Podcast Episode #022 - Budgeting Tips for Beginners || Go From Broke

Podcast Episode #022 - Budgeting Tips for Beginners

Are you ready to take control of your money but not sure where to start?

Today's episode will give you my best budgeting tips for beginners to help you get started with the right mindset and the right approach to create a budget that works for you.

Whether you struggle with your spending or just the idea of restricting it, this episode will give you tips to address the biggest budgeting complaints and misconceptions.

Action Task

For this week's action task you're going to pick just one tip to try out.

Track your spending, try a new budget method, review your expenses or priorities, use a bills calendar to see your income and expenses at a glance, or choose another tip to test.

Then after you've experimented for a little bit, come back and try another one!

Resources

For more tips on budgeting and the different budget methods:

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Below is the transcript from today's show. Or you can download the full transcript as a PDF.

Welcome to the Go From Broke podcast where you'll learn how to take control of your money so you can stress less and save more. If you're tired of living paycheck to paycheck or constantly wondering where your money is going, you're in the right place. This podcast is all about giving you actionable tips and advice so you can get started improving your finances today.

Budgeting often gets a bad reputation for being difficult or too restrictive. But whether you think they're difficult to make or difficult to keep a budget will do you no good if you resist it.

The key to creating and sticking to your budgeting goals is to recognize that a budget is really just your plan for your money.

The more arbitrary you make it, or the more you let other people's values and perceptions influence it, the less likely it is to work.

So I've put together a few budgeting tips that will help you not only get started creating a budget you can keep, but also one that you'll learn to love.

Budgeting tip number one, track your spending.

My number one budgeting tip for beginners is to track your spending. Awareness is the first step in taking control of your money and improving your financial health. And the best way to gain awareness is to actually write down every purchase and every expense. You'll be amazed at how much that awareness alone can alter your spending behaviors.

For example, most people have no idea what their monthly expenses are for food. I have yet to find someone who hasn't been completely surprised by the amount that they've been spending on food once they start tracking their spending.

Tracking your spending is also a great way to find budget leaks and easy wins if you want to save money fast. Whether you use budgeting apps, the back of a cash envelope, or just a scrap of paper, start writing down what you spend when you spend it. This force is immediate reflection and accountability.

No more hiding your head in the sand, pretending that you'll just pay for it later. If you're tracking your expenses in your app or with a cash envelope, you can also see at a glance how much money you have left in a certain category.

Success in budgeting is all about awareness, and tracking your spending is the best way to find out where your money is going and how much is left. Knowing where your money is going is key if you want to make sure it's going towards your financial goals and the things you actually value.

Budgeting tip number two is to set some financial goals.

Without goals or purpose for your money you'll always feel a bit lost and at odds with any budget you try to make. So sit down and think about what you want for your future. Is it the perfect house for your family? Maybe a nice vacation. Finally paying off that credit card debt. Maybe it's simply being able to cover your bills without feeling stressed.

Whatever it is you want set a target for achieving it, and then integrate that into your budget. Find out how much you need to save for that dream house or what the cost of that vacation you want is. Then that way you have a clear and specific amount that you can create budget goals around.

Then make those goals a part of your budget by creating a savings category or a sinking fund for them. Incorporating your goals into your budget will help you keep focused on your priorities and help you start saving immediately.

So if your goal is paying off debt or building an emergency fund, you'll also want to make sure you're brainstorming for any future expenses that might usually catch you off guard. Things like car repairs or your annual insurance premiums. Start budgeting for those before they pop up so that when they do you're better prepared and you don't have to tap into that emergency fund or add to your credit card debt to pay them.

Budgeting tip number three, find the budget method that works for you.

When you're first starting to figure out how to manage your money it's important to find out what budgeting approach will work for you. Having the right mindset with your money is the foundation for financial success.

Understand that your money goals are unique to you and which budgeting method you choose to help you reach them is irrelevant. What matters is that you find a budgeting philosophy that helps you stay focused on your financial goals.

There are a number of budgeting methods you can try and some are more complicated than others. It's just going to come down to personal preference and which one you'll actually use.

If you try one and it doesn't work, try another method before you give up on budgeting altogether.

Some of the more popular budgeting methods are the zero-based budget, which is essentially giving every dollar a job. A percentage base budget where you basically divide your income into needs, wants, and savings buckets. And then the cash envelope system, where you literally organize your budget with actual cash in separate spending envelopes.

I go into each of these methods in depth on the blog. So if you're interested in learning more, check the show notes for a link to those.

Next is budgeting tip number four, reviewing your variable expenses.

When you think about your bills, you're probably thinking about what you paid last month. This can actually cause problems for your budget when it comes to variable expenses, like your electric and your gas bills.

For example, I live in the desert and there's a massive difference between our winter and our summer electric bills. Even though I know it's coming I'm still always surprised when our bill quadruples every summer.

