Budgeting: Where to Start!

Budgets can feel intimidating for beginners, at least, it was for me. But once you begin to understand it, things get easier.

Components of a Budget:

Fundamentally, every budget will include some aspect of income and expenses. After all, one goal of budgeting is understanding the relationship between the money in and out.

Budgets will help you figure out if you are spending more than you can afford to.

Benefits of Budgeting:

1. You learn to be responsible

2. You learn to set SMART financial goals

3. You have a basic understanding of how money works

4. You make better financial and investing decisions

5. You improve your mental health (less stress)

6. Make money (financial success is about how you manage your income).

Where to Start:

Following the steps below is a great place to start.

1. Record Income

2. Record Expenses

3. Categorize

4. Create a plan.

Income:

Income is every stream of revenue you have. That includes salary, side hustles, gifts, and whatever puts money into your hands.

Savings can generate income as well, but for now, focus on primary income, like those mentioned above.

Expenses:

Expense is how you spend your income. This includes rent, food, travel, healthcare, insurance, cars, etc. Whatever takes money out of your account (except for investments and savings).

Categorizing:

Categories help you define and understand your finances. They give structure to the chaos. When you categorize, even while away from the books, you get a vivid idea of your money.

You become aware of your top income and expenses and the various movements within your wallet.

Examples of categories are- food, rent, utilities, student debt, etc.

Create a Plan:

One of the most effective uses of a budget is to delegate your money. Whether it's making your money work for you or managing how much is spent on a specific category, creating a plan will determine the future value of your money (in a sense).

Things to consider are:

1. Your financial goals - When do I want to buy my house?

2. Your current abilities- can you afford to buy a house now?

3. Variables- If we've learned anything from 2020, it's how fast the economy can turn on us.

4. Know when, where, and how to be flexible.

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