Most of us have been there. You move out on your own for the first time and suddenly have to figure out how to manage your money. You have bills to pay, a job to answer to, and are also probably trying to manage the rest of your time with other obligations and hobbies. If you’re like most people, no one ever sat you down and explained how to be successful with the money you’re making. Maybe you’ve already messed up and need to dig yourself out of the hole, or maybe you’re doing just fine but tend to turn a blind eye to the ins and outs of your bank account because it’s easier to go with the flow. Here’s how to gain control over what you’re making and how to make the most of it.
I felt overwhelmed when I first looked into the concept of budgeting. The first thing you need to do is find a method that works for you. There are so many ways you can track your money — apps, spreadsheets, writing it down in a journal, your bank probably even has a website that can help you budget.
I jumped into all of these head first and failed each time. The biggest tip I can give you is to start without these tools and then use one to manage everything once you have your head on straight. I failed using these tools in the past because I assumed budgeting could be automated easily. Most of the time it can’t, and it doesn’t give you a bigger picture of what’s really happening with your money. The best thing you can do is figure out the basics on your own. Then you can go back and use a tool that works for you with better insight into what features you’re really after.
Step 1: Calculate the Constants
Here’s what you need to do to start. Grab a piece of paper and pen, or open a spreadsheet for this:
- Log all of the money you are making with each paycheck.
- Log all of your bills that stay consistent each month. I mean all of them — even the small things like your $10 Netflix bill or any other subscriptions you’re in. The bills most of us probably have are car payments, car insurance, health insurance, subscriptions, utilities, rent, phone, and internet.
- Total those bills and subtract them from your income. At this point you have two hard numbers, one is your income and the other is the money you absolutely have to spend each month to keep afloat. Subtract the latter from your income and you’ll have the number you need to budget with.
Step 2: (Optional) What To Do if the Math Doesn’t Add Up
Maybe you’ve just realized you aren’t making enough money to cover your bills and still have enough left over for other things. Not good! But don’t panic, this means you need to make some life changes.
If this is the situation you’re in, you need to either decrease your bills or increase your income. It might not be easy. Maybe you need to consider moving into a smaller place or getting a roommate. Maybe you need to sell your car or trade in for one with a lower monthly payment. Maybe you need a cheaper phone or internet plan. Maybe you need to cancel some subscriptions. Maybe you need to pick up another job.
Look at your list and start making some changes or else you’ll be in a hole if you aren’t already.
Step 3: Pay Yourself — Calculate Your Savings
Before you start the next few steps, you have to calculate how much money you need to be saving each month. It’s recommended that you save no less than 20% of your income. However, it’s okay if you can’t get there yet. Something is better than nothing, but 20% should be your goal.
Step 4: Set Your Budget
- Make a list of other expenses. What other expenses do you regularly have? This is usually called your discretionary spending. For me it was groceries, eating out, personal items (shampoo, lotion, tampons, makeup, etc.), home items (toilet paper, cleaning products, etc.), gas for my car, and dog food.
- Figure out how much you’ve been spending on these other expenses. Do some investigation through your bank withdrawals to get a good idea and write them down. This will help you get a realistic idea of what you spend money on. You probably only have to calculate what you spent last month, but if you have the time you can go back further.
- You now have to decide — what budget should each category have? At this point you have seen your history of spending. You also have a hard number in front of you, which is your “pot” that you can pull from. Set a realistic number for yourself in each category — you might have a higher budget for eating out if it’s something you enjoy doing often, or maybe your budget is higher for traveling. Everyone is different and your budget will reflect what matters to you personally. Allocate total money into these categories until you’re at $0 left. If you have more leftover, that’s great! Consider putting it into savings each month or a special “treat yourself” account.
How to Stick with it
So you’ve made your plan. This is where those budget tools now come in handy, because you’re going to have to track your spending to make sure you’re staying within the budget you’ve just logged.
You have to commit to this budget, it doesn’t run on its own. Put aside time one day per week that you sit down at your desk and budget. I personally find a nice morning that I have free time each week and put “Budget Hour” into my calendar so that I commit. Then pull up your bank account, app, spreadsheet ,or website and go through everything to see where you are at and make sure everything is accurate so that you can go into next week knowing your spending. Hopefully at the end of each month your budget hour should give you a great sense of accomplishment!
Budgeting Tools and Resources
Here are some budgeting tools you can use to track everything during your budget hour. Play around with these and don’t give up if one of them isn’t working for you! Try something else until you find a method that sticks.
- Google Budget Spreadsheet: This is Google’s default budget spreadsheet. This is what I use. Nothing is automated and my bank account isn’t linked. So during my budget hour I pull up my bank account and my spreadsheet to start inputting. It takes more time since it’s manual, but I like that I can totally customize my spreadsheet to work for my lifestyle. Since nothing is automated, I don’t have to worry about weird transactions being imported incorrectly into my categories. I can also write little notes to myself with tips and disclaimers on my money.
- Mint: This app/website has been popular for years now. It’s free to use and imports data from sources like bank accounts and credit cards. It still takes monitoring during your budget hour to make sure everything is imported correctly and will take some time to customize your categories and input your data. It is run by Intuit, which does make the program feel more secure since you’re inputing sensitive information. Mint also provides tools to plan debt payoff, so if you’re dealing with that it might be a good option for you.
- Quicken: This thing has been around for ages. If you’re dealing with much more than a simple one-person budget (think large family or maybe you’re running a business) this will probably work better for you. However, it does come at a price — you’re looking at about $99 per year. If you’re just doing a simple budget for yourself, I personally think you’re better off with a free tool that can provide you similar functionality.
- Your Bank’s Website: Check out your bank’s website and I bet you’ll find a budget tool. Play around with it and see if it’ll work for you. If you just use one bank account (including for your debit/credit cards) then this might be a tool that works for you since it’s automated. Expect to still spend time each week checking to make sure all transactions are categorized appropriately, since it will be automated into your budget whenever you pull money out.