Basic Steps Of Budgeting

Basic Steps To Create Budget

Welcome back to the Master A Budget Series! We are now on Day 8. Yesterday, we talked about The Best Apps For Better Budgeting; today, you will learn about The Basic Steps Of Budgeting.

Let’s dive in.

Are you ready to start and create a budget? Are you overwhelmed? It can seem complicated at first – how do you categorize everything? What about expenses that fluctuate or aren’t monthly? 

The best thing to do is to take a step back and start from the basics. Budgeting can be simple and also can be complex.

The earlier you start, the sooner you will be able to understand your family’s finances. Don’t worry if you mess up the first or the second time; the most important thing is you are learning. 

No two budgets are alike, but they both start with the basics. As you continue budgeting, your family budget will evolve.

Now, download this basic budget template (no opt-in required) and follow along to create a budget.

MY MONTHLY BUDGET TEMPLATE

Basic Steps Of Budgeting

1) Figure Out Your Net Income

First, figure out your net income for each month. This means your income minus taxes, insurance, 401K deductions, and so forth. If you are self-employed, subtract estimated taxes, insurance costs, retirement account savings, etc. At this point, you just need predicted numbers. 

Don’t forget your spouse’s income as well if you are married. Also, if you have earnings from side hustles, include it in your income.

Example:

MY MONTHLY BUDGET

2) Find Out Your Expenses

Next, figure out your monthly expenses. If they vary, figure out an average by looking at the last three to six months’ worth of expenses. For instance, if your electric bill was $150 last month, $140 the month before, and $175 the month before that, then you can estimate a monthly expense of around $155 for electricity. Alternatively, you could take the highest amount, $175, and go with that. 

It’s a good idea to keep your categories as general as possible while still preserving clarity. Otherwise, you might get confused or overwhelmed by all the “hair-splitting.” 

For example, instead of having “food, paper products, drug items, etc.” as categories, you can lump all those expenses under “groceries.” Items like “pet supplies” can be their own category, but you might want to include vet bills in that category. 

In this table, apply what you learn on the series Fixed and Variable Expenses, start with your fixed expenses and then followed by the variable expenses.

Example:

Savings

In this table, you will put in your savings plan on an emergency fund, retirement plans and other savings plan that you have.

Example:

Sinking Funds

This table will house all your sinking funds. Go back to the series Emergency Fund and Sinking Funds to get an idea on what should be included in your sinking funds.

Example:

Debt Payment

You will fill in this table with all the debts that you have except your mortgage. It can be a credit card, student loan, personal loan, etc.

Example:

Summary

The summary will give you a clear view of how the month went, if you overspent, you stayed on your budget or you saved some money. You will simply deduct the total expenses from the income.

Example:

3) Track Your Expenses

Now that you have your budget completely filled in, it’s time to get to work. Every dollar that you spend, you have to write it down. Keep your receipt. At the end of the week, categorize them.

Doing it every week will make it easier for you at the end of the month. This task can really be tedious so this is where your budgeting apps come in. Budgeting apps make tracking your expenses. 

I use EveryDollar for tracking my expenses. My husband has it also on his phone which makes it easier when we are not together and he needs to run errands. 

Actual Expenses

The actual expenses are the real number that you spent on that category that month. Every time you make a payment of a bill, fill in the box. Some of the categories like grocery or dining out, you will have to wait until the month is over until you can put in your actual expenses. If you plan to use budgeting apps, it will track your expenses for you as long as you are putting in your numbers.

I am a pen and paper kind of girl so although I use EveryDollar, I still go in at the end of the month, copy the total of my expenses from each category and put it on my budget template.

4) Stop and Look

At this point, stop and take a look at what you’ve got so far. Are your expenses greater than your income? It’s time to cut back significantly or find another source of income (or both). 

5) Set Goals

Now that you have an idea of your finances look like, it is time to set goals. Do you want to pay off debt? Do you need to save for an emergency fund?

6) Update You Budget

Budgeting is not set-it-forget-it. One of the budgeting skills you need to develop is to evaluate your budget every month and make adjustments.