The best way to handle variable expenses like that is to look at your previous 12 months and then average them out across the year. Then instead of just trying to guess how much you'll need each month, you can set aside the average. You may need to create a bit of a buffer depending on when you start, but eventually you'll have a much more manageable and predictable amount to budget each month.

Budgeting tip number five, don't forecast your income.

The best budgeting tip I ever got is to only budget the money you have, not the money you expect to get.

For some reason, most of us tend to think of budgeting on a monthly basis, and if you get paid monthly, that's fine. But for those of us who are paid more frequently or sporadically, trying to make a monthly budget often leads to forecasting our income in order to pay for all those monthly expenses.

But forecasting your income can actually lead to spending money that you don't have.

Even if you have a regular paycheck coming in, spending it before it's actually in your bank account perpetuates the paycheck to paycheck cycle.

Instead of budgeting monthly, consider budgeting by paycheck.

If you get paid less money, but more frequently, it's unlikely that you'll have enough extra money in your accounts to budget out for the entire month when you get started.

It's incredibly frustrating to have more month than money, but you can overcome this by thinking on a smaller scale and adjusting your budgeting period.

To make a more realistic budget for yourself, focus on only the expenses you have to pay before you get paid again. By taking things one paycheck at a time, you're able to get a handle on things without feeling overwhelmed.

Budgeting by paycheck like this is also a great way to build up your savings. Instead of running out of money trying to stretch one paycheck to pay the whole month. You can actually focus on what that money needs to do until you get paid again and usually you'll have a little bit of extra money from at least one paycheck that you can put towards your savings goal.

Budgeting tip number six, use a monthly bills calendar.

Forecasting your income and budgeting money you don't have is a recipe for budget failure. Your budget is a way for you to assign your money to specific spending jobs. And you can't pay for something with money you don't have.

Forecasting with imaginary numbers creates a budget you can't trust. So a monthly bills calendar is a great way to help you break that habit of forecasting your income, and to start budgeting by paycheck.

It may seem counterintuitive to use a monthly calendar to help break free from a monthly budgeting mindset, but a visual representation of where your bills fall in relation to your paydays actually makes it easier to ignore the non immediate expenses.

So write in all your monthly payments and paydays on a calendar so you have an overview of the month ahead. Then adjust your budget to only plan for your immediate upcoming expenses. Once you get paid again, you can budget out the remainder of the month.

Being able to see what's coming up before you have to budget for it is a great way to break the paycheck to paycheck cycle.

I've even got a free printable bills calendar that you can use that I'll link to in the show notes.

Budgeting tip number seven, know the difference between infrequent, unexpected, and emergency expenses.

One of the first things most financial experts will advise is to build up an emergency fund. And while I agree that having an emergency fund is essential and probably the best way to prevent credit card debt. I also think it's important to define what exactly an emergency is.

Christmas, annual renewals, and other semi-regular expenses are not emergencies. Just because you tend to forget about them doesn't make them an emergency.

Similarly while car repairs and maintenance costs may be unexpected since we don't know when they're going to happen, we do still know that they'll eventually happen.

These irregular expenses are unexpected, but inevitable. And while some unexpected expenses may feel like an emergency, it's important to keep them in perspective when compared to things like a job loss or medical emergency.

If you want to build a budget you can stick to, you need to start anticipating and planning for your infrequent and your unexpected, but inevitable expenses.

So set up sinking funds for these expenses in addition to building your emergency fund. That way you can continue to gradually build your emergency fund instead of continually depleting it.

Budgeting tip number eight, focus on your priorities.

One of the biggest problems people have when trying to stick to a budget is not having defined their priorities.

The impulse to buy what you want when you want it can quickly and easily derail your budget. But having a clear purpose driving your spending decisions will make it easier to know which expenses are worthwhile and which you can ruthlessly eliminate.

This is important, not just for creating your budget but also for creating your overall financial plan.

For example, setting a goal of paying off your student loan debt won't be as easily achieved if you don't really care about that debt.

For years, I rotated credit card debt because paying it off simply wasn't a priority. I was able to keep it at a really low or 0% interest rate. So it didn't make any sense to pay it off when I could focus my money on other things.

However, once paying off that debt did become a priority I was able to put all my focus behind that and achieve that goal in a much smaller period of time than if I had been halfway committed.

Knowing what you value makes sticking to a budget much easier.

Determine your priorities and how your spending reflects them.

Pretty soon you'll notice that you aren't making those same impulsive discretionary expenses that you used to.

Budgeting tip number nine, avoid impulse buys.

Sometimes even being crystal clear on our goals and priorities isn't enough to combat that craving for Taco Bell or resist that amazing sale you found on your favorite jeans.

But while these occasional expenses may seem harmless, they can add up over time. So here are a few ways that you can combat impulsive spending.

