I began setting up a budget from the day I began working. I remember my mom at the kitchen table with a piece of paper and a pen working on hers using her weekly paycheck. Mine is a little more sophisticated, my budget planning consists of using spreadsheet after spreadsheet, year over year. I create my budget then I create a cash flow for the year. With my cash flow spreadsheet, I can track income and spending for the year. I will speak about this in more detail in my next blog. I am here to help you with setting up a budget for beginners right now.
Let’s start with why a budget is necessary because we need to have a spending plan. Per Investopedia, a budget is simply a spending plan that takes into account both current and future income and expenses. They have outlined 6 great reasons for budgeting. We need to map out where and how we spend our money. Or it can lead to spending spiraling out of control, resulting in mounting debt. Debt can be the start of financial instability and could lead to financial insecurity. So, I begin by grabbing the pay stubs and entering the gross income amounts in the Excel budget template or Google sheet template.
We need to map out where and how we spend our money, or it can lead to spiraling out of control and resulting in mounting debt.
Setting Up A Budget For Beginners
Whether you are salary or hourly start with your base salary. We will deal with any fluctuations in your spending plan. If you are a two-person household sharing expenses split your expenses by the percentage of your total income. If one makes $50,000 and the other makes $60,000 split expenses 45/55.
Now I move on to the bills and living expenses. Make two piles, one with bills that are the same each month and the 2nd pile of bills paid quarterly, every other month, bi-monthly, bi-yearly, or yearly. For these bills add them up and divide by 12, we will add this to the budget spreadsheet as a monthly bill.
Pulling The Final Budget Together
So, let us pull it all together for setting up the budget for beginners. List all the bills in the first column. In the 2nd column add all the bill amounts. Add the monthly and non-monthly bills converted to monthly to the spreadsheet. Our planning is now coming together. At the top of the 3rd column, I will add the first income and apply the percentage to each bill amount creating income #1’s amount to contribute to the household budget. Create a 4th column applying the 2nd income percentage to the first column again. This will create income #2’s contribution to the household income budget.
No need to worry about Categories currently as I feel categories don’t really mean anything. It is what and where you are spending your money that you want to have control over not categories. See the image above.
Setting Up Individual Budgets For Beginners
Now, you will have a two-person household budget. For a one-person plan follow all my directions above just skip the percentage income split. For the two-person income, you will need to work on individual budgets less the household contribution. Start out the same as above. The first column with personal bills, under income, subtract household income leaving you with both with your discretionary incomes.
See 2nd image above. As you can see setting up a budget for beginners is super simple when laid out step by step.
Working Together In Setting Up A Budget For Beginners
If the income percentages worked and both people have similar personal bills each person should end up with similar discretionary income. If this is not the case, then the person with the larger salary should graciously help the other to achieve their goals. This generosity to help your partner must come from a place of love. Final note, there can be budget challenges when creating one together. But I believe that when creating a budget it should be based on love and selflessness as expressed in my previous blog Budget: Love and Selflessness.
Let’s budget, spend and live!