How to Make a Budget For Beginners

When you are making a budget, you need to follow the 50/30/20 rule. This rule implies that you allocate 50 percent of your income to your essentials, and never exceed 50 percent of your income for your essential expenses. You also need to save 20 percent of your income, no matter what you need to save at least 20 percent of your income. You need to allot 30 percent of your income for your wants and wishes. This includes vacations, buying luxury items, etc. If 30 percent of your income does not get you there, you need to continue to save 30 percent for many months until you can finance your holiday travel.

The Rule of Making a Budget

 The first rule is to make a realistic budget. A realistic budget means a budget you can actually stick to it. Let's say in your budget you set 30 percent monthly savings, if you are not earning much this will be over-ambitious and you will not be able to stay within your budget. If you allot 5 percent of your income to entertainment, you should start within that budget, and never exceed your entertainment budget. You should make a budget for every kind of expenditure and you need to cut your non-essential expenses. That’s how you will be able to stay within your budget.

The second rule of a budget is controlling your expenses.

I don't think anyone should have a difficulty in answering a simple question like "how much money should I spend?" If you know the rule of 50/30/20 in personal budgeting, you should be able to answer this question. The rule of 50/30/20 says that you should spend only 50 percent of your income on necessities, you should save 30 percent of your income on fun/enjoyment/luxuries, and save 20 percent of your income on emergency funds and investment funds. The rule says your spending should never be more than 80 percent of your income and the 80 percent spending should cover everything from your rent, food, loan repayments, credit card bills, health care expenses, buying new clothes, going to movies, etc. The rule of spending 50 percent on necessities and 30 percent on luxuries is the maximum you can spend on these categories. If you can keep your expenses lower, and add more to your savings on investment funds or emergency funds, that would be better.

 How to Make a Budget For Beginners

If you have never made your personal budget, here are tips to help you get started:

Project your monthly income: In your income category, you should include every penny you are expecting to receive in the given month, for example, your salary, stock dividends, rental income, income from a side hustle, etc. 

The Rule of 50/30/20: In your expenses category, you need to follow the rule of 50/30/20. This rule implies that you allot 50 percent of your income to essential spending, 30 percent to your wants and wishes (buying gadgets, going on a vacation, etc.), and 20 percent of your income to saving. You can allot more money for your savings if you earn better.

Stay within your budget: The whole point of making a budget is you should be staying within your budget. Staying within your budget means you never go above your budget. You don’t spend more money than you have set for a given category.

Cut your expenses: When making a new budget plan, take reference from the pervious budget plan and try to see where you can cut your expenses. In order to cut your expenses, you need to differentiate between essentials and nonessentials. You might even have to downsize your lifestyle to cut expenses.