There you have it! Now you’re well on your way to a workable budget!

As I have mentioned earlier, you are going to make mistakes and it’s ok. No one got it the first time. Budgeting is a learning process, the more you do it, the better you get at it.

Do you have a budget yet?

Now that you know the Basics Steps Of Budgeting, come back tomorrow and I will share with you What Makes  Budget Healthy.

If you haven’t yet, download the Master A Budget Workbook to practice what you will learn from this series.

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Basic Steps To Create A Budget

Basic Steps Of Budgeting (Master A Budget Series)

Best Apps For Better Budgeting (Master A Budget Series)

Best Budgeting Apps

Welcome back to the Master A Budget Series! Yesterday, we talked about Emergency Fund and Sinking Funds; today, you will learn the best apps for better budgeting out there.

Let’s dive in.

In the world that we live in nowadays, everything is taken over by technology. And budgeting is not an exception.

As with everything else that has an app, the budgeting world has its own, not one but a bunch of apps. 

Don’t get me wrong, budgeting with the cash envelope still exists but today you will learn more about budgeting apps.

These budgeting apps can help you budget and save money. The only problem is which is the best one.

In this post, you will learn some of the best budgeting apps out there that can make budgeting as easy as pie.

Here is a list of the best budgeting apps out there.

Best Apps For Better Budgeting

Each of the apps below has its own pros and cons, choose the one that will best suit you. I would recommend using only one so that you can maintain your focus.

EveryDollar

This app is based on Dave’s Ramsey’s principles of “Baby Steps”. You can set unlimited budgets and track all your spending.

This app follows the zero-based budgeting, meaning every dollar in your income has a job. The app allows you to see it in real-time if all your income is budgeted, if not, you will be able to make adjustments easily.

The best thing about the EveryDollar app is it is accessible on your smartphone, therefore making tracking your expenses manageable.

It is also FREE, although if you want to connect it with your bank accounts, you will need to upgrade to the paid version. I have used the free version and it works really well.

Mint

Mint has been around for a long time and they have made a lot of improvements on it. This app automatically tracks all your transactions and categorizes them when you connect your bank accounts.

Unlike EverDollar, connecting your bank accounts with Mint is FREE.

The best thing about the Mint is it alerts you when you are spending more than your budget amount.

It also gives you free access to your credit score with tips and strategies for improvement.

Budgeting can help you to be more efficient with your monthly budget. Here are the best budgeting apps that you should check out.

Personal Capital

Personal Capital is more of an investment management service but they also have budgeting features.

It allows you to see all your cash flow, where your money coming from and where are you spending it.

Also, it allows you to set a budget, shows you how much you’ve spent in the last 30 days and compares your spending to the previous month.

Personal Capital does not have the fancy features of a budgeting app but the best thing about it is the retirement planner.

It gives you an idea if you are saving enough for retirement and if not, it gives you tips for improvement.

What I love about this app is the personal net worth feature. You will be able to track your assets and liabilities through this app for FREE.

Honey Money

Honey Money is an app that aims to raise awareness and gain control of your money. This app simply tracks all your income and expenses without unnecessary features.

It is a cash-flow based app so you have a visual on how much you have and how much you need to save. It is best for those who have irregular incomes.

The best thing about Honey Money is the clean and user-friendly interface. It’s actually a fun and interesting app.

The only downside is it is NOT FREE. However, you can try it for FREE for 30 days.

You Need A Budget

You Need A Budget is also a paid app but this app makes the subscription worth it by having a lot of features that make a comprehensive budget. Its envelope-based system puts every dollar to work.

It also uses the approach that makes last month’s income take care of the current month’s expenses, which allows you to get ahead in your budget and not live paycheck to paycheck.

The best thing about YNAB is its debt pay off feature which allows you to focus on paying off your debt and gives you motivation by tracking your progress.

Although it is not free, you can also try them for FREE for 34 days.

You can learn more budgeting tools by checking out The Best Tools You Need For An Organized Budget.

Are Budget Apps Safe?

You might be already wondering if budget apps are safe when I mentioned connecting your bank accounts to the apps.

