Basics of Building a Budget
Whether you’re out of school and making bank (lol, we wish), or still working your way through it, having a budget is extremely useful in meeting your current and future goals. Forming a budget can be divided into three categories. These include: basic needs (AKA: what you need day-to-day), lifestyle wants, and future goals.
Depending on what your financial goals are (such as looking for ways to save or pay down debt), your lifestyle “wants” category may be the first place to look in where to cut down. Unfortunately, if you’re not aware of where your money is going, it can be easy to let it slip down the drain.
We’ve found that it’s important to reevaluate every few months and challenge ourselves to find little ways to cut down on spending.
A little note before we dive into the three categories of making a budget: the first step to a budget is to know your income. As obvious as this may seem, oftentimes if you are working more than one job, it can be easy to only have a rough estimate of how much you’re actually making. The easiest way to estimate your actual income is take the last 3-6 months and find the average of what you made per month. Make sure you are also figuring out your after-tax income.
Know your basic needs:
How much money do you spend a week on groceries? On average, how much do you spend on gas per month? What about basic car upkeep: changing your oil, getting it checked out, and insurance insurance? What debts do you have to pay off? Car? School? What do you owe on rent or mortgage every week? What about utilities? Trash service? Wifi? Cable? Figuring out the cost for your basic needs can be confusing because there are so many ways to pay basic costs; and, there can be huge differences in how you budget if you’re on your own, or if you have a family of 5. Our best advice is to sit down with everyone involved in earning and spending and figure out about what you spend each week and month. Some will be basic needs, and some will be lifestyle wants.
For easy comparison, here is an example of a weekly/monthly budget for a two-person household’s needs.
-Your car can be dicey: remember, you will need to pay for maintenance, oil, gas, and insurance (either monthly, bi-annually, annually)
*Health Insurance and retirement could also be in the basic needs category, but more on that later
It’s always best to start off a little higher than you think you will spend; that way you won’t put yourself in a stressful position at the end of the month.
Know your lifestyle:
This is the BIGGEST reason why budgeting is valuable. It’s not as much about resolving to save money or “sticking to it”, but having a basic understanding of what you feel you need. In the “basic needs” section, we mentioned that cable and wifi are a basic need. For many people, that is what it has become. But, in reality, it is really just something we want and therefore, a part of a lifestyle. Even if you are in school and need wifi, can you do your work at the library? Can you use data on your phone? A big part about decreasing our living standards is not allowing yourself to be boxed in. Do you really need that sofa? Is that gym membership essential? How often are you buying coffee a week? Can you make it at home? What about take-out, fast food, or going out to eat?
These are all examples of massive costs that we add into our lives because we believe that our morning Starbucks is essential, rather then a part of our lifestyle. When you want to go out to eat, or buy a cute shirt, always remember: the money you made is already spent—if you are in debt, ALL money you earn has already been spent until your debt is paid. Know your lifestyle. Know where your money is wasted.
Recognize future costs (save)
Future costs include immediate savings such as setting aside money for things like property taxes, health insurance, vehicle maintenance and future goals. Future goals include going back to school (college or grad school programs), kids (basic costs, college savings, wedding savings, etc), buying a home, buying new vehicles, and retirement. Even if you’re making bank now, important to know that, depending on your goals, you may be paying for a lot more 5, 10, 30 years down the road. Don’t be that person who is always buying new trucks, improving their home, having more kids, and then realize they can’t afford a next step in life because of their spending.
Potential immediate savings examples:
Potential future goals examples:
On the SHEFACTOR app, you can rank what your highest priorities are. If finance is at the top of the list, starting or maintaining a budget is a great first step to improving on that goal. Great budget tools we recommend are:
We hope this is helpful in getting started with your budget! We know it can be stressful to start, but know that once you take that first step, the rest will more easily follow. Have you used any of our tips? Comment below and let us know which ones worked for you!