Budgeting For Beginners: Create Your Plan + Find Financial Balance
One of the biggest money conversations that I see on social media is budgeting. From the funny to the fuming madness of it - how budgeting makes people feel is interesting, to say the least. My notion that some people need to learn money management while some people need more money to manage along with a small group who is a hybrid of both is often confirmed. With the other “B” word, the brand that it has had over hasn’t been given a new one like cauliflower, but the impact of knowing how the budget is like the dash between vice and value.
[Let me go ahead and give you a heads up, for some this post might be a bit long. There’s a reason, let’s restructure your budget.]
So when it comes to budgeting, you know that you need to do it - but the action behind the traction lags when you have to start subtracting your paycheck from your account to pay them people or bills. We’ve even seen people give a new name to budgeting, heck like me. I’ve called it the Expense Plan, Ledger, and the list goes on. While the connection was there - for some people just the motion around having to budget isn’t what they banked on doing.
With this article, I wanted to walk through not only the origin story of why you need a budget… also with giving you insight into the different types of budgets you can have even with finding the perfect ratio for your paper (money) to implement it.
The Other B Word
While budgets are the vein to the existence of many people, they’ve been around since 1760 when the Chancellor of the Exchequer in England presented the national budget to Parliament at the beginning of each fiscal year. And ever since then we as a people have been doomed. I’m joking while watching the government keep saying “Representative” about the debt ceiling, yet let’s focus on you.
Over the years we’ve heard different ways on how to budget - why people hate budgets - the perfect budget only to not fully want to use them to build balance in our lives but also bank accounts. Budgets get a bad rep yet many people are noticing how much they are indeed needed.
The reason why I’m leading this conversation around having ‘better balance” dates back to when checks were introduced to us many moons ago. Do you know the ‘register’ that you would fill in with what you wrote a check for, and spent? That vintage tactic is called balancing your checkbook. While we might be seeing the paper check moving out of here soon, the notion of it is something that we’ve come to have a love/hate relationship with. Budgeting allows you to know what’s in your accounts while holding discipline in building your money management system - you know that word: accountability. The nucleus around all of this is that many people can’t budget solidly due to action or alignment. Most might find themselves not having enough money, while others might find themselves overspending. There’s no right or wrong way, just the way you want to redirect your ‘balance’.
Origin To Organization
When it comes to the tussle of how we handle your money with budgeting, it became even more of a focus during the pandemic. The reason for this is due to things ranging from layoffs to how inflation + interest rates lay into your money to even how the value of the dollar is lagging. The thing when it comes to moving from wanting to just “manage your money” to building a solid money management system that grows with your gains, it’s a need. I learned about budgeting when I had to rely on unemployment checks and food stamps. Before that, I was spending without thinking and moving to not having the same money I was used to (I was making $10.71/hr mind you), life leaned me out and forced me to get it together.
When it comes to the organization of budgets, the thing that we need to get down to is actually practicing the Personalization of what Personal Finance gives you. No matter if you’re using envelopes or even managing with one account - you get to source the different ways to do things and find what works best for you. Yes, you’re going to have to try to find what works for you and you’re going to have to look at what’s out there. With social media showing you ways to do things even maybe making you feel like you’re behind - there is some good to do a deep dive to get your money moving in the right direction.
Before we talk through the budget types, I wanted to give you some essentials you need to establish your budget:
Knowing your income + the frequency. If you know you get paid more in certain months or your check isn’t the same every pay period, use an average to give you a baseline. This will keep you knowing what comes in every month.
Your bank /credit card statements. Looking back at your transactions will give you traction to know not only what you spend/buy but also allow you to see the cycle of how long your money stays. Even a bit of behavioral finane here to know how you may be feeling to understand how it impacts your funds.
Your bills. Knowing what bills you have, the average they cost, and when they are due will give you data for deciding on how to structure your budget. You can potentially pain for things weeks/months in advance.
Your goals. For you to know where you’re going, you have to build some goals to give you a guide for you to get there. You know I love saying audit your wallet no matter if it’s budgeting or building your investments, but adding your goals into your audit will help you align your accounts not only now but for greater later.
Your accounts. While I told you to pull your statements or receipts, look at your account to know if (you do) need multiple accounts and also what you could be doing better. As a product manager for financial products - you can also see if the account you have makes you money (or handles it solidly) or costs you money due to fees or foolishness.
When you have those things in tow, you can now figure out which budget is going to your “Go” (to). I would also add for you to try out multiple ones (not at the same time) to configure what elements work best. I would also suggest that you look at your budget before you have to “ run the play” of paying your bills or spending that check. This is because looking at your budget, bills and more before the new month will allow you to know the field before walking into it. If you want to follow my monthly newsletter talking about budgeting, join the 1st and 25th newsletter! You get not only tips but also some resources that I found to help you on the 25th to prepare for the 1st!
