Have you ever scrambled to pay an unexpected expense?
Do you find yourself drawing out your credit card to pay for birthday presents, holiday shopping, or home repairs?
We’ve all been there.
Believe me, it’s easy to sink into a cycle of living paycheck to paycheck. The only way to break it is to use a budget.
But I get it.
We see ‘budgeting’ and think ‘boring’. We associate it with restrictions, put it off, and don’t think about it. It’s easy to be intimidated and not know where or how to start budgeting.
Wait until you read these budgeting tips and tricks for beginners and see if you still feel this way!
Once you have a basic understanding of how to create a budget, and implement budgeting tips and tricks, you will see an increase in your savings right away.
So First: What exactly is a budget?
Simply put, a budget is a spending plan for your money. You can outline how you will spend or save your money each month.
Why Budgeting Is Important
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Creating a budget is vital for growing your wealth, paying off debt, and taking control of your finances.
It will amaze you how much you can save once take stock of your spending and track what is happening. By creating a budget, you can allocate your money to the things that are most important to you and prioritise them.
Simply put, it puts you in control of your money instead of it being in control of you.
If you hope to gain control of your spending and work towards your financial goals, you need to create a budget.
There are plenty of budgeting tips and tricks for beginners to help you focus your money goals and change your perspective from short-term, immediate spending to a long-term mindset.
Bonus: I’ve included free budgeting printables to help you get started!
You may also like:
How To Create A Budget
Budgeting for beginners has four phases:
- Setting clear budget goals
- Assessing your income
- Tracking what you have been spending
- Choosing a budgeting method and planning how you will use your money
Step 1: Set Clear Budget Goals
Always have a purpose and goal for your budget.
Do you want to save money because you want to secure a home deposit? Do you need to get out of debt? Or are you saving towards a big vacation?
Whatever your reasons are, you will significantly increase the likelihood of sticking with your budget if you have a clear ‘why’.
Focus on the numbers – how much money do you aim to save for each goal?
It takes time and repetition to create a habit. As a beginner, don’t ‘set and forget’ your budget goals. Visualise them. Even create a vision board if you need to.
Once you have reached your initial goals, go back to your budget and create fresh goals.
For example, if you were saving for a home deposit this year, once you have reached this goal, go back to the budget and update your goals – you may now decide that you want to refurbish parts of your new home, which can become your new goal.
Step 2: How To Assess Your Income
You cannot create a budget without calculating your net income first. This is easy to do if you have your recent payslips.
Net income is the money you receive in your bank account after income tax is deducted from it.
Most employers have the option to auto deduct taxes before your pay lands in your bank account. If you don’t have this set up already, I highly recommend you do this.
This will help you a lot when creating a budget as you don’t have to calculate your tax monthly and set it aside.
If you are a contractor or freelancer and you do not have this option, create a mini account with your bank to automatically transfer money to it as soon as you get paid.
Make sure you are calculating all your sources of income, and the frequency (weekly, monthly or fortnightly).
This includes any money you make from side gigs, child support, rental properties, or dividends from shares. Calculate the total amount that you can work with.
If you have a variable income, you have a slightly harder job to do.
Write down an average amount on the lower scale of your expected income. This way, any additional money you make on top of this can be a nice little bonus that you can either save or treat yourself with as a reward for following your budget!
Step 3: How To Track Your Spending
To track your spending, take some time and through your bank statements and categorise where most your money is going to. Ideally, you should see it go towards necessities like housing, insurance, bills and debt repayment.
Are you seeing entertainment, eating out, and other leisure categories instead?
No worries, we can fix that.
Start writing all your purchases in a notebook next to your budget goals. You can review them at the end of the month.
You can check out my absolute favourite budgeting notebooks! These helped me organise my own budget.
When you have an accurate idea of where your money is going, separate the expenses into fixed and variable. Move all the important fixed costs to the top of the list.
These should cover all of your necessities like:
- Housing: rent/mortgage
- Insurance: health, car, life
- Utilities: water, electricity and gas bills.
- Transportation costs
Then, list all the variable expenses including:
- Gym Memberships
- Internet, Cable and Phone bills
- Streaming services: Netflix, Spotify, Apple Music, Prime Video, Stan, Hulu, Disney+, etc.
- Eating out
- Misc expenses like doctor appointments, haircuts, nail care, etc.
Step 4: Choose A Budgeting Method To Track Your Finances
When I first started budgeting, I didn’t even know there were multiple methods of budgeting.
Many people suggest the ‘traditional’ method: calculate your income, calculate your expenses, make sure your income is greater than your expenses, and cut your expenses if it isn’t.
