Budgeting for a non-budgeter

It’s a couple of days before your next paycheck, and your checking and savings accounts are down to fumes. A single unexpected bill such as a doctor’s visit or a car repair could spell disaster. And yet, by all objective measures, you make enough money to meet your needs. 

If this stressful situation sounds familiar, you may want to consider creating a budget.  

Basic budgeting is surprisingly easy to do, but it’s not something you’re likely to learn in school. In 2022, fewer than a quarter of high school students (22.7%)1 reported that they had taken a basic personal finance course before they graduated. As a result, many of us are unprepared to start budgeting. Even with the skills and know-how, some just find it overwhelming, or don’t want to do it at all. At the same time, online shopping technologies like saving card information, and automatic renewals have made it incredibly easy for even the savviest of budgeters to spend beyond their budgets. 

And yet, done correctly, personal budgeting can take a lot of the worry out of your finances. You’ll know what you make and what you can afford to spend, and you’ll be less likely to run out of funds before all your expenses are covered, perhaps with some savings to add to the mix.   

How do you start budgeting for beginners? This article covers the basics of household budget planning for those new to budgeting or looking to get a more complete and accurate understanding of their finances. You just might be surprised how simple and straightforward it all is.  

Creating a budget for beginners 

A budget balances the money that’s coming into your accounts through income sources like paychecks and any interest or earning from other sources with the money that goes out for expenses and savings. Budgets allow you to understand where and how your money moves and then use that information to make informed decisions about how you want to allocate those funds moving forward.  

Step 1. Consider how much you are spending 

First, you will want to make a list of all your regular expenses. This includes everything from rent or mortgage payments to utility bills or what you pay for childcare on a regular basis. Estimate your monthly payments for each category. You can download your bank or credit card statements, or online account records to find out how much you pay for each. This will give you a total amount per month regarding your expenses. 

Here are some examples of regular expenses that should be accounted for in a budget: 

  • Rent/mortgage 

  • Phone 

  • Internet 

  • Cable/streaming services 

  • Electricity 

  • Natural gas 

  • Insurance premiums 

  • Credit card payments 

  • Groceries 

  • Dining out 

  • Clothing 

  • Tuition 

  • Loan payments 

  • Childcare 

  • Child support and alimony 

Step 2. Estimate your income 

Next, you’ll calculate your income. Be sure to include after-tax income from your job, self-employment or earnings from side gigs, investment income, alimony and/or child support, and government payments like social security. Again, you’re looking for regularly occurring revenue coming into your accounts so that you can plan accordingly.  

Step 3. Compare your expenses and income 

Now you have the two figures you need to create your budget: expense total and income total.  

An easy way to see how you’re spending stacks up against your income is to create a simple spreadsheet with one column for income and one column for expenses 

You should be able to tell from a quick comparison whether you make enough to cover your monthly expenses. If not, you may have to look for some ways to cut back on spending. If you have a surplus, move on to the next step, which is building your savings.  

Step 4. Get started on saving 

It’s not ideal to spend every penny that you earn. By saving a portion of your income on a regular basis, you can build up a fund to cover unexpected expenses or plan for long-term goals. For many people, having a goal to work towards with their savings helps motivate them to stick to their savings targets. 

Take a look at how much money you have been able to save so far. If that figure is less than your goal, don’t worry. Now is when you can plan to set aside an amount you can afford out of every paycheck after your expenses are taken care of. Remember that you should always try to pay off high-interest loans or credit cards before trying to put money away in savings, which is why these expenses are important to include in your original budget. 

Consider setting up a separate checking, savings, or investment account, so that you won’t spend this money inadvertently. You can also choose to set up an auto-deposit so that the funds will come directly out of one account and into another for safekeeping, or even splitting your direct deposits automatically. You’ll be surprised at how quickly even small amounts can add up when you make them a regular part of your personal budget.  

Your savings goals can also include larger, one-time costs. Think about your long-term goals when establishing how much you might want to save versus spend. Expenses such as buying a house or covering tuition can be incorporated into your plan with foresight rather than scrambling to save (or worse, going into debt) after the fact.  

