Budgeting Basics: The Very, Very Basics and Where to Go from Here
To create a budget you need to know these three things:
- How much you make each month
- How much you spend each month
- … on Needs (Rent/Mortgage, Utilities, Debts, etc.)
- … on Wants (Eating Out, Entertainment, Books, Clothes, etc.)
- How much you can save/invest/give to charity each month
Easy enough, right? Well, yes and no.
There can be a lot of questions associated with each of those three questions, in order to pin down what you actually make in a month, and how much you spend each month, and so forth. And, of course, without figuring out the first two questions, knowing how much you would like to save each month is purely academic, because you won’t be able to know how much you can spend.
That all sounds pretty discouraging, doesn’t it? But here’s the good news: The next steps aren’t hard, they’re just a little complicated. But I’m here to walk you through it, because my goal is to make sure you have a budget that works for you and helps you do more with what you have.
So, we’ll tackle each of these questions one at a time, and take each part step-by-step. At the end of it, you will have a working budget.
How much do you make each month?
Do you… (click the link that best describes your income situation)
- Earn a yearly salary?
- Earn an hourly wage?
- Earn most of your living from tips?
- (Also: see my post “How to Manage Money if You Make Cash Tips” for more specific information)
How much do you spend each month?
This is probably the most time-intensive part of figuring out your budget, but like the rest of it, it’s not hard, it’s just a little complicated. I mean, unless you’re utterly fanatical about keeping a record of your spending (I only know a few people who are, and most of them write personal finance blogs), then there’s a bit of work ahead of you in making a realistic budget.
- Tracking your spending: just 30 days to get to know your spending habits
- How much do you spend on needs?
- How much do you spend on wants?
How much can you save/invest/give each month?
Even if you’re just starting out in the “real world” (just out of college, for example), it’s important to think about not only saving, but also investing and giving.
- Save 10% — The most important financial habit you can develop
- Investing in your future — The beauty of compound interest
- Giving — What you give comes back to you three-fold
Where to go from here
If you answered the questions, did the math, and read through the rest of the pages, you should now have at your disposal a useful, accurate budget to help guide future spending and saving.
Going forward, it will be important to continue tracking your spending and making sure that it lines up with your budget. A budget is not a static thing, to be created once and then set in stone for all of ever. It is a fluid, living thing that changes and grows with you.
Best of luck in your budgeting adventures. 😀 If you want to read more about how a budget can help you, check out my story “Buddy the Budget and the Battle with Due Dates“.