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Budgeting for Beginners: These 5 Steps Will Help You Get Started

Setting up a budget is challenging. Doing it forces you to face your spending habits and then work to change them.

But when you decide to make a budget, it means you’re serious about your money. Maybe you even have some financial goals in mind.

The end result will bring you peace of mind. But if you’re creating a budget for the first time, remember that budgets will vary by individual and family. It’s important to set up a budget that’s a fit for YOU.

Budgeting for Beginners in 5 Painless Steps

Follow these basic steps and tailor them to your needs to create a monthly budget that will set you up for financial success.

Step 1: Set a Financial Goal

First thing’s first: Why do you want a budget?

Your reason will be your anchor and incentive as you create a budget, and it will help you stick to it.

Set a short-term or long-term goal. It can be to pay off debts like student loans, credit cards or a mortgage, or to save for retirement, an emergency fund, a new car, a home down payment or a vacation.

For example, creating a budget is a must for many people trying to buy their first home. But it shouldn’t stop there. Once you’ve bought a home, keep sticking to a budget in order to pay off debt and give yourself some wiggle room for unexpected expenses.

Once one goal is complete, you can move on to another and personalize your budget to fit whatever your needs are.

Step 2: Log Your Income, Expenses and Savings

You’ll want to use a Microsoft Excel spreadsheet or another budget template to track all of your monthly expenses and spending. List out each expense line by line. This list is the foundation for your monthly budget.

Tally Your Monthly Income

Review your pay stubs and determine how much money you and anyone else in your household take home every month. Include any passive income, rental income, child support payments or side gigs.

If your income varies, estimate as best as you can, or use the average of your income for the past three months.

Make a List of Your Mandatory Monthly Expenses

Start with:

  1. Rent or mortgage payment.

  2. Living expenses like utilities (electric, gas and water bills), internet and phone.

  3. Car payment and transportation costs.

  4. Insurance (car, life, health).

  5. Child care.

  6. Groceries.

  7. Debt repayments for things like credit cards, student loans, medical debt, etc.

Anything that will result in a late fee for not paying goes in this category.

List Non-Essential Monthly and Irregular Expenses

Non-essential expenses include entertainment, coffee, subscription and streaming services, memberships, cable TV, gifts, dining out and miscellaneous items.

Don’t forget to account for expenses you don’t incur every month, such as annual fees, taxes, car registration, oil changes and one-time charges. Add them to the month in which they usually occur OR tally up all of your irregular expenses for the year and divide by 12 so you can work them into your monthly budget.

Pro Tip

Review all of your bank account statements for the past 12 months to make sure you don’t miss periodic expenses like quarterly insurance premiums.

A woman with a dog reviews financial docements spread out on the floor.
Getty Images

Don’t Forget Your Savings

Be sure to include a line item for savings in your monthly budget. Use it for those short- or long-term savings goals, building up an emergency fund or investments.

Figure out how much you can afford — no matter how big or small. If you get direct deposit, saving can be simplified with an automated paycheck deduction. Something as little as $10 a week adds up to over $500 in a year.

Step 3: Adjust Your Expenses to Match Your Income

Now, what does your monthly budget look like so far?

Are you living within your income, or spending more money than you make? Either way, it’s time to make some adjustments to meet your goals.

How to Cut Your Expenses

If you are overspending each month, don’t panic. This is a great opportunity to evaluate areas to save money now that you have itemized your spending. Truthfully, this is the exact reason you created a budget!

Here are some ways you can save money each month:

Cut optional outings like happy hours and eating out. Even cutting a $4 daily purchase on weekdays will add up to over $1,000 a year.

Consider pulling the plug on cable TV or a subscription service. The average cost of cable is $1,284 a year, so if you cut the cord and switch to a streaming service, you could save at least $50 a month.

Fine-tune your grocery bill and practice meal prepping. You’ll save money by planning and prepping recipes for the week that use many of the same ingredients. Use the circulars to see what’s on sale, and plan your meals around those sales.

Make homemade gifts for family and friends. Special occasions and holidays happen constantly and can get expensive. Honing in on thoughtful and homemade gifts like framed pictures, magnets and ornaments costs more time and less money.

Consolidate credit cards or transfer high-interest balances. You can consolidate multiple credit card payments into one and lower the amount of interest you’re paying every month by applying for a debt consolidation loan or by taking advantage of a 0% balance-transfer credit card offer. The sooner you pay off that principal balance, the sooner you’ll be out of debt.

