What Does Budgeting Really Involve?

What budgeting truly involves. It doesn't have to be complicated!

Pretty much anytime you see something about money online, you’re going to come across that word: “Budgeting.” Any finance guy out there will tell you that you should be budgeting – and for good reason – but what does it really involve? Let’s get into it today and de-mystify the whole concept of budgeting. Ready for an easy guide? Let’s go!

What the Budget Is

Budgeting is actually very simple. I didn’t say it’s always easy, but it is simple. I already covered this in How to Budget: Simple Tips for Beginners, so I’ll only briefly go over it now. A budget is just another word for a plan. Each month, you plan for what you’ll spend the upcoming month. You track every dollar you make and you tell each one of them where to go. New month, new budget – using the exact same template every month does not reflect the realities of life.

What You Need to Get Started Budgeting

So, what exactly do we need to get started with budgeting? It’s super simple; anyone can do this. You need:

  1. Your net take-home pay (if it’s different every month, that’s okay, I’ll cover it below), which is just what your paycheck has written on it.
  2. Everything you absolutely have to pay every month: housing, groceries, transportation, insurance, student loans, and anything else that you know is coming this month that you can’t use a pro rata plan on.
  3. Finally, list out the rest of your expenses, like credit card statements, entertainment (a guess if you haven’t been tracking it), savings, anything and everything you put money in.

Why do I separate the absolute needs from other bills? While it’s true that you need to pay your credit card bill, it’s not the same level of importance. I want to get you used to ordering things by priority. If you’re drowning and about to lose your house, don’t worry about the credit call. Pay your mortgage.

What budgeting truly involves. It doesn't have to hard to get started!

You must protect yourself and your family before giving a collector what they want. Yes, you agreed to pay the card when you used it, but sometimes life isn’t that simple. Put money where it’s most important first, even if you’re not in danger. Make a habit of putting your family first.

Now that you have all these things, you’re ready to budget. It’s honestly as simple as subtracting what you spend from what you make. See this guide for a general order of priority to help you set budgeting goals.

How Much Money Should I Make to Start Budgeting?

If you make money, you should be budgeting. There is no magic number where financial responsibility suddenly applies. If you want to operate in financial security, and you do want that, then you need to be tracking where your money goes. Even if you only make enough to barely cover rent and groceries right now, you should still budget. When you start making more money, you’ll be glad that you have a plan for it instead of wondering why you’re still struggling after the raise.

What if I Have an Irregular Income?

An irregular income simply means you make a different amount of money every month. This is often the case for entrepreneurs, sales people, coaches, trainers – anyone you can think of that does not have a set salary. Some people with irregular incomes know they at least have a certain minimum amount coming in, like having a commission on top of salary. No matter the case, there is still a way to budget with an irregular income.

Take your lowest earning month for the last year and set this as your budgeting starting point. Budget as if this is the only money you’ll have coming in, even if it’s not enough to cover everything. Like I said before, budget by priority. Any money that comes in on top of that can then be applied to the next needed thing, and so on until you’ve budgeted every dollar.

If you have more money than expenses, designate specific savings for certain bills or fluctuating expenses so that you’re ready for any potential low-earning months in the future. That’s not so bad, right? I’ll release a guide later with specific examples to make it even easier.

I’m Not Good at Math, So How Can I be Good at Budgeting?

This is a common reason why people think they can’t properly do a budget. I believe that this isn’t the real fear – it’s the fear that’s easier to express. Budget math is not complicated, especially when you have a calculator (or, better yet, an app that does it for you).

When you’re budgeting, you truly only need simple addition and simple subtraction. At most, you’ll do some division a couple times to see what percentage of your budget certain expenses are. It’s really not that hard, from a math perspective.

If you say you’re too bad at math to budget, I’d encourage you to dig a little deeper. Are you afraid of failing, and in that fear, creating a problem (being bad at math) that keeps you from even getting started? You might not realize that’s what is going on, but I’d bet it is. Let me encourage you here: Budgeting is not something you “fail” at.

You won’t be good at it your first few times, and that’s okay. That doesn’t mean you failed – it means you are learning something new. New skills take time to develop. Give yourself permission to try something new and not feel bad about not being perfect. It’s okay!

There’s Everything You Need to get Started Budgeting

Now you have what you need to get started budgeting. Here’s the brief summary:

  1. Your monthly net pay.
  2. Your absolutely needed expenses.
  3. The rest of your expenses.
  4. A budgeting app or a place to write.
  5. Your own permission to try something new without shame.

See, it’s pretty simple to get started. To make things even easier, I would start with an ultra-simple budget with very few line items (like “bills” instead of “gas, electric, water…”). This way you don’t feel overwhelmed, but you’re still learning how to track your money and set goals. Each month, make it a little more detailed.

If you need any help along the way, some encouragement, or simply a source of accountability, then you can set up a meeting with a financial coach today. I’d love to help you out on your journey toward financial security.

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