Types Of Budgets -
Zero-Based Budget: When it comes to Zero-Based Budget is to legit give each dollar in your paycheck a dollar bringing down what’s left to equal zero. This doesn’t mean it leaves you with nothing, but legit provides each dollar with a job. Using this method allows you to look through your month's current and even ahead to see where your money should be going and then act upon it. The thing with this is say for instance you don’t spend all of what was allocated for electricity (meaning it’s a bit less this month) you take that leftover to add to what you designated for your savings. The focus is to leave your money meeting about the budget to zero left over. If you need discipline, this is the budget for you - I usually suggest this for those who are head down on getting their money into formation.
[One of my favorite templates here]
Envelope Method Budget: You’ve seen these up and down the timeline of social media; there are even some that show you how to save specific sums of money within that same envelope that you can mail your thoughts in. No matter how plain or pretty you make it, the envelope method could work for you. How it works: You determine how much you typically spend (or how much you'd set to spend) in different groups, such as rent, groceries, and “outside”/fun. Once you've determined an appropriate amount for your spending in each category, you'll then label an envelope for each one and put the corresponding amount of cash in the envelope. The gag? After you set up the envelopes, you won't be able to spend any more money in that category unless you pull cash from another envelope. It builds discipline.
Pay Yourself Budget: With this budgeting style, there’s actually two methods to it: you focus on paying yourself first vs paying those people (also called reverse budgeting) and the other is that you pay and save - you use what’s left to yourself (blowing it). On one side of it, you save your focused funds before paying the light bill. The reason for this budgeting style is due to the fact that people don’t prioritize saving their money due to the fact that often they either forget or can’t figure out a way to do it (not enough). The other hand, when you get your deposit for your paycheck, you'll designate money for those goals and bills. After that, you can use the remaining money for whatever, whichever you want.
Budget By Paycheck: This method is for those who get paid by the week or biweekly vs those who get paid by the month. When I was a contractor getting paid by the week - I was able to use this method to stay ahead of bills. So you would gather your bills, expenses, etc and then look at the due date of them and which paycheck would be designated to handle that bill or cost. I would still look at saving on a bigger picture for the month. Another tip is to see if that bill or expense has flexible dates to help align with how your paycheck falls.
Ratios vs Reality
If you were looking for a particular budget in the previous section, I’m going to talk about them here. You often hear about the 50/30/20, 70/20/10, 60/20/20, and the other “ratios”. No matter how you stack it, the biggest number of them is usually designated towards your living expenses. I’m all for you using what works for you especially when it comes to your currency. The thing I would counter is that you find the ratio that matches your reality. If you know that your life costs would not allow you to pocket or categorize your expenses, don’t force it. Create your own ratios of reality when it comes to how your revenue splits up. Again, you are personalizing your finances or economy. Take what people show you and then explore to see how you can make it align within your accountability and of course [bank] accounts.
After you walk through understanding your current state of finances, let’s unlock which ratio works for you and your money:
1. Track your income and expenses:
We’ve already done this at the top of the posts, but we’re going to add it back into the formula here.
Gather your income statements, bank statements, and receipts for the past few months.
Categorize your spending into different groups like housing, groceries, transportation, entertainment, etc.
Use a pen/pad or “note” to write it all out. Don’t go to the apps/spreadsheets to start plugging. Track your income and expenses for at least a month or if you’re ‘there’ for the last 3 months. This adds accountability to yourself and your accounts.
2. Learn the common ratios before your trial run:
Research popular budgeting methods like the 50/30/20 rule (50% needs, 30% wants, 20% savings/debt repayment) or the 60/30/10 rule (a similar concept with different allocation percentages).
Explore other approaches like zero-based budgeting, where you allocate every dollar of income to specific categories.
3. Analyze your spending habits:
Once you have a month (or more) of tracked data, review your spending patterns. This gives you the data to know your decisions and your money algorithm.
Try going low/no spend in areas that you find yourself overspending, this could help you find a better balance of spending on that specific thing.
Identify areas where you can potentially cut back or adjust your spending.
Consider your financial goals: Are you saving for a specific purpose? Do you need to pay off debt?
4. Experiment and adjust:
Start with a budget ratio based on your research and personal circumstances (income, expenses, goals).
Try the chosen ratio for a month and assess your comfort level.
If you find yourself struggling to stick to the plan or feel overly restricted, adjust the ratios slightly. Sometimes you have to set your ratio based on your reality. Remember, the "right" budget ratio is the one that works for you and allows you to achieve your financial goals comfortably.
No Closed Season On Money
Before we put a pin in this topic, here are some additional things to keep in mind:
Don’t just check in with your budget, bills, and spending on the 1st or end of the month, I always push clients to check in briefly with where you are around the midpoint of the month. This will give you insight on how to implement and close the month strong. It’s cute to set a budget, but you have to think of said document as accountability not restrictive.