This never worked for me.
It didn’t give me structure or guidelines about how much of my income to spend in each category. It didn’t allocate savings for emergency funds, debt repayments, or retirement plans.
I use the 50/30/20 method instead.
The 50-30-20 Method
With the 50-30-20 method, you split your total income into three categories:
50% of Budget on Needs:
Spend 50% of your income on needs.
These are the important fixed expenses we identified above – the necessities in life you cannot go without. Calculate the total cost of your Needs and check that it is not taking up over 50% of your income.
A general rule of thumb is to spend only 35% of your income on housing (whether this is rent or mortgage).
If, however, you find out you are spending up to 50% of your income towards rent or mortgage, it might be time to reevaluate your situation.
Perhaps rent somewhere more affordable, get a flatmate, or look at refinancing your mortgage.
20% of Budget on Savings:
Allocate 20% of your income to long-term savings.
This can include:
- Paying down existing debt (especially if it has high interest)
- Building an emergency fund
- Saving for your retirement
- Save for a big expense coming up, like a wedding, family holiday, or a home refurbishment project.
I have deliberately placed this higher than the ‘Wants’ category.
Personally, I found prioritising my savings and paying off debt have gone a long way towards securing my financial independence.
Debt makes it incredibly difficult to build wealth because interest charges will compound. It will amaze you to see how much your savings grow once you have paid off your debt.
Pro tip: Set up a separate savings account, preferably a high-interest yield one, to transfer your savings to each month. Most banks allow you to set up a savings account through internet banking.
You can also rename accounts, so if you have a particularly big expense you know is coming, you can name the account accordingly and transfer your money there. Then, you can set up an automated payment to transfer to this account each month.
30% of Budget on Wants
Spend the remaining 30% of your income on wants. These are the variable expenses we identified above.
‘Wants’ help you live a comfortable life.
They include leisure and fun things that you can technically live without, but will enjoy life more when you have them. Like new clothes, hair care, steaming subscriptions, or a daily cup of coffee from the café.
The power of the 50-30-20 method is that it puts a sharp focus on what you can and cannot easily afford. Sometimes you might not have 30% leftover for this category.
That’s completely okay!
This is the area where you will save a surprisingly large amount of money with proper budgeting and money-saving hacks.
A weekly manicure and pedicure might turn into a bi-weekly or monthly visit depending on your budget. Costly entertainment tickets, the latest technology gadgets, and nights out should similarly be the last items you budget for.
There are so many inexpensive ways to have fun, so it is not a priority to spend money on entertainment, especially if you have a lot of debt to pay off or very little savings.
Feel empowered by the changes you are making instead of seeing it as punishment! You are in control of your money here, not the other way around.
See here: inexpensive ways to have fun
Why Use The 50-30-20 Budgeting Method?
This budget plan allows you to assess how much you are spending in each category.
For example, you might spend too much on groceries. Or you might end up ordering in all the time because you either don’t know or don’t have the time to cook.
Learn how to meal plan so you can save both time and money on groceries.
Or, try the $5 Meal Plan.
Five dollars a MONTH and you get a detailed meal plan for the entire week, including a shopping list and complete recipes.
How amazing is that!
A good meal plan should allow you to cook up to 6 meals in an hour.
You can also check out my post on 8 clever ways to save money on groceries. You will slash your grocery spending in no time.
You can also try a service like Ibotta, which is so awesome that it will pay you to shop!
By using the examples above, you can save over $100 to $150 each week! In one month, that will be $600, and in one year you will have saved $7800!
What are you waiting for?
How To Make More Money And Supplement Your Budget
If you are finding it difficult to pay for everything even after cutting down expenses, think about earning more money. There are so many ways to earn money online while working from home now, perfect for evenings after your day job!
You could sell on eBay/Amazon, take Surveys Online, start a profitable blog, and much more.
Budgeting Tips: Wrap Up
By now you will have set goals for your budget, tracked your income and spending, and assessed your wants.
You did it!
This will give you a fantastic foundation and set you up for success with your budget.
I want to leave you with my final thoughts on budgeting.
Creating a budget has changed my financial situation so much that it has allowed me to pay off almost $40,000 in student loans, save up for a home deposit, and buy a car!
There are so many ways you can budget. You just need to find the method that works for you.
Just as you cannot go running once and expect to complete a marathon, you cannot set your budget once and forget about it.
Revisit it often, and adjust it according to your needs. It’s there for you to control.
If you are interested in some other resources to manage your money, check these out: