Budgeting isn’t always easy. In fact, it’s very difficult if you’ve never consistently stuck to one. When Courtney and I (John) first started budgeting, the only thing we could do is follow vague percentages and use a lot of trial and error. We had no idea how to start a budget and as a result the first few months didn’t turn out so well. However, we learned a lot of things along the way. Hopefully this article will save newbies to the budgeting process some headaches.
How Do I Start a Budget?
Walk – Then RUN!
Just like exercising, if you haven’t budgeted before, take it easy at first! The last thing you want to do is get discouraged because you’re in pain from getting in over your head. Start by praying to the Lord that he’ll guide your steps and teach you how to use his money wisely.
I recommend analyzing your current spending habits before making your personal budget. Look at your checking account for the past few months of transaction history. You’ll find a goldmine of information on what you spend money on and when you tend to splurge more than other times. Try arranging your transactions into categories you can track. Once you have your personalized categories, try reducing your spending in the discretionary areas by 5-10% per month. That’s a great starting point. Don’t be afraid to push yourself! If you go too far on the side of frugality, you’ll feel it.
Build A One Month Cash Buffer In Your Checking Account
One of the things we learned the hard way was when to spend our paychecks. Spending your paycheck during the month you receive it can result in low checking account balances, raising the opportunity for overdraft or utter financial failure. I’ve found that spending this month’s income next month provides an extra cushion that allows us to pay our mortgage at the beginning of the month and not worry about the consequences. Learning how to do that is worthwhile.
It may seem like a dream to have one month’s worth of expenses actually saved up in your checking account. Again, you want to start slowly and save up to get to that point. But once you’ve arrived . . . trust me, it’s worth it.
Don’t Rely On Your Emergency Fund For All Long Term Expenses
It can be tempting to trim down your operating budget by throwing all extra money into your emergency fund for long term expenses. This isn’t always the best course of action. Why? You don’t want to get used to using your emergency fund for oil changes, light bulb replacements, and the like. These things are relatively predictable – therefore not emergencies. Instead, save a little extra each month for occasional repairs or replacements.
A good rule of thumb is to ask yourself if an event will happen within the next year. Here are a few example questions:
- Pay auto insurance: Will it happen in the next year? Yes! So I need to budget for it, not rely on my emergency fund.
- Replace my roof: Will it happen in the next year? Don’t know. So I don’t need to budget for it, I need to continue to build my emergency fund.
- Buy Christmas gifts: Will it happen in the next year? Yes! So I need to budget for it, not rely on my emergency fund.
Get the idea? You need to budget for most long term expenses. Don’t simply use your emergency fund for non-emergencies!
Get A System Going
Instead of haphazardly working out a budget month by month, give it some serious thought. Take a day to consider your expenses, long term goals, and where you want to be in the next decade. The problem most people have with staying consistent is that they don’t think things through when they write their budget. For example, you’re going to want to consider:
- How flexible to make your monthly budget. Can you move money between categories in certain scenarios?
- What your major focus is. Are you wanting to build your emergency fund, pay off debt, or invest into retirement? What’s your main project?
- How you’ll actually keep on track. Are you going to use a budget spreadsheet, budgeting software,or a printable budgeting worksheet with a pencil? How often will you reconcile your transactions?
Once you have your system going, the momentum will carry you through month to month. I hope these tips will help you improve your budgeting tactics. Let me know what you think in the comments below!
Photo by SashaW
{ 10 comments… read them below or add one }
Thanks for this great post! i really need to start a budget. This Post give me good ideas! thanks again!
Thanks for this John. My boyfriend and I need to sit down and really plan a budget. I’m thinking to start we may need to have weekly discussions about it until we get on track to our goals.
Thanks for the post. It indeed is important to start small and build momentum as we go on. One way is to decide and save a larger amount every month. (it can be 1% in Jan, 2% in Feb, 3% in March and so on). In no time, you will be running like Usain Bolt when it comes to your personal finances and retirement planning.
I thought I’m good at budget, but your post gave me a few great tips and I really need to incorporate them into my system. Thanks John!
Oh, and by the way…you have such a cute little puppy! I believe the joy she gives to you is greater than cleaning after her
Solid advice John. Setting up a budget and committing to work out the kinks is likely the most important step individuals can take in their journey toward financial freedom. Cheers.
This is great advice and exactly what my wife and I did to get our finances in shape. We use YNAB (You Need a Budget) for keeping track of the budget as well as planning everything out. It is absolutely one of the best financial software programs available. The key however is using it!
I have just started earning. The Idea of spendind last month’s pay this month is fascinating. I should try it. Thanx for this post.
You need to budget for most long term expenses. Don’t simply use your emergency fund for non-emergencies.
How can an individual on a fixed income start a budget and be able to stick to it?
All must be disciplined in spending their money so that they can have a stable financial status.