As with anything in life, nothing is certain and that’s including the cyber world.

Although these apps are made with the safety of customers in mind, things can happen and hackers can have their way in.

These reputable institutions are continuously working on safeguarding their customers.

Moreover, you as a customer can help safeguard your account by using unique passwords and also by changing them periodically.

There you have it!

There is no perfect budgeting app but you can make any app perfect for you if you stick with your budget.

Now that you have learned about the best budgeting apps for better budgeting, next up on the series is you will learn the basics of How To Create A Budget.

If you haven’t yet, download the Master A Budget Workbook to practice what you will learn from this series.

What are the best apps for better budgeting on your list? Let me know in the comments.

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Best Apps For Better Budgeting (Master A Budget Series)

Emergency Funds vs Sinking Funds (Which One Is Better To Have?)

Emergency Funds and Sinking Funds

Your definitive guide on the difference and importance of both an emergency fund and sinking fund.

Welcome back to the Master A Budget Series! Yesterday, we talked about Budget Categories and Percentages; today, you will learn about the Emergency fund vs Sinking Fund.

Let’s dive in.

I think you will agree with me when I say that life is full of surprises, both good and bad. I would not mind it if it is good all the time,  however, what if it is bad?

Well, nothing we can do to prevent that. We can always whine and complain about it, which won’t do any good.

Or we can always do something to prepare for it.

As Murphy’s Law says, “Anything that can go wrong will go wrong,” therefore we always need to have a plan.

That’s where emergency fund and sinking fund come in.

Confused about emergence fund and sinking funds? Check out these tips.

What Is An Emergency Fund 

Some may question the necessity of an emergency fund. After all, is it really necessary? How do you go about it? Does it need to be a huge amount? 

Here are some ideas and suggestions that should help answer these questions.

Is an Emergency Fund Necessary?

Generally speaking, yes, an emergency fund is necessary. What form it takes can vary, but it is a good idea to have an emergency fund.

An emergency fund can help you avoid high-interest debt, and helps reduce your stress. 

After all, as I have mentioned earlier, life is full of surprises and many of them are sudden and not good.

By having that “cushion” can help you feel ready and calm. 

How Do You Go about Creating an Emergency Fund?

Total Your Expenses

First, determine your expenses. Look at three to six months’ worth of living costs and count on saving that much in a fund.

For example, if you normally spend $4,000 a month, multiply that by 3 and you would get $12,000. The $12,000 will be your target emergency fund.

The amount can help you keep your standard of living for a time if you lose your job, or it can cover a large expense such as car repairs or medical expenses. 

Pro-Tip

My favorite way to keep track of our finances is by using Personal Capital. With Personal Capital, I can visualize our spending and savings, get insights into our cash flow, see the transactions we’re making, analyze our net worth, and more.

It is an absolutely FREE tool to use, and if you sign up through our link, you and I will get $20 each!

Determine Your Time Frame

Then determine how long it will take you to save that much and how much you have to take out of your paycheck each month to reach that goal.  

Once you’ve determined the amount you need to save and how long it will take to save it, it’s a good idea to change your mentality and put payments into the emergency fund before you pay for anything else. 

If you can do it by automatic deduction, go for it — see if you can have a portion of your paycheck taken out and put into a savings account.

Otherwise, make it a habit to put money in your savings first and foremost, and then take care of your other expenses after. 

Learn why you need emergency fund.

What If You Have Low Income?

Even if you have low income, you can set aside something each month. Try saving a percentage of your income, such as 5 or 10 percent.

It may take you longer, but it will accumulate. 

Does Emergency Fund Have to Be Huge?

In short, no. An emergency fund does not have to be massive – but it certainly should cover unexpected expenses.

Learn more about the emergency fund by checking out How To Create An Emergency Fund?

An Emergency Fund is a saving that will cover unexpected expenses that need to be taken care of immediately.

But, how about those expenses that are expected?

This type of expenses will be taken care of by your Sinking Funds.

Learn the difference between emergency funds and sinking funds.

