In 2019, 67% of Americans kept a budget for their household. At least a quarter of the population thinks it’s a good idea for everyone to follow a budget.
Thanks to technology, it’s never been easier to keep track of your finances. After all, you can check your bank account, pay bills, and track your spending with the tap of a button.
Even though technology makes it easier to do, you still need to know how to budget. Once you understand budgeting rules, it’s easier to stick to a budget and hit your goals.
Read on to learn how to make a budget, even if you’re a beginner.
What’s a Good Budget Guideline to Follow?
One of the most recommended budgeting strategies is the 50/30/20 budget. Once you add up your monthly income, the plan has you divide it into three categories: needs, wants, and savings. It’s a method that anyone can use because it relies on percentages.
According to this strategy, 50% of your income goes to your needs. That includes expenses like rent, utilities, health insurance premiums, car loans, and groceries.
About 30% of your income goes towards the things you want. It’s money for dining out at restaurants, tickets to concerts and sports games, streaming services, and other splurges. Your wants are things you could live without, but they add some fun to your lifestyle.
The suggests putting 20% of your budget towards savings. That includes putting money in a savings account for emergencies, adding to your retirement funds, and making extra payments to pay down your debt.
Other strategies include the envelope strategy where you put cash in envelopes to cover each budget category. The zero-sum budget has you make a plan for every dollar you make. These budgets are more extreme, so you might find they’re harder to stick to.
1. Set Financial Goals and Design a Budget to Match
Do you want to pay down your student loans, buy a car, put down a down payment on a house? You’ve probably turned to budgeting to make those plans a reality.
Your financial goals will affect the kind of budget plan you choose. If you just want to see where your money is going, a 50/30/20 budget could work. If you’re trying to save money for something specific, you might choose a more extreme budget in the short-term.
For example, if you’re trying to pay off student loans in the next year, you might choose a zero-sum budget until you pay them off. If you’re saving for a down payment, you might choose the 50/30/20 plan but set a higher percentage for savings.
As you’re making your budget, set milestones along the way so you can track your progress and stay motivated. Say you want to add $1,000 to your emergency fund in the next six months. When you make it to $500 after three months, reward yourself for the accomplishment.
2. Look at Your Past Spending Habits
To make a budget, you need to know what your spending habits look like. Yet, only one out of every three people actually does this in the U.S. Track your income and expenses for a few months to see how you usually spend your money.
It’s also a good idea to look at your bank statements and credit card bills for the past year. That will give you a more complete picture. If you have recurring bills that are different each month, like water or electricity, calculate the average.
Once you’ve tracked your expenses, you’ll notice where you can cut back. Are you eating out too much? Has your cable or phone bill increased over the last year?
When you know what your past finances look like, you can make a better plan for the future.
3. Use a Budget Tool That Works for You
Whether you use a good old pen and paper, an Excel spreadsheet, or a cashflow app, it’s important to choose a tool that works for you. After all, for a budget to work you have to stick with it.
If you’re always on the go and you pay all your bills online, an app might work best. If you prefer to write things out by hand, you can’t go wrong with lined paper and a pen. If you’ve got spreadsheet skills and time to create formulas, a digital spreadsheet could work.
It doesn’t matter which type of tool you use to create and track your budget. It just needs to work with your lifestyle. The easier it is to use and update, the more likely you’ll be to use it.
4. Update Your Budget As Your Needs Change
A budget isn’t a plan that’s set in stone. It’s an ever-changing tool that helps you stay on top of your finances.
That also means that you can change it up as your priorities change. For example, the budget that worked in your 20s won’t always work in your 30s.
If you’re a recent college grad, you’re probably focused on making enough money to pay rent and your loans. You might also want to spend your leftover budget on concert tickets and vacations rather than retirement savings.
If you’re in your thirties, your priorities might include paying for your wedding, buying a house, and saving for retirement. You might be willing to cut back on extra expenses like dining out or concerts to make up the difference.
5. Track Your Cashflow to Plan for the Future
Once you’ve looked at your past spending habits and set a current budget, it’s a good idea to look to the future. Look ahead to plan for future expenses like tax bills, insurance premiums, and license renewals.
If you know what your finances might look like in the next few months or a year, you won’t need to look backwards to spot your financial mistakes. You can see potential problems coming and keep them from happening in the first place.
That said, there will always be surprise expenses like car repairs or medical bills. But, the more you understand your future cashflow, the better prepared you’ll be for any surprises.
Get Your Finances in Order and Learn How to Budget Today
Once you know how to budget, you’ll see exactly how you’re spending money. Financial wellness isn’t about depriving yourself, it’s about making smart decisions that make the most of your income. If you’re looking for a budget tool that helps you manage your cashflow, get side gigs, and find a better-paying job, Thinkflow can help. Sign up today and make better financial decisions tomorrow.