Refinance loans. Refinancing your mortgage, student loan or car loan can lower your interest rates and cut your monthly payments. You could save significantly if you’ve improved your credit since you got the original loan.

Get a new quote for car insurance to lower monthly payments. Use a free online service to shop around for new quotes based on your needs. A $20 savings every month is $20 that can go toward savings or debt repayments.

Start small and see how big of a wave it makes.

Oh, and don’t forget to remind yourself of your financial goal when you’re craving Starbucks at 3 p.m. But remember that it’s OK to treat yourself — occasionally.

A couple organize tax-related paperwork.
Lindsey Cox and Jonathan Tuttle dig into income- and expense-related paperwork as they prepare to file their taxes at their home in Temple Terrace, Fla. Tina Russell/The Penny Hoarder

What to Do With Your Extra Cash

If you have money left over after paying for your monthly expenses, prioritize building an emergency fund if you don’t have one.

Having an emergency fund is often what makes it possible to stick to a budget. Because when an unexpected expense crops up, like a broken appliance or a big car repair, you won’t have to borrow money to cover it.

When you do dip into that emergency fund, immediately start building it up again.

Otherwise, you can use any extra money outside your expenses to reach your financial goals.

Here are four questions to ask yourself before dipping into your emergency fund..

Step 4: Choose a Budgeting Method

You have your income, expenses and spending spelled out in a monthly budget, but how do you act on it? Trying out a budgeting method helps manage your money and accommodates your lifestyle.

Living on a budget doesn’t mean you can’t have fun or splurges, and fortunately many budgeting methods account for those things. Here are a few to consider:

  • The Envelope System is a cash-based budgeting system that works well for overspenders. It curbs excess spending on debit and credit cards because you’re forced to withdraw cash and place it into pre-labeled envelopes for your variable expenses (like groceries and clothing) instead of pulling out that plastic. 
  • The 50/20/30 Method is for those with more financial flexibility and who can pay all their bills with 50% of their income. You apply 50% of your income to living expenses, 20% toward savings and/or debt reduction, and 30% to personal spending (vacations, coffee, entertainment). This way, you can have fun and save at the same time. Because your basic needs can only account for 50% of your income, it’s typically not a good fit for those living paycheck to paycheck.
  • The 60/20/20 Budget uses the same concept as the 50/20/30, except you apply 60% of your income to living expenses, 20% toward savings and/or debt reduction, and 20% to personal spending. It’s a good fit for fans of the 50/20/30 Method who need to devote more of their incomes to living costs.
  • The Zero-Based Budget makes you account for all of your income. You budget for your expenses and bills, and then assign any extra money toward your goals. The strict system is good for people trying to pay off debt as fast as possible. It’s also beneficial for those living to paycheck to paycheck.
A hand writes financial-related labels on envelopes.
Tina Russell/The Penny Hoarder

Budgeting Apps

Another money management option is to use a budgeting app. Apps can help you organize and access your personal finances on the go and can alert you of finance charges, late fees and bill payment due dates. Many also offer free credit score monitoring.

Step 5: Follow Through

Budgeting becomes super easy once you get in the groove, but you can’t set it and forget it. You should review your budget monthly to monitor your expenses and spending and adjust accordingly. Review checking and savings account statements for any irregularities even if you set bills to autopay.

Even if your income increases, try to prioritize saving the extra money. That will help you avoid lifestyle inflation, which happens when your spending increases as your income rises.

The thrill of being debt-free or finally having enough money to travel might even inspire you to seek out other financial opportunities or advice. For example, if you’re looking for professional help, set up a consultation with a certified financial planner who can assist you with long-term goals like retirement and savings plans.

Stephanie Bolling is a former staff writer at The Penny Hoarder.



Source: thepennyhoarder.com

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How to Plan a Budget If Your Home Is a Fixer Upper

Buying a new house is always exciting, especially if it’s a fixer-upper that just needs a little TLC to become the home of your dreams. But are renovation costs dampering your spirit? Guest writer Kerrie Kelly from The Home Depot shares her budgeting tips for staying sane and stress-free during home renovations. 

By

QDT Editor
March 15, 2017

Kerrie Kelly is a California interior designer who has helped many young couples choose their “first-home-together” decor. Kerrie writes on her design experiences for The Home Depot, offering homeowners ways to save money without compromising design.