What Is A Sinking Fund

Another type of savings that you should have is the Sinking Fund. Sinking Fund is a saving strategy in which you set aside a little amount each month to prepare for larger purchases in the future.

Why Do I Need A Sinking Fund?

You might be questioning the need for a sinking fund if you are already saving. I totally get it, however, your savings might not last long if you don’t know what you’re saving for.

You might not even know if you have enough.

By having a Sinking Fund, you will be:

Prepared

Your washer and dryer won’t last forever. Your furnace will have its hiccups. But it’s ok because you are prepared for it. 

Pay Cash

Your sinking fund is a collection of cash intended to pay for a specific future purchase. So when it’s time to use it, you will be able to pay cash.

No more swiping credit cards and be in debt. Although, I usually use my cards to earn rewards points and use the cash to pay off the balance. 

Enjoy Your Purchase

When you have the fund to purchase an item or a vacation package, you will be able to enjoy it more because you know that you are not in debt by purchasing that item or package.

How Does Sinking Fund Work?

Starting a sinking fund is simple and easy.

Review Monthly Budget

Start by looking at your monthly budget and determine how much you can realistically save every single month. 

Identify Annual Expenses

You will then evaluate your expenses and identify the expense that you pay annually, it can be an annual gym membership, car insurance, home insurance, etc.

Determine How Much To Save each Month

You will then take the annual amount and divide it into twelve months. And after knowing the amount you should be saving every month, you should work diligently on setting aside that amount every single month.

For example, we pay $900 on hour home insurance and we pay it annually. So, I would divide $900 by 12 which gives me $75.

I would then create a Home Insurance Sinking Fund and set aside $75 every month. When it comes due then I will have the full amount ready.

As for things that you would not know the amount, like home repair, vacation, children’s fund, etc, set aside any amount that you want as long as it will not mess up your monthly budget. 

If you only have $500 extra for savings in your monthly budget, stick to the $500.

Join the MWP community to get access to free printables, including a sinking fund tracker.

Sinking fund categories that you should have.

What Can Be Included In A Sinking Fund?

You can basically include ANYTHING in your sinking fund categories. However, make sure you have the following:

  • Home Repair Fund
  • Vacation Fund
  • Medical Expenses Fund
  • Car Repair Fund
  • Children’s Fund (if you have kids)
  • Pet Fund (if you have pets)

You can also add the following sinking fund categories:

  • Holiday Fund
  • Gift Fund
  • Gym Membership
  • Home Insurance
  • Car Insurance
  • Christmas Fund
  • Life Insurance
  • Clothes
  • Car Replacement
  • House Downpayment
  • Tuition

There you have it!

Final Thoughts On Emergency Fund And Sinking Fund

Although emergency fund and sinking fund are both savings, the main difference rests on their purpose.

An emergency fund is for purchases that are UNEXPECTED and NOT SPECIFIC while sinking fund is for purchases that are EXPECTED and SPECIFIC.

You can keep your emergency fund in an interest-bearing account that is easily accessible and watch it grow. We keep ours with CITBank, which gives us a reasonable interest rate.

As for the sinking funds, you can keep them in one account but you need to keep track of each sinking fund.

I keep ours with Capital One 360 Savings, which allows us to have multiple savings account in one account.

Now that you have learned about Emergency Fund vs Sinking Fund, next up on the series is about the Best Budgeting Apps and Cash Envelopes.

Do you have an emergency fund and sinking fund yet?

If you haven’t yet, download the Master A Budget Workbook to practice what you will learn from this series.

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Budget Percentages And Categories For A Personal Budget (Master A Budget Series)

Budget Categories

Welcome to Day 5 of the Master A Budget Series! Yesterday, we talked about Components of Budgeting; today, you will learn about budget percentages and categories for a personal budget.

Let’s dive in.

Now that you know about your income and expenses, you might be wondering what personal budget categories are you going to use. Also, how much of your total budget goes to each group.

Don’t worry; I got you.

Your budget needs budget categories and Dave Ramsey percentages, here are some tips on what you should include.

