financial Success

Budgeting doesn't have to be complicated. In fact, the most effective budgets are often the simplest ones. Whether you're just starting your financial journey or looking to get back to basics, this guide will help you create a budget that works for your life.

TLDR: Key Takeaways

  • A budget is simply a plan for your money - it's not about restriction, it's about intention
  • Start by tracking your income and expenses to understand your current financial situation
  • Set clear, achievable financial goals to guide your budgeting decisions
  • Use tools like keepm to automate expense tracking and categorization
  • Review and adjust your budget regularly to keep it aligned with your goals

What Is a Budget?

According to Investopedia, a budget is an estimation of revenue and expenses that's made for a specified future period of time. Whether your income is steady or varies from month to month, a budget helps you organize your expenses, savings goals, and other financial obligations into a manageable system that can provide more financial freedom and a less stressful life.

"A budget is telling your money where to go instead of wondering where it went."

— John C. Maxwell, Leadership Expert

According to a 2023 survey by The Ascent, 80% of people who budget regularly report feeling more in control of their finances. The key isn't in the complexity of your budget—it's in the consistency with which you follow it.

The Basic Steps to Create a Budget

1. Figure Out Your After-Tax Income

As outlined in NerdWallet's budgeting guide, if you get a regular paycheck, the amount you receive is probably your after-tax income, also called net income or take-home pay. For budgeting purposes, if you also have money taken out of your check for your 401(k), or health or life insurance, add those deductions back in to give yourself a true picture of your savings and expenses.

If you have other types of money coming in — such as from side gigs — subtract anything that reduces that income, such as taxes and business expenses.

2. Track Your Expenses

Before you can create an effective budget, you need to know where your money is going. Use keepm to scan your receipts and automatically categorize your spending. Look for patterns in:

  • Fixed expenses (rent, utilities, insurance)
  • Variable expenses (groceries, entertainment, dining)
  • Periodic expenses (annual subscriptions, maintenance)

"The first step to financial freedom is awareness. You can't change what you don't track."

— Suze Orman, Personal Finance Expert

According to CNBC, 65% of Americans don't know how much they spent last month, highlighting the importance of tracking expenses regardless of which budgeting method you choose.

3. Set Your Financial Goals

Your budget should align with your financial goals. These might include:

  • Building an emergency fund
  • Paying off debt
  • Saving for a major purchase
  • Planning for retirement

Research shows that people who write down their goals are 42% more likely to achieve them. Make your goals specific, measurable, and time-bound.

Setting Your Financial Priorities

Before creating your budget, it's important to establish clear priorities. Here's a recommended order for allocating your money:

  1. Emergency Fund: Start with building a starter emergency fund. This is your first line of defense against unexpected expenses.
  2. 401(k) Match: If your employer offers a 401(k) match, contribute enough to get the full match. This is essentially free money for your retirement.
  3. Toxic Debt: Focus on paying off high-interest debt like credit cards. If you can't repay unsecured debt within five years or if your total unsecured debt equals half or more of your gross income, consider debt relief options.
  4. Retirement Savings: Aim to save 10-15% of your gross income for retirement, including your company match. If a 401(k) isn't available, consider a Roth or traditional IRA.
  5. Emergency Fund (Again): Build up three to six months' worth of essential living expenses. This fund is for true emergencies only.
  6. Debt Repayment: Make additional payments beyond minimums on remaining debt, starting with the highest interest rates.
  7. Personal Goals: Once the above priorities are covered, you can focus on other financial goals like saving for irregular expenses or building wealth faster.

Understanding Budget Types

Static vs. Flexible Budgets

There are two main types of budgets you might consider:

  • Static Budget: Remains unchanged over the life of the budget. This type is useful for evaluating the effectiveness of your original budgeting process.
  • Flexible Budget: Changes based on sales levels, production, or other external factors. This type provides deeper insight into business operations and can be more realistic for variable income.

The 50/30/20 Budget Rule

One popular approach is the 50/30/20 budget rule, which divides your after-tax income into three categories:

  • 50% for Needs: Essential expenses like housing, utilities, groceries, transportation, insurance, and minimum debt payments.
  • 30% for Wants: Non-essential spending like entertainment, dining out, and hobbies.
  • 20% for Savings: Emergency fund, retirement, and debt repayment beyond minimums.

If your necessities exceed 50% of your income, consider adjusting to a 60/30/10 split or finding ways to reduce your essential expenses. Remember, a budget should be realistic for your location and life circumstances.

Budgeting for Different Life Stages

According to Federal Student Aid, your budget needs will change as you move through different life stages. Here's what to consider:

  • College Students: Focus on managing student loans, part-time income, and essential expenses. Consider working while in school to reduce debt.
  • Young Professionals: Prioritize building an emergency fund and starting retirement savings while managing student loan payments.
  • Families: Account for childcare, education savings, and increased household expenses. Consider life insurance and estate planning.
  • Pre-Retirement: Maximize retirement contributions and focus on paying off major debts like mortgages.

Creating Your First Budget

Now that you have the basics, here's how to create your first budget:

  1. Start with Your Income: Write down your total monthly income
  2. List Your Expenses: Use keepm to track and categorize your spending
  3. Subtract Expenses from Income: This shows you your net cash flow
  4. Allocate Remaining Money: Direct it toward your financial goals

A 2023 PwC survey found that 41% of employees report that their financial situation has become more stressful in the past year. Having a clear budget can help reduce this stress by giving you a sense of control over your finances.

Common Budgeting Mistakes to Avoid

1. Being Too Restrictive

A budget that's too strict is hard to maintain. Include some flexibility for unexpected expenses and occasional treats. Every budget needs wiggle room for unexpected or unanticipated costs, plus some money to spend as you wish.

2. Forgetting Irregular Expenses

Don't forget to account for annual or quarterly expenses. Divide them by 12 to include them in your monthly budget. Keep your receipts so that you know exactly how much you spend each month.

3. Not Adjusting Over Time

Your budget should evolve with your life. Review and adjust it regularly to reflect changes in your income, expenses, and goals. As you move through changes in your life, you'll need to constantly reevaluate your income and expenses.

Making Your Budget Work

The key to successful budgeting is consistency. Here are some tips to help you stick to your budget:

  • Use Technology: Let keepm handle the heavy lifting of tracking expenses and categorizing spending
  • Start Small: Begin with tracking just one category of expenses and gradually expand
  • Review Regularly: Check your budget weekly to stay on track
  • Celebrate Wins: Acknowledge your progress, even small victories

"The best budget is the one you'll actually use. Don't let perfect be the enemy of good."

— Ramit Sethi, author of "I Will Teach You To Be Rich"

A McKinsey study found that 36% of U.S. workers participate in the gig economy, highlighting how income volatility is becoming increasingly common and why flexible budgeting approaches are essential.

Getting Started Today

Ready to take control of your finances? Here's your action plan:

  1. Download keepm to start tracking your expenses automatically
  2. Calculate your monthly income
  3. Set one clear financial goal to start with
  4. Create your first basic budget
  5. Review and adjust weekly

Ready to Start Budgeting?

Remember, budgeting is a skill that gets easier with practice. The most important thing is to start and stay consistent. With keepm's smart receipt scanning and automatic categorization, you can focus on making good financial decisions rather than tracking every penny manually.

Download keepm today and take the first step toward financial confidence.

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