How to Create a Budget as a Beginner

Making a budget means you are managing your income and expenses. Making a budget also means planning your expenses based on your income. For example, if your income is $1000, you will be planning your expenses in a way that does not exceed your income, if your income is $2000, your budget will match that income level. When you make a budget, you will know where you should spend, and how much should you spend; you will not only spend wisely but will also be able to save money for emergencies, start investing, or even have money to spend on luxuries like going for a vacation, buying an expensive gadget, etc.

The Rule of 50/30/20 in Budgeting

The government makes the budget so that it can make appropriate spending according to its income. Businesses and companies make budgets so that they can allot an appropriate amount for business development, product result, marketing, etc. Likewise, every household also needs to make a budget so that they can manage their finances. While businesses and governments make a yearly budget, individuals should make a monthly budget. Making a monthly budget will help individuals and families manage their money properly.

When you are making a family budget, you will have to follow the rule of 50/30/20.

You should divide your expenses into three categories,

Essentials: This category should include everything that is essential to maintain your life, for example, food, rent, credit card bill, fuel, internet, electricity, etc.

Wants: This category should include your expenses such as traveling, dining out, movies, subscription services, new clothes, etc.

Saving/Investing: How much do you want to save or invest every month?

The rule of 50/30/20 says you need to limit 50 percent of your income on essentials, 30 percent on wants, and 20 percent on your savings and investment.

Your expenses should not exceed your budget, for example, if your budget for essentials crosses 50 percent, you will have to cut your expenses.

How to Create a Budget as a Beginner

If you have never created a personal budget, here are a few tips that will help you with creating your monthly budget.

Set your primary goal: Why do you want to create a budget? Do you want to create a budget so that you are able to manage your cash flow properly? Do you want to create a budget in order to save money for your investment funds or retirement funds, or emergency funds? You need to be very specific with your goal and try to stick to your goal.

Create a budget: Once you know why you want to create a budget, the second step is to create a budget. Your budget should include two things, income, and expenses. You need to list your all income sources and all expenses. You need to categorize your expenses into different categories such as rents, food, saving, emergency funds, investment funds, real estate funds, etc. depending on your goal.

Try different budgeting techniques: The one that works for me might not work for you. Therefore, you will have to try different techniques until you stumble upon a budgeting method that works best for you. You need to understand one important thing though. Budgeting does not mean living in scarcity. Budgeting means managing your money properly, knowing where and when you should spend, and when and how you should save or invest.  

How to Stay Within Your Budget

The general rule of the budget is to make a budget and stay within your budget. Let's say, you allotted $200 for fun and entertainment, if you used your entire budget in the first week, you will have to avoid spending on any entertainment-related activities for the rest of the month. If you have allotted 20 percent of your income into saving accounts, you should stay with this plan no matter how difficult you might have if you saved 20 percent of your income. Therefore, you should always make a realistic budget and your budget should try to cut unnecessary spending.

When you are on a tight budget, the first thing you need to do is reduce your expenses. Reducing expenses means not just cutting your unnecessary expenses like sodas, movies, chocolates, coffees, etc. but even cutting spending on essentials. For instance, do you really need a large living space, why not move to a smaller house to save money? Do you really need to eat meat every day? Why not switch to cheaper alternatives like plant-based food? Do you really need a car when you are on a tight budget? Why not use public transport and save money? There are numerous methods.