Budget Percentages For A Personal Budget

If you search on the internet about budget percentages, you will see that most of the results point to Dave Ramsey’s recommended budget percentages.

I, myself use Dave’s principles but I tweaked it a little to fit my family’s financial dynamics.

Dave Ramsey Budget Percentages

  • Saving: 10%
  • Giving: 10%
  • Food: 10-15%
  • Utilities: 5-10%
  • Housing: 25%
  • Transportation: 10%
  • Health: 5-10%
  • Insurance: 10-25%
  • Recreation: 5-10%
  • Personal Spending: 5-10%
  • Miscellaneous: 5-10%

It’s good to include enough detail on your budget to have a grasp on things, however, splitting your expenses into a bunch of categories will probably only frustrate you.

Moreover, it will require a lot more patience to use the above recommendations, especially for someone who is just learning how to budget. 

What Is The 50-20-30 Budget Rule?

If you do not want to complicate things, the 50-20-30 Rule is a simpler alternative.

Budget Percentages and Categories-50/20/30 Budget Rule

50% to Needs

Half of your income will go to areas that you cannot live without and that includes housing, food, transportation, utilities, and healthcare.

20% to Savings and Debt

The 20% of your income will be spent on funding your emergency fund, retirement, student loan payment, personal loans, and credit card payment.

30% to Wants

30% of your income will be spent on the things you want to do but you can live without, otherwise known as fun money. This includes vacations, dining out, entertainment, shopping trips, and other luxuries.

The 50-20-30 Budget Rule is best for those who are new to budgeting because it is easy and simple to follow. Once you get the hang of it then you can start going into more detailed budgeting.

Both of these budget percentages have their advantages and disadvantages. Consequently, they are not for everyone.

You still need to tweak them to fit your unique financial situation. Use them only as a guide. For example, if your financial goal is debt freedom, then you might focus more on paying off your debt rather than saving for a vacation.

You see, everyone’s financial situation is unique but the most important thing is to focus on your goal.

If you keep your eye on the prize, then you will know how to perfect your budget.

Here are the recommended budget categories and recommended budget percentages that you need to know.

Budget Categories For A Personal Budget

Let’s break down your expenses into monthly budget categories. Although it’s good to include enough details on your categories, splitting it into dozens of little categories will probably be too tedious. 

Try to make your categories fairly general – “entertainment,” for example, is a more general category than “computer games, movies music, and DVDs” listed as separate categories. 

Here are the Budget Categories that you can include in your budget. Not all of them are applicable to you so only pick the ones that will work for your family.

I usually refer to my budget categories when I was doing the cash envelope budget system.

Income

  • Net Income/Paycheck
  • Extra Income
  • Bonus/Refund

Expenses

Housing

  • Rent/Mortgage
  • Renters/Homeowners Insurance
  • Property Tax
  • HOA  Fees
  • Home Maintenance
  • Home Improvements
  • Furniture/Décor
  • Household Items
  • Cleaning Supplies
  • Lawn & Garden
  • Security System
  • Cleaning Service

Utilities

  • Electric
  • Gas
  • Water
  • Sewer
  • Trash

Transportation

  • Car Payment
  • Insurance
  • Car Maintenance
  • Fuel

Food

  • Grocery
  • Restaurant
  • Warehouse Membership

Technology

  • Phone
  • Internet
  • Cable
  • Streaming Devices
  • Subscription

Health

  • Medical Expenses
  • Life Insurance
  • Gym Membership
  • Health Insurance

Personal Care

  • Clothing
  • Toiletries
  • Baby Items
  • Haircuts
  • Beauty

Pet

  • Food
  • Clothes
  • Accessories
  • Pet Insurance
  • Medical, Grooming
  • Boarding

Fun

  • Travel
  • Entertainment
  • Hobbies
  • Kid’s Activities
  • Holidays
  • Parties
  • Personal Spending Money

Giving

  • Charities
  • Church
  • Gifts

Saving

Debt

  • Credit Card
  • Student Loan
  • Personal Loan
  • IRS

Final Thoughts on Budget Percentages And Categories For A Personal Budget

Those are the budget categories and percentages that you can use to craft your budget. Remember, your financial situation is different from anybody else, so don’t be afraid to make adjustments so that it will align better with your financial goals.