No 2 months are alike, but —. What I mean by this is that you should use the month before to help you see where you messed up and where you were flowing correctly. Think of it like a sports team going into the film room and checking out how they played the game. They call out the fumbles and the field goals. To keep in line with this example, you also look at the tape of the team you’re about to play. You know what’s coming up next month… like what’s coming up - concerts, shopping, etc. Reviewing your money and your month is legit critical to you winning the money game. Every 4-6 months do an audit of your budgeting strategy to see if it’s working for you - adjust your accountability and your accounts. Learn from one month to leverage another.
Find what works for you, not what others tell you to do. I know that it can become the “most” when you see others telling you what you should do without knowing how your money does. You can read that you should use the budgeting plan method, and get it set up and running just to see that it’s not clicking and you’re running on fumes by month's end. That’s why I suggest you try multiple methods to manage your money.
Set up your accounts and hold yourself + the accounts accountable. Don't accept your paycheck and run your life/bills out of the same account. You’re setting yourself up to wreck yourself. While I have multiple accounts, I started out with just 2 - one for the paycheck and spending and the other for my bills. Most payments you make for your bills can be accepted with your bank account/ routing number (meaning no card for this account). When you pull your budget and itemize your bills - transfer that amount over as you get paid and planned out.
App or Not. You also need to determine if you want to use an app to develop and track your budget/spending/bills. There are a ton of apps out there that are free or low-cost that could do the trick. Also, you could use fancy templates or spreadsheets. Again, personalize your paper (money).
I started just writing things down and giving each dollar from my check a job, didn’t know which method it was until I started taking money seriously. As I called out earlier in the post, when I was unemployed and found myself having to survive on even less than I had before. Isn’t it interesting how seasons of life can give you the “seasoning” to be able to take things differently?
Appsolutely, there’s an app for that -
When I first started blogging, I would review different types of apps that people could use for budgeting, paying down debt, or just making their money management system better. With the latest swift in regards to one of the most popular apps, Mint, for managing your budget/spending going away, I wanted to add more context about other apps that would good substitutes for your money management. What people like about Mint is how it is connected to your bank and allows you to see your transactions in real-time and align your budget better - if you use it properly. Yet, with it shutting down - some people are clocking on how to track their currency. I talked about some of my favorite financial apps here, but there are some specifically for budgeting.
Much:
This app is special. Because it was created by a fellow Personal Finance Expert and infuses the Community aspect when it comes to understanding your money and budget. Much is a budgeting app that helps you understand your money and make better financial decisions. With Much, you can track your spending, set budgets, reach your goals, and pay off debt faster. Try Much for free today and see how it can help you take control of your money.
You Need A Budget or YNAB:
This platform has grown into a bit of a cult following, in a good way. YNAB is a budgeting app that helps you give every dollar a job, so you can save money and reach your financial goals faster. With YNAB, you can track your spending, set budgets, and pay off debt, all in one place. You can try YNAB for free for 34 days and see how it can help you take control of your money.
Monarch Money
I’ve started using this platform for my Financial Planning clients and it’s been amazing. This modern budgeting app helps you get a clear picture of your finances and achieve your financial goals. With Monarch Money, you can track your spending, set budgets, and collaborate with others on your finances. Try Monarch Money for 30 days free today and see how it can help you take control of your money.
I will share more on the newsletter as it continues to grow. Make sure you tap in, so you can learn and leverage your income to find impact with implementing your money better.
Give yourself grace while you figure it out. Maybe you will nail your budget on the first try or will take some time either finding out what method works for you or puzzling pieces from the methods and building your system that way. Personal Finance is that it is Personal + you have to personalize it for it to make sense. While some people need to work on managing their money via budgeting, some people need money to manage. Along with some folks who are a hybrid of both - to those that are a hybrid of both - build your money system (budgeting) now with the money you have now, and yield for the money you’re working towards. Even if you find yourself needing more money, the systems will give you the synergy to know how much more you need to make. The system gives you the specifics, so you can build a strategy.
One of the things I want to call out is that it’s hard to find a free or low-cost option that would give you what you need. I would optimize those free trials (if offered) and then see which works not only for your money management function but your budget. Sometimes it costs money to track your money. But like I called out above, pen to paper or Excel to understand your expenses, bills and how money cycles through your household. If you need additional help, you could also book a session with me.
Test out any of the budgeting methods I listed above until you figure out how the figures add up to keep you seeing green vs always being in the red. Be patient and flexible. Finding the perfect budget ratio takes time and adjustments. Don't get discouraged if it doesn't click immediately. Continuously monitor your progress, review your goals, and adapt your budget accordingly.