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Nov 11 2023
From a young age, I was taught to be responsible with spending and the importance of being aware of expenses. However, I didn't consciously make an effort to bring this knowledge to top of mind and spent more than I should have after getting my first job out of school. This post is all about creating a monthly budget for you and illustrating some important points so you can be smart with your money.
Think of a budget as a plan for how you spend your money. People that don't have money problems are more relaxed because when money is tight, life is stressful! Everyone has expenses and they can be intimidating if you don't have a plan. That's where budgets come in, they help guide current and future money moves in your life.
If you're working, you are most definitely getting money taken out of your pay check, known as income tax. In the old system, the W-4 you would fill out would ultimately dictate how much money is taken out of each pay check. But things have changed a bit with withholdings. For now, I suggest finding out what your take home pay is and hold on to this number for later when we start to fill out a budget.
Can you think of everything that you spend money on? Start writing down everything you can think of that is money out of your pocket (your expenses). Try to categorize the expenses by the type of expense (recurring, one-time, etc) and by category (leisure, debt, bills, etc) to help bucket similar expenses together. Hopefully your list is small, but if not, no worries! You should now have a concrete list of expenses now, let's start to develop a plan.
When it comes to budgeting, you are in control, after all it is your budget. For me, I tend to follow the zero-sum budgeting philosophy, which boils down to: income - expenditures = 0. I like this method because it encourages the person to account for every penny from your monthly income. As a basic example, say I make $1000 a month after taxes (income). Every month I spend $500 in rent, $300 in groceries, $100 in car insurance, and another $100 in bills. The sum of my expenses is equal to my income which sums to 0, hence the name. But this isn't the only way to do it. I'd recommend to start tracking your monthly expenses for a couple months and see what method works best for you, there is no one-size fits all solution here.
Another method that works well for folks is the 50/30/20 budget. This budget is defined by the following:
The 50/30/20 budget is another budgeting methodology that works great for people, so try it out and see if it works for you!
Hopefully this has been a helpful exercise for you and has sparked some interest in money management. Of course there are plenty of services out there that can sync with your accounts and generate reports for your spending but doing the exercise yourself is eye opening. I believe there is great value in doing it yourself to truly realize the impact of your spending.
In my next article on budgeting, I'll create a fake budget following the info you just read for the two strategies mentioned above and map them to a spreadsheet for more transparency and ease of use with Google Sheets. Cheers.