Source: quickanddirtytips.com

How to Save Money: Simple, Expert Tips for Big Savings

Take a moment. Think about being your best self — living your best life.
You’re probably asking yourself, “How much should I save?”
Here are five different budgeting methods. We can’t tell you which one to choose. Be honest with yourself, and choose the one you think is most likely to work for you. This is how to save money on a tight budget.
To help you save money and navigate this complicated industry, modern companies are updating the old model:

Table of Contents 

You can also sell nearly anything through the Letgo app. Just snap a photo of your item and set up a listing in about 30 seconds. If you have more free time, try selling items on Craigslist or eBay.

Here Are Our Best Tips to Save Money

This one was popularized by U.S. Sen. Elizabeth Warren, a bankruptcy expert, and her business-executive daughter Amelia Warren Tyagi.
*https://www.fdic.gov/regulations/resources/rates/

Step 1: Develop Savings Goals and Strategies

 The Penny Hoarder created vision boards to inspire saving for retirement and a vacation on Monday, September 24, 2018.
Chris Zuppa/The Penny Hoarder

Your priciest purchases — like appliances and furniture — are a natural place to look for savings. Try repairing your appliances instead of replacing them. And here’s a good list of other tricks for saving on furniture and appliances.
Mike Brassfield ([email protected]) is a senior writer at The Penny Hoarder. He’s slowly getting better about saving money.

Think Long Term and Short Term

Here are the blunt facts about how to get lower car insurance premiums: Have fewer accidents, get fewer traffic tickets and boost your credit score.

Analyze Your Income

The best ways to save include automation. You’ll save time, and time is money. Here are a few money-management steps you can take today to ensure you won’t have to think about money for more than a few minutes every month. 
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An easy way to automate this process is to use Trim, a little bot that’ll keep track of all your transactions.
Source: thepennyhoarder.com

Check in on Your Credit

Groceries are a huge part of everyone’s budget, so they’re a big target for savings. Next time you’re putting together your shopping list, make sure to check out our favorite tricks to save money at the grocery store:
The FDIC reports that the average savings account pays a paltry .08% APY*, but when you open an online checking and savings account with Varo, it will pay you more than 20 times that amount on your savings account. 
Your first move is to set specific savings goals for yourself — emphasis on specific. Naming your goals will make them more real to you. It’ll help you resist the temptation to spend your money on other stuff.

Step 2: Pick Budgeting and Debt Repayment Methods

A person creates three different envelopes for savings, fun and expenses. This is part of the envelope method
Tina Russell/The Penny Hoarder

Life insurance pays your dependents a set amount of money if you die. Whether to buy it is a judgment call.
We know opening a new bank account isn’t exactly everyone’s idea of fun, but Varo makes it easy. You can open an account with just a penny, and more than 750,000 people have already signed up.
You don’t have to be Warren Buffett to be an investor. You don’t even have to follow the stock market, read The Wall Street Journal or watch CNBC.

The 50/30/20 Rule

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How much can you realistically save for these goals, now that you’re making them a priority?
That’s right. We’re deep into the 21st century, here, so make technology do the work for you.

Envelope Budgeting

You won’t get rich taking surveys, but if you’re just vegging out on the couch, why not click a couple buttons and earn a few bucks? We’ve tried a lot of paid survey sites, and two of the best we’ve found are My Points and InboxDollars.
How can you increase your income? It’s easier to save money if you’re bringing in more money to begin with.
If you’re going to stay in, cut the cord. More and more people are doing this, because their cable bill has gotten so expensive.

Zero-Based Budget

Do your own credit check. Keeping tabs on your credit score and your credit reports can help guide you to a financially healthier life — especially if you use a free credit-monitoring service like Credit Sesame. It gives you personalized suggestions for improving your credit.
Oh, and there are no monthly fees. 

Debt Avalanche

Your home is your castle. But castles are so, like, expensive. Fortunately, there are lots of ways to save money around the house.
Here’s how: Go to your bank’s online bill-pay feature. Enter all the companies that bill you, and the account numbers for each. Arrange to receive e-bills from whichever billers will do that.

Debt Snowball

Maybe it’s time to try another financial institution. We’ve found some great online bank accounts to help you avoid fees and get features you won’t find with the brick-and-mortar banks.
These days, credit card interest rates often climb north of 20%. How can you avoid paying all that interest? Your best bet is to cut back on your expenses and pay off your balance as soon as you realistically can.

