I’m Sam. I’m on a mission to help women take control of their finances. How? With some simple tips around budgeting, saving and investing So let’s talk about how to create a budget for beginners.
Do you want to get control of your finances, but don’t know where to start?
Are you tired of losing track of where your money goes, but don’t know how to get a handle on it?
Would you like to super-charge your savings and investment? The budget is your ticket to success!
Contents
- My Story
- Step 1: Figure Out Your Total Income
- Step 2: Create Budget Categories
- Step 3: Track Your Spending
- Step 4: Analyse Your Budget
- Step 5: Set Your Goals
- Wrapping It Up
My Story: From a Leaky Bucket to Raining Cash
I started a budget because my goal was to get control of my spending.
About 10 years ago I was tearing my hair out trying to work out where all my money was.
I was earning a good salary, but at the end of the month I seemed to have a flimsy bank balance and nothing to really show for it.
I didn’t feel like I even spent very much, it was just so frustrating.
So then I’d create a pretty budget for myself in excel. It would have detailed line items for everything from gym membership to vacations.
I was determined to stick to the budget and get on top of my finances.
One month later I’d check in to see where I was and lo and behold…I was right back where I’d started again. It sucked.
Eventually, I realised what I was doing wrong and I came up with a super simple 5-step approach that I’m happy to share with you.
Budgeting helped me save over $200,000!
Budgeting has helped me save a whopping $200,000 over the last decade.
I’ve invested this money and it’s help me be a stay-at-home mama. I’ve never looked back!
Budgets can be so powerful.
Use my fool-proof process to create a kickass budget to achieve your goals.
Get control of your spending. Save some serious money. Pay down your debts. Invest and grow your wealth. Or do all of these at once!
How to Create a Budget Step 1 – Figure Out Your Total Income
When creating a budget for beginners, the first step is to know your numbers.
The first number you need to figure out is your total income.
Your total income is your salary and any other sources of income you might have coming in.
Examples of other income are:
- Overtime
- Side hustles
- Rental income
- Investment income
- Child-benefit
- Tax credits
- Tax refunds
- Government-funded nursery fees
Irregular Income
If you have an uneven income, say from being self-employed, then the way to calculate this is to look at your take-home pay from the last 3-6 months, and calculate the average.
If you have a seasonal business then take a sensible estimate of your income that takes this into account.
You want to smooth out these seasonal variations to get a good monthly average of 1/12th of your annual income.
How to Create a Budget Step 2: Create Expense Categories
The second important step in creating a budget is to organise it in a way that makes sense for your household. The way to do this is to create spending or expense categories
These are the broader categories that I like to start with to help organise my thoughts.
- Mortgage/Rent
- Household Bills
- Pension
- Food & Housekeeping
- Shopping
- Take Out
- Eating Out
- Leisure Activities
- Kids
- Home Repairs
- Phone, Tech, TV Subscriptions
- Insurance
- Health & Beauty
- Car
- Public Transport
- Clothing
- Celebrations
- Pet
- Giving
- Bank Account Fees
- Business Expenses
- Other
Step 3 (The Most Important Step): Track Your Spending
Before you create a budget that works, you need to have a realistic snapshot of your spending situation.
Before I started this step, I was never making any progress. It just felt like my money was falling into a big black hole…
The No. 1 Mistake People Make When Budgeting
Whenever I made a budget I was pretty much just guessing the amounts that I spent. And the amounts were always way off..
As a general rule when it comes to estimating spending, you will always underestimate.
I always ended up spending way more than I had estimated, leaving my budget blowing in the wind
Talk about setting yourself up to fail. Once I corrected this it was a game changer that helped me to save $200,000.
Tracking your spending is important. It’s going to take a bit of time unless you have some historical data you can analyse.
How to track your spending
Credit Card and Banking Statements
I was using my credit card for almost all of my variable spending. Although I was paying the balance off at the end of the month as if it were a debit card.
To access the spending data I logged into my credit card account. I then downloaded a CSV report of my credit card transactions for the last 3 months.
Other Ways to Track Your Spending
Banking Apps
Nowadays many banking apps will automatically categorise your transactions for you, so this step is a lot easier.
Cash
If you tend to use cash then you can still do this. But you will need to go through your receipts and manually record how much you’ve spent in each category for the last 3 months.
If you use cash but haven’t saved any receipts up until now, you might have to delay your budget for three months.
Starting today, store receipts from every single transaction and consider using the cash envelope system to make sorting through them an easier process.
After you have 3 months’ worth of information on your spending, you will have a good enough amount of data to get an accurate view of your spending.
Categorise Your Spending into the Budget Categories
Once you have the spending data you can categorise them into your budget categories to get the monthly averages in each category.
Rather than just guessing how much you would spend on Apple subscriptions; you know your three-month average. This is much more accurate and powerful.
Step 4 – Analyse your Budget
The next step in creating a budget for beginners is to analyse these numbers.
First, take a look at how much money you brought in, that is your total income. Compare that to how much have spent, that is your total expenses. Did you bring in more than you spent or vice versa?
If you spent more than you made, it’s time to have a serious look at where expenses can be cut.
Think about where to reduce your spending to bring yourself back into budget.
The order of priority should be essentials, then consumer debt reduction, emergency savings, investments, treats and other savings.
If you made more than you spent, it’s time to kick savings and investments up a gear
Conversely, you may find that you are in surplus each month. Great news!
Firstly, make sure that you have a good retirement plan in place. If you don’t, take care of that right away. Social Security is not enough to live on. Secondly, make sure you have an emergency savings plan in place.
After that I want you to get creative with your money. Consider a mix of savings, investments and treats, and see Step 5 for ideas.
Don’t put savings & investments last.
An important mind-shift to help you stick to your budget is to use it to grow your wealth and get off the hamster wheel of living pay-check to pay-check.
Pay yourself first, pay Jeff Bezos second
This will be your ticket to a life of luxury in the long run.
Step 5 – Set Your Budget Goals
Now you’ve created your budget let’s give it a purpose.
This is a fun step in creating your budget. The bit where you get to be creative.
Goals are just dreams with legs!
What do you want to achieve in the next 6 months, 1 year, 5 years and beyond?
Some of it is boring stuff like the $3,000 emergency fund and the rainy day fund to cover 3-6 months worth of expenses.
The rest of it is actually pretty cool. It’s about creating a beautiful future.
Some ideas to Whet your Appetite
- Spend a month in Australia
- Send your kids to private school
- Learn how to fly a helicopter
- Take the family to Disney World
- Retire Early
- Pay off the credit cards
- Become Mortgage-Free
- Work Part-Time
- Be at home with your kids
- Buy a holiday home by the sea
- Invest in the stock market and become a millionaire
- Get a BBL
Seriously, the sky is the limit : )
Wrapping It Up
Your budget is a roadmap to turning your dreams into a reality.
It shows you where you are over or under-spending. It helps you reduce how much is being spent on things you don’t value. You can then redirect that money and fulfil your goals.
Are you spending too much on TV subscriptions that you don’t watch? Cancel them.
Are you under-investing in your retirement account? Increase your direct deposit so that you can retire 10 years earlier.
What you decide to do with the information is up to you.
I hope that with this guide to creating a budget for beginners, you can start to see the benefits within a few months and use it to turbo-charge your financial goals.
You got this! Let me know your thoughts on creating your first budget, I’d love to hear from you!
