Budgeting for Beginners

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Woman budgeting

Deciding you finally want to get a handle on your finances and figure out how to budget can be overwhelming. Luckily, there are a lot of different budgeting methods, so you’re bound to find one that works for you. Here are some great ideas for budgeting for beginners.

The Envelope System

This hands-on method is great for getting a visual idea of where your money is going each month. To follow this budgeting method, you take several envelopes and label them for different areas of expenses, such as housing, food, or entertainment. Then you fill each envelope with how much money you want to spend in that category for the month.

The idea is that having physical cash will make you more aware of how much you’re spending. If you’ve spent all your money on getting take out for the month, you’ll have to dip into your entertainment envelope if you really want that burger. Ideally, you shouldn’t be taking out anything from the envelope that doesn’t fall under that category, though.

If you have more money for a certain area at the end of the month, you can roll it over to the next month. Or if you have any online payments, you can still write it out on an envelope to have that physical placeholder.

This budgeting method probably won’t work for you if you don’t like paying in cash. But it is a good way to prevent overspending and keep your financial goals on track.

50/30/20 or 60/20/20 Method

This system can vary depending on your needs, but the idea is the same. Either 50 or 60 percent of your income should be spent on needs, such as home payments, groceries, and utilities. If you find that this number is over 60 percent, then you might need to cut back on the wants category for a while to accommodate.

You can always try to cut down on “need” expenses by refinancing your mortgage, or consolidating credit card debt.

Then either 30 or 20 percent should be spent on wants, like meals out or vacations. Some things that you pick up at the grocery store might still be considered a “want” like that fancy chocolate you get as a treat. So you’ll have to make the call and make sure to keep them separate.

That last 20 percent goes towards building up savings or paying off debts. This method can be hard for low-income people. After paying of your needs, you might not have a lot of wiggle room for the other two categories. You might also need to up your savings percentage if you need a big down payment, for example.

Zero-based Budget

This is one of the budgeting methods that takes the most time to set up. But it can be great for people who really want to get a firm grip on their spending.

Basically, you start with your monthly income and keep subtracting the dollar amount of each spending category until you get to zero. Every single dollar should be accounted for. In the end, you’ll end up with a good snapshot of exactly where your money is going.

These methods will only work if you are consistent about tracking your spending. Budgeting for beginners can be hard at first, but don’t give up. The rewards of meeting your financial goals will be worth it.

Melissa Aguilar

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