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schedule 7 min read | March 21, 2022

A Beginner’s Guide to Budgeting

Written by Daniel Azzoli

As important of a task as it might be, taking the time to sit down and sift through your finances may not quite be your idea of a fun weekend activity. As unexciting as this prospect might sound, it’s an incredibly important practice to go through to make sure you’re staying the course when it comes to your financial goals. After all, if you’re spending cash outside of any sort of framework, you can get yourself into some murky financial waters, so it’s in your best interest to make sure you keep things organized when it comes to your finances.

Having said all that, if you’ve never taken the time to create a budget for yourself, starting from scratch can be a daunting place. And once you consider that the process of budgeting amounts to more than just subtracting your expenses from your income, it might start to feel like an even loftier task.

But the truth is, it doesn’t need to be a massive undertaking. If you follow a clearly laid out system, it can simplify the entire process. And the benefits of budgeting are worth the investment of your time. When you start to fit your finances into a clear and effective framework, it can help you to understand how you’re spending your money, identify problem areas, work towards your short- and long-term financial goals, help you save money, pay off your debt, and so much more.

So, with all of that in mind, we want to help get you get started by going over the basic outline of four different budgeting methods that you might find useful. After all, what might work for one person may not work as well for others, so it’s important to figure out what system best suits your situation!

Method #1: Zero Based Budgeting

If you really want to get into the weeds of budgeting, you may want to make sure every single dollar you have coming in gets put to good use. Zero based budgeting is designed to help you do this. The general idea behind this system is that in order to make it work, you’ll need to understand how every dollar you have is getting used. You’ll need to find a job for all your money, which essentially means that if you subtract the amount of your income from all the ways you have allocated your funds, you’ll get zero.

But if your aim is to cut your spending and save money, should you really be using a budgeting system that seems like it’s forcing you to spend all your money? Well, the key to zero based budgeting is how you’re using your money.

A person looking at a contract intently.

For starters, we should be clear that using this method doesn’t give you the green light to spend all your extra money however you choose to. On the flip side, it makes sure that you give a specific job or purpose to every dollar, and this job has to contribute in some way to your short- and/or long-term financial goals.

When you follow the guidelines laid out by a zero based budget template, you’re essentially refocusing the ways in which you spend the money you have coming in. Its goal is to shift your habits from unnecessary spending to things that will ultimately be more productive. Some of the ways in which you could put your money to good use include things like paying off debt, contributing to various savings accounts, or investing your money smartly.

Click here to learn more about some useful tips to help you pay off debt!

Zero Based Budgeting Benefits

We’ve already gone over some of the ways in which a zero based budget template may be able to help you, but before you make any commitments, it’ll be helpful to narrow in on some of the specific benefits you might see. Some of these things can include:

  • Being able to contribute more to your retirement fund or savings accounts
  • Gaining a larger sense of control over your spending
  • Eliminating unnecessary expenses
  • Helping you to pay off debt from things like lines of credit or installment loans

Method #2: Using Budget Percentages

In simple terms, a percentage budget organizes your spending into different categories and then assigns a specific percentage of your income to go towards each area of spending. While it might seem like there wouldn’t be much difference between doing this versus assigning a specific dollar amount to each category, there can be certain benefits to this particular framework.

By using a budget percentage breakdown, it may help you to visualize the entire puzzle of your financial profile. When you have a clear view of the whole picture, it may be easier for you to see flaws in your spending habits, make adjustments where necessary, and hit some of your financial targets.

The 50-30-20 Rule

When you’re using budget percentages to organize your spending, one particular orientation may work better for some people than others.

A common breakdown of recommended budget percentages is the 50-30-20 rule. This is a basic framework that can be a great starting point for anyone who is fairly new to budgeting and doesn’t know where to start.

Using this breakdown, 50% of your income (after tax) will go towards your essential expenses, 30% will go towards discretionary expenses, while the last 20% will contribute to savings and/or paying off debt.

The first category (50%) can include things like:

  • Rent or mortgage payments
  • Utility bills
  • Grocery expenses
  • Car repairs and/or maintenance
  • Emergency expenses
  • Essential clothing
  • Any other essential bills

Click here to learn more about what you can do when you can’t pay all your bills this month!

The second category (30%) makes up all your wants that make life a little sweeter but aren’t essential to your survival. This can include things like:

  • A new cell phone
  • Takeout food
  • Vacations
  • Video games
  • New electronics
Person looking at budgeting tips on their tablet.

The final category (20%) might be the smallest, but definitely shouldn’t be thought of as less important. Your debt repayment and savings are things that are essential to you achieving your short- and long-term financial goals, as well as your ability to handle emergency expenses, and even your ability to dictate when you retire. They can include:

  • An emergency fund
  • Savings for retirement
  • Real estate investments
  • Stocks
  • Cash savings

In the end, following the 50-30-20 rule means finding the ideal budgeting percentages for your situation, so take the time to figure out what works for you.

Method #3: Using a Budget Calendar

Using a budget calendar is something that is meant to help you keep track of dates that are important to your financial situation. You would mark down things like due dates for rent payment, when you get your paycheck, or when any of your utility bills are due.  

It can also be a useful tool in helping you to attain specific financial goals that you’re trying to reach. For example, maybe you’ve set yourself a specific savings goal that you want to hit over the course of the next six months. Your budget calendar can help you achieve this goal by guiding you to put aside money on specific days to help you reach your goal in time.

It can be useful to you by:

  • Helping you to avoid missing important bill payments
  • Helping you to learn more about your cash flow

Take a look at this article to learn more about how to put together a monthly budget calendar.

Method #4: Family Budgeting

While you might already be in the habit of tracking how much money you spend and what you’re spending it on, the reality is that if you’re responsible for keeping track of the expenses of an entire family, there’s a lot more involved.

A family budget is more of a general methodology that requires you to follow some key principles, with the main caveat being that you need to keep the entire family in mind. It starts with setting concrete financial goals to ensure that the priorities that you’ve set for yourself match up with your family’s.

Person showing a contract to two people.

A key part of this process is making sure you’re communicating these things with your family. For example, are you or your partner aiming to retire at a specific age? Do you have any family vacations in mind that you’ll need to save up for? If you have kids, what activities are they interested in and how much will these things cost you? After you’ve laid all these things out and set goals to aim for, you can figure out the specifics, make any necessary changes, and start working towards them.

You’ll then need to start tracking the expenses and income of the whole family. From there, you can try to spot problem areas and cut unnecessary or excessive spending. You’ll want to take some or all of the extra room in your budget to go towards debt payments. After going through these exercises, you can use some or all of whatever money is left over to contribute to your savings.

Start Budgeting to Gain Control Over Your Finances

As we stated above, we wouldn’t blame you if the idea of budgeting doesn’t necessarily excite you. In fact, it might even be a little intimidating if you’ve never done it before. But it’s an important practice for anyone who wants to keep track of their finances and aim for specific financial goals. And when you find the right budgeting method, it may be an easier task than you think!

In the end, you’ll need to do some research to figure out what works for your situation. It might take a bit of time and patience, but it’ll be worth the effort in the end! 

Disclaimer: This article provides general information only and does not constitute financial, legal or other professional advice. For full details, see CreditFresh’s Terms of Use.

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