Step 3: Choose a Financial Institution and Accounts

A woman in a car is server at a bank drive-thru window.
Tina Russell/The Penny Hoarder

Good for: People who worry they won’t have a life if they’re on a budget. Here’s our complete guide to 50/30/20 budgeting.
What exactly do you want to save money for? How much will you need to save? And what do you need to save for first? Think short- and long-term:

What to Look for in a Bank Account

Did you know the biggest U.S. banks are collecting more than billion a year in overdraft and ATM fees?
Ready to stop worrying about money?
Entertainment can cost an arm and a leg. But hey, we have to live, right? So do it for free! Next time you’re planning a night out, take advantage of one of these free date nights or group outings.
Connect your checking account, credit card and savings account for a big-picture look at your spending habits. Then, take a closer look by checking out each of your transactions. Set alerts that’ll let you know when bills are due, when you’ve hit a spending cap or when you’ve (hopefully not) overdrafted. This will help you stick with your savings plan.
Let’s face it: Health insurance can be confusing and intimidating.
Here’s how to find affordable insurance:
You can also have your bank send digital payments to individuals (like a landlord).
Split your income into three spending categories: 50% goes to essential bills and monthly expenses, 20% toward financial goals and 30% to personal spending (all the stuff you like to spend money on but don’t really need). Put the money earmarked for your financial goals into a separate savings account.
Unfortunately, Americans are bad at saving money, and we’re getting worse. Thanks to rising costs, stagnant salaries and student loan debt, we’re saving less than ever.

Pay Less in Credit Card Interest

You’ll probably be asked to choose between two options: term or universal life insurance. If you’re like most of us, you’ll choose term — the simplest, cheapest and most popular kind of life insurance policy.
Most people don’t give this a second thought. They figure it’s too inconvenient to switch. But it’s worth shopping around for a better option, because where you bank can make a real difference in how much you save.
Good for: People who need a simple, straightforward method that accounts for every dollar. Here’s our guide to the zero-based budget.
Start by using the right credit card for you, based on your situation and needs. Would you prefer a card that gives you cash back or travel incentives, a balance-transfer card, or a card that’ll help you build credit?

Step 4: Automate Your Finances

Man holding phone
Chris Zuppa/The Penny Hoarder.

You might be thinking, I already have a bank. And of course you do. If you’re like most of us, you’ve had the same bank for years.
Are you ready to actually start saving money? What you’re reading is a step-by-step guide on how to do it — how to come up with savings strategies, choose a budgeting method, pick the right financial institution, automate your finances and live a budget-conscious lifestyle.

Automate Bill Pay

Does your checking account pay you interest? What are the fees like? What other perks does it offer?

Step 1: Develop Savings Goals and Strategies
Step 2: Pick Budgeting and Debt Repayment Methods
Step 3: Choose a Financial Institution and Accounts
Step 4: Automate Your Finances
Step 5: Establish a Budget-Conscious Lifestyle
Step 6: Make More Money
The better your credit, the better off you’ll be when you’re getting a home or car loan. Credit Sesame can estimate how big a mortgage you might qualify for, for example.

Automate Savings

Good for: People who know they need help with self-control. If there’s nothing left in one envelope toward the end of the month, there’s no more money to spend on that category, period.

Automate Investing

Here’s our ultimate guide to using Credit Sesame.
You can automate your budget, too. There’s an app for that. Actually, we’ve found several.

Automate Budgeting

Good for: People with a lot of credit card debt. Credit cards generally charge you higher interest than other lenders do. Learn more about the debt avalanche method here.
You just have to be smart and strategic. Here are some of our best tips to help you spend less:
If you’re buying insurance for yourself, start with the federal health insurance marketplace at Healthcare.gov to see whether you qualify for any discounts or assistance.
Finding affordable health care coverage is a huge challenge for freelancers. Here’s how to get covered if you’re self-employed.
Not loving the supermarket? Nearly 70% of us say we spend too much on take-out or going out to eat. Here’s how to save money at restaurants, too.