The first is to impose a waiting limit on your purchases. Force yourself to wait 24 hours or 30 days for more expensive items before you commit to buying.

This self-imposed waiting time can have several positive effects. It can prompt you to do more research. It could encourage you to comparison shop. It can give you time to reflect on how that purchase does fit into your priorities. It could reduce the desire for that item altogether. And it could even give you more time to budget for it.

Giving yourself time to reflect on your purchase will reinforce your efforts to be intentional with your spending.

Another tactic is to set spending limits. Creating your own set of financial rules dictating what and how you spend may help you curb impulsive spending decisions.

For example, I highly recommend that everyone have some sort of fun money budget category that they can use for whatever they want. Depending on your income and expenses, the amount you contribute to your fund money will vary, but those extra funds give you the freedom to indulge a bit. It's just the way to give yourself permission to take a break from your regular spending plan.

Finally, you can use cash or a separate checking account for everyday expenses. By separating your spending money from your bills money, you can ensure that you never miss a payment or overdraft your accounts.

If you're struggling to stick to a budget separating your funds and then spending from dedicated accounts will prevent you from overspending while also ensuring you can put money into savings accounts without the risk of spending it.

Even with these tactics, you may still end up spending on things that don't necessarily align with your values or long-term goals, but by establishing a way to give yourself permission to do that, you'll feel better about it and more confident in your spending decisions overall.

Budgeting tip number 10, negotiate your bills.

One of the hardest parts about budgeting is not having enough money to actually budget. We've discussed adjusting the frequency of your budgeting so that you aren't overwhelmed by upcoming expenses, but another way to ease the pain is to reduce or eliminate those expenses entirely.

Take a look through your credit card statements and bank statements and see what bills you've been spending your money on, and whether you really need to be.

What you deem essential may differ from what I do, but the point isn't to compare priorities it's to have some clarity around them.

For example, a cell phone may be essential to both of us, but since I work from home, I don't really need an unlimited data plan, but you may. We may also be able to adjust our plans to pay less, depending on where we live. I used to live in a rural community with very few options, but after moving closer to a city, now I can get much cheaper service by shopping around.

So go through all your expenses and see which ones you might be able to shop around or negotiate.

Even for the expenses that you do deem necessary, try to call and see if you can't get a better deal.

I do this with my Sirius subscription. Even though it's something I want, I don't value it enough to pay full price. So I call every year and ask for a cheaper rate. And every year I get one.

I get at least 75% off every year just by making a phone call. So even if you don't get a discount and you ended up keeping the expense, it never hurts to try. Just pick up the phone and make a call.

Budgeting tip number 11, be flexible.

My number one tip for anybody struggling to budget is to be flexible.

One of the most common budgeting mistakes I see is people assuming that their budget is set in stone. Once anything goes wrong, they feel defeated and they just give up.

Understand unexpected things will happen. And you'll need to adjust to compensate for them.

For years, I was frustrated because our budget varied from month to month. I expected certain expenses based on the previous month, but things never seemed to add up the same way twice. It took me a while, but eventually I realized there is no such thing as a typical month.

Even if you think you've accounted for every possible scenario, I can guarantee you something you didn't anticipate can, and usually will come up.

Instead of throwing your carefully crafted budget into disarray, just be prepared to adjust and adapt when things don't go according to plan.

I regularly shift money around based on our spending and priorities changing throughout the month. And this is especially true right now with inflation causing so many things to rise in price. I've had to move money around almost every week to adjust for the increases in gas and groceries.

But it's okay. My budget is simply a roadmap for my money. And right now, inflation is kind of like driving through a construction zone. It's slowing me down, but my overall destination is still the same.

Okay. Let's review. In today's episode, we've covered 11 tips to help make budgeting easier.

1 - track your spending.

2 - set some goals.

3 - find the method that works for you.

4 - review your variable expenses.

5 - don't forecast your income.

6 - use a bills calendar.

7 - know the difference between an infrequent, unexpected, and emergency expense.

8 - focus on your priorities.

9 - avoid impulse purchases.

10 - negotiate your bills.

And 11 - be flexible.

Now that you have those tips, it's time for you to put them into action.

For today's action task I want you to start where you are.

Choose just one of the tips I covered that you think would have the most impact and test it out.

If you don't know where your money's going, track your spending for a week. If spending is in the problem, but money management is, pick a new budget method to try out for a while. Maybe the idea of budgeting by paycheck intrigues you. If so grab my free monthly bills calendar and start plotting out your paydays and your bill due dates.

Then after you've tried one of these tips, come back to this episode and try another one. Budgeting is an ongoing process and adjusting how you do it is as well.

The budgeting tips I've covered will help you build a budgeting plan that works for you and helps you achieve the financial fulfillment you deserve.

As always take action and make it a great day.

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