You might also want to consider setting up an emergency fund to cover for future expenses that you can’t predict. Set aside enough money so that you can weather unforeseen setbacks such as your car breaking down or a hefty medical bill. Experts recommend saving at least 3-6 months’ worth of expenses in a separate account to cover you in the event of a major hit to your income, such as job loss or unexpected bills.  

While the thought of having to save thousands of dollars can be daunting, especially if you’re starting from scratch, we all have to start somewhere. Even setting aside as little as $20 a month now can have a snowball effect on your overall savings. 

Tracking your budget progress 

A good budget is like a roadmap that tells you what to do to get where you want to go. But to make it work, you’ll need to monitor your progress carefully, keeping track of what you’re making compared to what you’re spending and saving.  

You can do this in many different ways. Some people like to keep it simple, entering their income and expenses on a spreadsheet and making sure they balance their expenses and income accordingly. Others find that household apps like Mint, YNAB, Goodbudget or EveryDollar are helpful. Many programs are free, at least for the basic version.  

Because it’s so easy to overspend online and with credit cards, some beginning budgeters like to use the cash envelope budgeting system. In this approach, an individual withdraws cash for basic, recurring expenses like rent, groceries, or childcare. Money for each expense goes into a physical envelope to restrict spending in each category to what is physically available. Some online banks also allow for budgeting in different categories, so be sure to do your research. 

Helpful Tips for Budgeting 

Tracking income and expenses may seem difficult at first, but you’ll be surprised how quickly basic budgeting becomes part of your regular routine. Here are some ways to make it easier and more effective.  

  • Explore free online budgeting tools: These can make it easier to keep track of costs, but they’re all slightly different. Test out free versions of these apps to find out which ones work best for you. 

  • Consolidate: Directing all of your expenses to one bank account or credit card can help make it easier to have a total view of you financial situation. 

  • Go digital: Electronic payment can ensure greater safety and security while simplifying budgeting. Look into options like e-bills or online bill pay to keep track of everything in one place.  

  • Start small: If you’re new to budgeting, it can seem overwhelming. Think about small changes you can make today, and work to get better each month. 

  • Stay flexible: Work with a budget on a schedule that makes sense for your income and spending needs. And remember nothing is set in stone: you can adjust for major changes, like a raise or a new monthly bill, when they happen. 

Get started on basic budgeting now 

If you’ve never had a budget to follow, you may worry that it will be too complicated. But actually, basic budgeting is simple and very satisfying. We know that getting started can seem daunting, but by following these basic steps, you can get a handle on your finances in no time. Making even small changes in the way you manage your money can have a huge impact on your future financial security.  

The budgeting process can also give you confidence and a better understanding of your overall financial situation. Once you have a clear picture of your financial standing, you can start to make small changes, one at a time, that will add consistency and ease to your plans on a regular basis.  

1NGPF State of Financial Education Report 2022,” Next Gen Personal Finance, 04/21/2022

This article is provided for general informational purposes only. Neither New York Life Insurance Company, nor its agents, provides tax, legal, or accounting advice. Please consult your own tax, legal, or accounting professional before making any decisions. 

 SMRU #5451778.1 exp. 02/10/25 

Disclosure

Dean Bogle is an agent of and licensed to sell insurance through New York Life Insurance Company and may be licensed with various other independent unaffiliated insurance companies in the states of AL, AZ, CA (CA Insurance License #0C34796), CO, FL, KS, LA, NC, NE, NM, OK, TN, TX, UT, and VA. No insurance business may be conducted outside the states referenced.

Dean Bogle is a Registered Representative of and offers securities products & services through NYLIFE Securities LLC, Member FINRA/SIPC, a licensed insurance agency, and a wholly-owned subsidiary of New York Life Insurance Company, 14729 Yorkshire Ln, Oklahoma City, OK, 73142, 405-813-7448. In this regard, this communication is strictly intended for individuals residing in the states of AL, AZ, CA, LA, NC, NM, OK, and TX. No offers may be made or accepted from any resident outside the specific states referenced.

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