Being financially independent is a wonderful thing. You get to make your own decisions about where your money goes — how you spend it, where you spend it, and how you save it. But with financial freedom also comes an immense amount of responsibility. If you overspend or don’t keep a close eye on your finances, you may find yourself fighting to keep your head above water. You could end up missing payments, racking up (more) debt or prolonging long-term goals.
Thankfully, your financial situation never has to get that dire. All it takes is setting up a simple yet effective budget. ‘But where do I even start?’ we hear you asking. You can start right here, with LendNation, to learn all the basics of budgeting for beginners and how to get started with your very own budget.
But first: Why a budget? There are endless reasons to create a financial budget, but some of the most important ones include:
- Understanding your finances better
- Saving for future purchases and retirement
- Cutting down on overspending
- Eliminating the need to live paycheck to paycheck
- Paying down or eliminating debt
- Reaching financial goals
Once you determine the whys of your budget, it’s time to create a plan of action. Ready to get started?
Step 1: Calculate your total monthly income
First things first, you need to know how much you’re making (after taxes, of course). It’s easiest to manage your budget on a month-to-month basis, which is why you should calculate your monthly income. If you’re a salaried employee or live off a fixed income, it should be easier to determine how much you’re making each month by adding your total paychecks.
If your monthly income varies a bit more or is harder to predict, use a helpful tool like this paycheck calculator. It provides a near-exact estimate of your paychecks by using information like:
- Where you live
- Marital status
- How often you get paid
- Hourly pay vs. salary pay
- Pre- and post-tax deductions
From there, you can paint a more accurate picture of your monthly income, which is what you need to know for your next step.
Step 2: Calculate your monthly expenses
Next, it’s time to calculate your monthly expenses. Where is your money going, and how much of it are you spending? Let’s break it down into two categories to make this step a bit easier.
These are the payments you make each month — usually for the exact same amount. Fixed expenses are the easiest ones to predict. Things like:
- Mortgage or rent
- Student loan payments
- Car loan payments
- Personal loan payments
- Monthly memberships and subscriptions
Next up are your variable expenses. These are the payments you make each month but will change month-to-month. These expenses include things like:
- Utility bills (gas, heat, A/C, electricity)
- Water usage
- Household items
- Personal items
What is the best way to calculate these expenses? Go through your purchases over the last few months and calculate your average monthly spending in these categories. From there, you can work to transfer these into ‘fixed’ expenses to help keep you on track.
For example, if your average spending on utilities is $120 a month, but you know it will be much lower in April because you don’t use that much heat or A/C, budget the $120 anyway. That way, come August when your A/C bill skyrockets, you’ll already have that money set aside.
Step 3: Cut expenses if necessary
Now that you’ve calculated your monthly income and expenses, it’s time to determine the most important question: Do your total expenses outweigh your total income? If not, great! If so, there’s a lot more trimming involved. No matter where you land, though, you should take a closer look at your spending to see where you can cut expenses. Here are some ideas to get you started:
Dining and entertainment
The average household spends nearly $2,500 a year on entertainment. You can brainstorm more creative ways to cut down on that amount like cooking at home, limiting your activities, and hosting movie nights.
Total transportation costs for the average household — including gas, car payments, insurance, and public transportation — equals just above $9,000 a year. Ask yourself questions like: Can I carpool? Can I work from home more often? Can I opt for a vehicle with lower car payments and/or better gas mileage?
Step 4: Remember the 50/30/20 rule
When it comes to your budget, most financial experts and advisors want you to remember three numbers: 50, 30, and 20. What does that mean, though? Here’s how it breaks down:
- 50% of your income should go towards needs and essentials, like living expenses, food, and bills.
- 30% of your income should go towards wants, like entertainment and vacations.
- 20% of your income should go towards savings, whether it’s towards your emergency savings, retirement, or major purchases like a vehicle or home.
This simple and effective approach can help give you get a better idea of where your current spending goes and where you can make some adjustments. All while giving you the flexibility to still have some fun and not limiting yourself entirely.
Pro tip: To keep yourself from overspending and under-saving, set up an automatic withdrawal from your paycheck or banking account to deposit directly into your savings account. That way, the money is set aside before you get the chance to spend it.
Step 5: Use free budgeting tools and resources
Starting and managing a budget can be a bit overwhelming. Luckily, financial experts have shared their wealth of knowledge with the world in the form of helpful resources like templates, tools, and apps. Major platforms like Microsoft Office and Google Sheets have pre-built, ready-to-use budgeting templates to give you a jump start. Most top-ranking budgeting apps like Mint, Clarity Money, and Pocketguard are free to use and easy to access and update with just a few taps of your phone.
Our advice? Test out a few options to see what works best for you. The key to a successful budget is actually managing it, so be sure to find a tool or resource that is easiest to keep up with and helps you stay on track.
Step 6: Set goals
Once you have the basics of your budget locked down, it’s time to set some goals! After all, you likely have your sights set on a bright financial future — filled with a nice home and free of debt, worry, and stress. Those goals could include:
- Paying off credit card debt
- Paying off your home or vehicle
- Building an emergency savings
- Opening a retirement fund
- Saving for a big purchase
- Improving your credit score
- Starting a college savings fund
- Going on a bucket-list vacation
Setting goals can help you stay on track, stay motivated, and set you up for future success.
Turn to LendNation for budgeting help — and more
No matter your personal situation, creating a budget (and sticking to it) is the most important step to financial freedom. But when life throws you curveballs, don’t let it stand in your way. Turn to LendNation to help cover any short-term financial gaps and hurdles. Our simple title, installment and payday loan application and quick approval process can get you the fast cash you need — so you can stick to your budget and get one step closer to true financial independence. Apply online today!