Learning About Finances 101 — Budgeting
Budgeting
Over the years, I have tried budgeting in so many different ways. Some of them worked better than others. Some didn’t work for me at all. The big question is how do you want to categorize your money. We all tell our money what to do, sometimes passively, when we don’t hold budgets. Sometimes actively when we do hold budgets. I’ve been on both sides of the line, for better and worse.
When I first began budgeting, I had no idea what to do. Really. Not a clue; I knew I needed to pay my bills, but that was the extent of it. So I did, then I spent the rest on my wants. This was childish, but it was all I knew at the time.
There are various strategies for budgeting, but at the end of the day, it comes down to.
What are you earning [Income] vs spending [Expenses]?
What is Income (earning)?
Income is the money people receive in exchange for working, producing a product or service, or investing capital. (Investopedia)
// e.g., income from a day job, selling items on eBay, or dividends from stocks.
What is an Expense (spending)?
An expense is the cost of something.
// e.g., expenses from rent, utilities, going out to eat, or a new laptop.
Budgeting is a fundamental building block for finances. It maps out how much we have coming in and how much we have going out. Let’s look at how to budget and the two simplest budgets I have found.
How do I budget?
Before you start, you need to collect a little information. Your check stub or how much you’re earning every week, month, and for the year. Second, you need to know how much you are spending. You should be able to get this information on your bank statement, credit card statement, or somewhere similar. Once you have that, you should pick the type of budget that want to try. Below are the two simplest budgeting options.
The 20/30/50 Budget — This budget keeps it simple for you. You spend the first 20% on saving. You spend 30% on your wants; new shoes, a new laptop, going out, new furniture, etc. Finally, you spend 50% on your needs; rent, utilities, car, insurance, etc.
Here is a quick example for you:
Total Monthly Income — $2000
20% — $200
// half ($100) for my savings, half ($100) for my investment fund
30% — $300
// Entetainment Subscriptions, Going Out to Eat, New Shoes
50% — $1000
// Rent, Car, Insurance, Utilities, Groceries
It’s that easy. Now, it doesn’t seem easy because it does require you to make honest sacrifices when you can’t fit something into your budget. But that’s just how budgeting works when you first start.
The Zero-Based Budget — This budget is popular with Dave Ramsey and Kraft Heinz. In this type of budget, you put the amount you make at the top (weekly or monthly). Then you have all the categories you spend in below it.
Here is a quick example for you:
Total Monthly Income — $2000
BILLS [$1150]
$400 // Rent
$150 // Utilities
$350 // Car + Insurance
$250 // Groceries
FUN EXPENSES [$450]
$25 // Entetainment Subscriptions
$200 // Going Out to Eat & Drink
$100 // New Board Games
$125 // New Clothes
SAVINGS & INVESTMEMTS [$400]
$175 // Savings
$225 // Dividend Investment Portfolio
Regardless of the budget type. Budgeting tells you what lifestyle you are currently living. After you start setting your budget before the paycheck, that’s when you start planning for the life you want to live.
Photo by Sam Dan Truong on Unsplash
Takeaways
Let’s wrap this up…
The first step to becoming wealthy is to budget. You need to know where your money is going. Then you move from seeing where it has gone to telling it where it needs to go before you get it. Wealthy people tell their money where it will be going. They don’t wait for the money to show up before they budget it. They know when it’s coming in, how much they’re getting, and where it needs to go. I have seen countless people’s lives change simply by doing the work of budgeting. This one choice is only as hard as your desire for today’s comfort. Budgeting requires you to choose delayed gratification. Do you agree?
Do you have any great budgeting tips?
Do you have a budget you like better than the two I listed?
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