Budgeting Basics: A Simple Plan for Financial Success
Budgeting is the foundation of financial stability. Whether you’re saving for a home, trying to pay down debt, or simply want better control over your money, following a structured budgeting plan can make all the difference. Here’s a step-by-step guide to creating and maintaining a budget that works for you. Here’s Budgeting Basics 101:
Step 1: Track Your Expenses
The first step in creating a budget is understanding where your money is going. For one month, save receipts for all expenses—every coffee, grocery trip, and subscription service. To simplify this process, consider using an app like Monarch Money. Not only does it help aggregate all your financial transactions in one place, but it also allows your financial coach to access and analyze your data, giving you valuable insights without the hassle of manual tracking.
Step 2: Categorize and Identify Irregular Expenses
Once you have a month’s worth of expenses recorded, categorize them. Typical categories include:
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- Housing (rent/mortgage, utilities)
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- Food (groceries, dining out)
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- Transportation (gas, car payments, insurance)
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- Debt payments (credit cards, loans)
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- Savings and investments
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- Entertainment and discretionary spending
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- Subscriptions and memberships
Additionally, be sure to account for irregular expenses such as annual insurance premiums, car maintenance, or holiday shopping. These can sneak up and throw off an otherwise solid budget.
Step 3: Compare Against Recommended Income Percentages
Financial expert Ramit Sethi suggests breaking down your income into categories to ensure a balanced approach:
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- 50-60% Needs (housing, food, transportation, insurance, minimum debt payments)
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- 10-20% Savings and Investments
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- 20-30% Wants (entertainment, travel, non-essential spending)
Compare your own spending to these benchmarks. If certain categories seem too high, that’s an indication that adjustments may be needed.
Step 4: Reduce Expenses or Increase Income
If your expenses are out of alignment, you have two choices: cut costs or boost income.
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- Reducing Expenses: Consider negotiating bills, eliminating unused subscriptions, or meal planning to cut down grocery costs.
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- Increasing Income: If cutting expenses isn’t enough, consider side gigs, asking for a raise, or finding additional income streams.
A small change in either direction can free up funds for savings, debt repayment, or long-term financial goals.
Step 5: Follow Up and Maintain Oversight
A budget isn’t a one-time exercise—it requires regular maintenance. Set aside time each month to review your spending and adjust your plan as needed. Using tools like Monarch Money makes this easier by providing real-time updates and insights. Additionally, working with a financial coach can keep you accountable and provide tailored recommendations to refine your budget over time.
Final Thoughts
Budgeting doesn’t have to be complicated. By tracking expenses, analyzing spending habits, comparing to expert recommendations, adjusting as necessary, and following up regularly, you can take control of your financial future. Small, consistent actions lead to big results over time. Start today and set yourself on the path to financial success!