Budgeting 101: When to Start and How to do it

Budgeting is something we all struggle with. Between knowing when to start, how to do it, and how to accept when things don’t go as planned, it can be a lot to manage. The “when” is easier than you think: now. Starting to focus on your finances sooner rather than later will help you make stronger goals for your budget than if you were to wait around for the right day to arrive. The “how” is fairly flexible; being able to make a budget that fits you and your family is something that can’t come out of a cookie-cutter budgeting guide. It is something you have to curate for yourself. Here are some tips for starting a budget to fit your needs.

 

Have a “why” for your budgeting

To have a mission behind your budget, you have to figure out why you want to budget in the first place. Are you looking to maximize your savings? Are you looking to make a big purchase in the coming months or years? Are you looking to get a basic handle on your finances because you never had the opportunity to fully understand your spending habits? Understanding why you want to budget and giving yourself goals to strive for will make budgeting less of a boring assignment and more like a path to success.

 

Take inventory of your spending

Before creating a budget, you first need to understand what comes in and what goes out of your bank account. Start by writing down every expense you have, including monthly expenses like your mortgage or rent payment, utility bills, groceries, cell phone plan, and any subscription services you may take part in. These are all important to document as well as the other expenses you incur, such as coffee runs and online shopping orders, while these don’t necessarily occur on a monthly cadence, it is important to understand your own spending habits before settling down and setting a budget.

 

Once you have a goal for your budget and have visualized your spending habits, you can determine if there are cuts you need to make. For example, if you subscribe to every streaming service known to man, try to evaluate if that is something your family needs or if there are some streaming services you pay for but rarely use. Knowing what you want to budget for and sacrificing things that you don’t really need will allow you to save faster and smarter. 

 

Have savings account(s)

Now that you have made cuts to your spending, it is time to focus on your saving. When you are making a budget, there are certain things you want to put money aside for -- vacations, holidays, and life events like college or home buying are things that can require saving over time. 

 

A major part of saving you should consider is an emergency fund. Having money set aside for times of uncertainty, much like most of 2020, will help alleviate the stresses and burdens of the potential unknown. Having separate savings accounts for these goals will keep you from dipping into them unintentionally, or at least make you think twice about withdrawing money when you know it is for something important. Putting money in savings accounts also allows the money to accrue interest, so saving your money actually helps you earn it. 

Don’t get sloppy when you reach your goal

It’s no surprise that larger purchases like a vehicle or home have you saving larger chunks of money for longer periods. And when you finally reach your goal and sign on the dotted line, it is important to have the right framework for the final stages for the sake of yourself and your budget. 

 

Before visiting the dealer and test-driving cars that are way out of your budget, you should be as prepared as possible. Research the kind of car you want, seek out financing from a bank or credit union, and get an idea of what your insurance will looklike with a new vehicle on the policy. Having a loan preapproval when you start shopping for a vehicle will give you the power to negotiate as well as keep the dealership in check with the budget you have set. If you are saving to buy a home, receiving preapproval for a home loan is a necessity when beginning your search and assists you in further planning out the home purchaseprocess. You will have a better sense of what you can afford and position yourself as a serious buyer in the seller's eyes since you have already started the mortgage process ahead of time. This can put you at an advantage if there are multiple bids on the property you want. 

 

Having big-ticket items in your savings budget will also impact the rest of the budget you created once you start making loan payments. It is important to remember that your budget will be fluid and you should make adjustments when necessary. 

 

Starting a budget for your family can seem like an overwhelming process, but focusing on what you want to achieve will help make things more bearable. Your budget will work as well as you let it, so making sure you keep yourself and your family accountable for your savings goals will be key to your success.