While the word "budget" may want to send some of us screaming in the other direction, creating a successful budget is actually one of the biggest gifts we can give ourselves. It not only seriously helps you out financially, but it does a ton to reduce the day-to-day anxiety so many of us feel when it comes to our finances.
I have so many friends that genuinely want to be better with their money and sometimes even become riddled with anxiety over what they're not doing, but instead of creating a plan of action they put budgeting off for another month and continue living with the stress.
According to Jake Loescher, a financial advisor, in a piece for U.S News and World Report, "The biggest hurdle for people attempting to live on a budget is actually identifying every single category where income is consumed. Oftentimes this can be frustrating and – let’s be honest – some individuals can’t train themselves to track every penny."
If you're losing sleep over your monthly finances but don't know where to begin, here are eleven super helpful tips for getting started with a monthly budget.
1. Grab Your Calculator & Block Out Some Time
This first tip is a personal one. Grab your calculator, a pen and paper, and open that Excel doc — and most importantly, block out some time for this. Really figuring out what you spend can take a few hours, and one of the most important parts of this process is simply scheduling some time to do it.
2. Record Your Take-Home Pay
According to that same U.S. News and World Report piece, the first step in any budgeting process is to figure out how much you take home each month. Don't include anything that automatically gets subtracted, like a 401k or taxes — you just want to know what you actually have in your pocket each month.
3. Subtract The Essential Expenses
The same piece says to then subtract all of the "essential" expenses you absolutely have to pay each month, like student loans, rent, car payments, cell phone, etc. Take time to really think about every bill that comes in.
4. Allocate For Savings
You now have the amount of money you can use for personal choices — as in you can literally do whatever you want with it. Things like groceries, clothes, and take out all fit into this category. And in a piece for Nerd Wallet, financial writer Anika Sekar says this is now when you allocate for savings (or "paying yourself first" as some retirement planners put it).
She recommended saving at least 20 percent after taxes, which comes to about 12-16 percent pre-tax. If you already accounted for a retirement fund in a previous step, you can factor it into this assessment.
5. Assess The Numbers
Now is the time when you assess the balance of your numbers. In a piece for the financial site Learnvest, financial writer Laura Shin recommended the 50/20/30 rule of thumb. This system says that no more than half your income should go to necessary expenses, no more than 20 percent should go to savings, and no more than 30 percent should go to everything else. If your ratio is coming off super far from this, think about re-balancing.
6. Get Into The Nitty-Gritty
Now it's time to break down that 30 percent, "personal choice," portion of your budget (as Loescher said, this can be the hardest part). Figure out all the little things you spend on each month — from coffee, to manicures, to ordering in. It's super important to be realistic during this process.
7. Make Some Cuts
It's entirely possible that after completing the above step you realize that you spend way more than your allocated 30 percent on random stuff. This is the stage where you might need to figure out where you can cut some expenses. Maybe it's making coffee at home, or limiting yourself to a Seamless order just once a week, or maybe it's not letting yourself "just pop in" to a store after work because you know you always end up buying something.
8. Consider A Money Tracking App
If all of this seems overwhelming, consider a money-tracking app on your phone. DailyWorth.com recommended Mint.com, Goodbudget, and Mvelopes as a few of their top choices for personal budget helpers, but you can definitely research around to see which one best suits your needs.
9. Remember — Treat Yourself Sometimes!
I always like to remind myself that budgeting doesn't mean restriction. It just means knowing where your money is actually going. If I tell myself I'm not going to buy coffee outside of the house six out of seven days a week and pocket a monthly 50 bucks for a travel fund, I'll have 600 extra bucks at the end of the year for a vacation.
Don't get overwhelmed at the thought of a monthly budget or think a solid budget is out of reach. Just remember it's about informed choices so you can enjoy the money you make!