This is going to be a step by step guide of budgeting for beginners. First you need to know why you want to budget. are you planning a holiday or a wedding maybe? Or perhaps you have a baby on the way and want to take some unpaid maternity leave? Retirement might have crossed your mind or college fees. Whatever the reason is you want to get your finances in order. Keep that why at the forefront of your mind while we go through these steps.
Track your spending.
With pen and paper or an excel sheet you need to write down every time you spend money for the next month. You need to know what direct debits go out of your account, how often and how much. At this point if you realise you are paying for something you don’t use or get value from you can look into cancelling it. By the end of the month you should know where every cent of your money went from main food shops and top up shops to daily coffees and hair appointments.
Write down every source of income
Every source of income you rely on or expect to have should be included.
Unearned income such as rent received or a lodger
Social welfare payments such as working family payment or domiciliary care allowance
If it is an income you expect to receive in the coming pay period it needs to be included. Make the money you worked hard for work for you. Give your money a job or you’ll find it disappearing.
Write down your expenses
Using the information you put together when you tracked your spending you need to list your expenses.
All of your direct debits, the dates they go out and how much like car insurance and mortgage/rent.
Day to day living expenses like food, fuel and childcare.
With budgeting for beginners it is best to be as accurate as possible. Write your real numbers and not the numbers you would like to achieve. In time when budgeting is more natural for you you could look at cutting your costs for example reducing the food bill by five euro a week or maybe ten euro a month.
Put your information on a calendar
Assign one colour to your income and assign another colour to your expenses. If money comes in on the 3rd of every month or comes in every friday then colour those dates in on the calendar. With your second colour if money is due to go out on a specific date colour that date on the calendar. If money comes in and goes out the same date then colour it both colours.
Income is equal or greater to your expenses
Your income needs to be equal to or greater than your expenses. If your expenses are greater than your income you will create debt very quickly. Assuming your income is greater or equal to your expenses you can go onto the next step in this budgeting for beginners guide. If your income is not greater or equal to your expenses you have two options..
Increase your income or
Reduce your expenses
This could take some time to achieve but try to stay current on your bills as best you can and avoid creating (more) debt if at all possible.
Income exceeding your immediate needs
So what do you do with any extra income? Earlier in this budgeting for beginners guide I said to give every cent a job but now you’re not sure what to do with remaining income. The answer is sinking funds and goal payments. Sinking funds are regular payments saved up for a short to medium term goal such as Christmas, winter fuel, birthdays and holidays. Assign an amount to a few sinking funds that would make life easier for you. Don’t be tempted to have lots of sinking funds when you’re only starting them. Pick maybe 3 or 4 to start with and as time goes by and you become more confident with them add some more in slowly. Any income remaining after you’ve established how much you are saving in sinking funds goes towards your goal. Remember that? The reason you’re reading this budgeting for beginners guide. Yep, thats the one!
Budgeting for beginners
Its time to budget. *Using the calendar sheet and your list of income and expenses dates and amounts start to fill in the information you know. write down the date of the budget, the amount you will receive and then write down any day to day expenses such as food and fuel. Make sure to include the amount you will be allocating. Now look on your calendar, what expenses go out before the next pay period? Write them down and the amount. Subtotal time. The income should be greater or equal to the expenses. If not you will need to do some thinking about what absolutely must be paid and what can be removed. Once the subtotal equals zero or more you can move onto the next pay period. *
Repeat the steps above starting and finishing at the *. Any remaining money from the first pay period can now be allocated to your sinking funds and then your goal.
Bumps in the road
There will be bumps in the road like there would be when you take up any new skill. It’s important to persevere and not give up. Mistakes in the beginning and to be expected and will help you learn so much more than this budgeting for beginners guide ever could.
Best of luck
The very best of luck on your financial journey. I hope you achieve all you set out to do and more. You can have any thing you want in your budget just not everything at once.