The Beginner's Guide To Creating A Budget That Actually Works

Set A Reminder

First things first, pick a day out of the month to prioritize budgeting and set a monthly reminder on your calendar. When life gets busy, the last thing on your mind will be a budget.

Set Personal Financial Goals For Your Budget

As a beginner, it's important to set personal financial goals before creating a budget. Ask yourself, why are you creating a budget? Solidify the long-term financial goals you are aiming to reach, so you can create a personalized plan of attack to conquer your goals. Everybody has a reason for wanting to clean up their spending habits. It's up to you to determine what your budgeting end goal is. Are you budgeting to:

• Save for a car purchase?
• Create or build an emergency fund?
• Pay off current debt?
• Afford a pricey vacation?

Sit down and write down your purpose for budgeting and the exact goals you are hoping to achieve.

Pick A Budgeting Method

50/30/20 Rule:

The 50/30/20 method of budgeting was popularized by Senator Elizabeth Warren in her book, All Your Worth: The Ultimate Lifetime Money Plan. This rule offers a simplistic budgeting plan to help others reach their financial goals. The rule recommends spending up to 50% of your after-tax income on necessities and obligations, essentially fixed expenses. Then 20% of the remaining half should be allocated to savings and debt repayment, and the last 30% of the remaining half should be allocated to anything else that you want.

Zero-Based Budget:

Zero-based budgeting is a method of justifying all expenses for the period. Basically, the income minus the outgo has to equal zero for the month. After covering your expenses for the month, if you have $300 left over, then you have to allocate it towards something. For example, allocate the money towards paying off debt, an emergency fund, etc. Studies show this method of budgeting helps people pay off 19% more debt and save 18% more money.

Choose A Tool To Create Your Budget

Determine what tool you want to use to create and track your budget. Some people enjoy the old-fashioned pen and paper method, but in this day and age we have many technological options as well. For those who know their way around Excel, you can make a budget using an Excel spreadsheet. If you choose to create a budget, then follow these simple steps:

1. Record your sources of income
2. Record your monthly expenses
3. Divide the expenses into fixed (same expense every month) and variable expenses (changes month to month)
4. Total your monthly expenses and monthly income to understand your monthly cash flow

If manually creating a budget isn't convenient for you, then there are many free budgeting tools available to give you a hand. Mint is one of the leading free budgeting apps that automatically tracks your expenses and incoming money by syncing to your bank accounts. Mint helps you to create a budget and set goals with ease.

If you aren't interested in downloading an app or manually creating a budget, then Budgetpulse could be the perfect solution for you. Budgetpulse is a free personal finance software that organizes your cash flow, expenses, bank accounts and allows you to set financial goals.

Analyze And Assess Your Budget

Setting financial goals and making a budget is great, but it's important to analyze and assess your budget monthly by creating a plan to meet your goals. How much money do you need to save each month to reach your goal and how will it potentially take? If you're saving towards a relaxing vacation on the beach and you estimate that you need to save $1500, then figure out how much money you will save per month to reach your goal. If this requires you to cut back on expenses, then assess your budget for opportunities to cut-back on expenses or increase your income.

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