Next up on the series is everything you need to know about Emergency Funds and Sinking Funds.

If you haven’t yet, download the Master A Budget Workbook to practice what you will learn from this series.

Did I miss any personal budget percentages or categories?

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Components Of Budgeting (Master A Budget Series)

Income and Expenses

Learn what you need in creating a budget that works for you.

Welcome to Day 4 of the Master A Budget Series! Yesterday, we talked about the Budgeting Goals; today, you will learn about the Components of Budgeting which are Income and Expenses.

Let’s dive in.

When you have a budget, there are two key points that make up your budget, that is income and expenses. 

Let’s take a closer look. 

What Are The Components Of Budgeting

Income

The first key point and most important part of your budget is your income. Your income is what drives your budget; this is where it will all start.

Here are the types of income that you may receive every month. 

Gross Income

Gross income is the total amount of the wages you received before taxes or any other withholdings like social security, Medicare, etc.

Net Income

In contrast to gross income, Net income is the income after all deductions are taken out. This is usually referred to as your take-home pay.

Extra Income/Passive Income

Extra income is the income that you receive from your side hustles.

For the purpose of budgeting, we will only take into consideration the net income and extra income.

When it’s time to start writing the income part of your budget plan, there will be some estimating, no doubt; but make sure it’s estimation, not dreaming. 

The income area of your budget is not the place to write down ideals. 

To have an idea of how much net income is, simply take a look at your paycheck if you are salaried (meaning you have the same pay every month regardless of how much time you put in). 

But what if you have an irregular income? 

You would simply take a look at your net income over the last three months and estimate your average monthly income. 

Expenses

Your next key point is expenses. It simply denotes where your income is going; where are you spending your money on.

Expenses can be broken down into two types of expenses, fixed and variable. 

Fixed Expenses

Fixed expenses are the bills in which the amount does not change and that you expect them every month. This can be your rent, mortgage, student loan payment, car payment, cellphone bill, cable, water, electric, etc.

Although water, gas and electric bill varies every month, I still categorize it under fixed because I can request it to be billed even. Otherwise, they will be under variable expenses.

Variable Expenses

Variable expenses are bills that are not fixed and can be discretionary. This type of expenses includes food, pet supplies, clothing supplies, gifts, credit card payments, utility bills and etc.

As you break down your expenses into understandable categories and numbers, remember that charitable giving or any giving away of money should be also listed as an expenditure. 

Savings Expenses

I usually add this as the third type of expenses because if you are putting away after-tax money from your income towards your savings, then it is considered as an expenditure as well.

Or, if you are adding money to your sinking funds, it is also considered an expenditure. A sinking fund is a money set aside every month for the purpose of a future big purchase or vacation. We will talk more about sinking funds in the next part of the series.

Some Basic Principles

In budgeting, there are some principles that are considered basic. Here are some of them.

Wants vs Needs. 

The question to ask yourself is, “Can I survive without this?”. This can be a hard one, but it’s vital for a budget to function properly. Beware of convincing yourself that a want is a need when it isn’t – you may just be trying to find an excuse to buy the item. 

Real needs are things like clothes, food, and shelter; but designer clothes, gourmet food, and a grand dwelling are more like wants!

Income vs Expenses

Your expenses should not exceed your income. You may find yourself surprised the first time you do a budget and discover that you actually don’t make enough money to cover your expenses. 

If you see this, you need to look back carefully at your income section and see if you can grow it through side hustles or by working overtime. 

You also need to examine your expenses, maybe you are spending too much in one area. Re-evaluate and trim your expenses as much as you can. Check out 101 Smartest Ways To Save Money Fast.

There you have it!

Knowing and evaluating your income and expenses is essential in setting up a budget that will work.

Is your income higher than your expenses?

Now that you learned about the components of budgeting, it’s time to learn everything you need to know about Budget Categories and Percentages.

If you haven’t yet, download the Master A Budget Workbook to practice what you will learn from this series.

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