Step 5: Establish a Budget-Conscious Lifestyle

Man shopping for apples
Carmen Mandato/ The Penny Hoarder

That doesn’t mean you have to live like a monk. Nor do you have to survive on ramen noodles and the dollar menu, wear scuffed shoes and patchy clothes, or cut your own hair with hedge clippers.
So-called envelope budgeting is traditionally a cash-only budget. Every month, you use cash for different categories of spending, and you keep that cash for each category in separate envelopes — labeled for groceries, housing, phone, etc.
Most bills are paid online now, reports the Credit Union Times. But you can take it a step further. Set it up so you’ll receive and pay all of your bills online through your bank. That simplifies things so you’ll never miss a payment.

Save Money Around the House

Mint lets you see all your accounts, cards, bills and investments in one place.
Charlie is a money-saving penguin who lives in your SMS text messages or Facebook Messenger (your choice, though Charlie is more fun and reliable on Messenger). He helps you save money through things like making sure you’re getting the best deals around (ahem, overpaying a month on that cell phone bill?).
Here are a couple of simple ways to make extra cash at home:

Find Free Entertainment

This way, you can put savings right into your budget. It’s never an afterthought.
Sell your old stuff! Use the Decluttr app to get paid for your old DVDs, Blu-Rays, CDs, video games, gaming consoles and phones.
Automotive experts also gave us the following tips:
Money management guru Dave Ramsey champions the debt snowball method of debt repayment. Pay off your debts with the smallest balances first. This allows you to eliminate debts from your list faster, which can motivate you to keep going.

Cut Your Food Budget

You can take advantage of these apps offering easy, automatic ways to start investing — the “set it and forget it” method. They’re useful for tricking your brain into saving more. You’ll do it without even realizing you’re doing it. The cost of cooling, heating and lighting your home is massive. Try installing thermal curtains and a programmable thermostat. Or check out these creative, energy-saving ways to slash your utility bills.

Find out If You’re Wasting Money on Insurance

Also consider paying off your high-interest debt with a low-interest personal loan. It’s easier than you might think. Go window-shopping at an online marketplace for personal loans. Here are some we’ve test-driven for you:
Reality check: To accomplish any of those things, you’re going to need to know how to save money.

For Your Car: Auto Insurance

Prefer plastic? Here’s our review of Mvelopes, an app that lets you digitize this method.
This debt-repayment method helps you budget when you have debt. Pay off your debts with the highest interest rates first — most likely your credit cards. Doing that can save you a lot of money over time.

For Yourself: Health Insurance

Good for: People who owe a lot of different kinds of debts — credit cards, student loans, etc. — and who need motivation. Here’s how to use the debt snowball method to eliminate debt.
Pour yourself a cup of coffee and buckle up. It’s time to get serious about this.
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For Your Family: Life Insurance

Buying insurance can be confusing and overwhelming, because there are so many options.
Here’s how you draw up this budget: Your income minus your expenses (including savings) equals zero. This way, you have to justify every expense.
MoneyLion offers rewards to help you develop healthy financial habits and will literally pay you for logging onto the app. You can earn points in the rewards program by paying bills on time, connecting your bank account or downloading the mobile app.
To free up more money for savings, try to spend less paying interest on your debts — especially if you have high-interest credit card debt.

Step 6: Make More Money

Lisa Rowan shows off her items she got from a clothing swap hosted by Stephanie Bolling in St. Petersburg, Fla.
Tina Russell/The Penny Hoarder

Life insurance is considered more important if you’re married or have children. You might also want a basic policy that would pay off your funeral, mortgage or other debt.
Here’s the harsh reality: To save more money, you’ll need to spend less money. (Or make more money, but we’ll get to that next.)

Share Your Opinion

Whatever you need done financially, there’s an app for that. We’ve put several to the test.

Clear Your Closets

What do you really want to do with your life? Raise a happy family? Travel the world? Buy a nice house? Start your own business?
Here’s one example: There’s a mobile baking app called Varo Money.

Find a Side Gig

Want more options? Here’s our ultimate guide to help you choose the right account. It’s time to start making a monthly budget and sticking to it — especially if you have debt.

Write down your income and expenses — all of your expenses, from utility bills to your Netflix subscription. There are probably more ways to save money than you realize. Don’t forget your student loans or credit card debt. Make sure you know what you’re spending in every budget category. Pay special attention to what you’re spending on non-essentials, such as eating out.

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If you’re thinking of switching to an online streaming service and you’re wondering which would be best, we’ve got you covered with our comparison of Netflix, Prime Video and Hulu. We compared costs, type of content, number of available titles and more.

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