Budgeting. The act of planning and watching where your money is going every month (or every paycheck). While many people have different goals with their budget, creating those goals and sticking to them can be a daunting one.
What saving goals should I focus on? Is it better to pay down debt or start investing? How much should I be spending on___? Why does it seem like I’m spending more during quarantine than I was before?
These are common questions many women have when starting their budget. If you’re creating (or recreating) your budget and find yourself asking any of these questions, then you’re in luck. Download our free budget planning worksheet and follow along with these five steps to create a kick-ass budget!
Assess Your Money
The first thing you should do is look at your income. If you have a regular paycheck, knowing how much you make each payday is easy. Write down what you make in a month based on your post-tax income.
If you own your own business or run a freelance business, your income can fluctuate. Start your budget with the average amount you’ve made in the past few months. This baseline budget will give you the start you need to determine where your money should go.
Don’t forget outside income sources, like child support, unemployment, or Social Security.
Pick Your Budget
A common misconception is that there is only one way to budget. Too often someone will pick a budget style that doesn’t work for them, stop after a few weeks, and assume that budgeting just isn’t for them. While there are multiple ways to budget, the four most common are
1. Percentage Breakout Method
This method breaks your income into percentages. The most common breakdown is 50/30/20 where 50% goes towards needs and essentials (like house, food, bills), 30% goes towards wants and non-essentials (shopping, eating out, travel), and 20% goes towards savings and repaying debts. It’s important to remember that you can breakdown these percentages any way you’d like! This method helps you create a budget with some flexibility while being intentional with your money.
2. Envelope Method
This method is cash-based and involves putting physical money into envelopes that are divided into categories. These can be categories such as eating out, fun, clothes, pets, etc. Once your money from a specific category is spent, you can no longer buy things in that category. This method works well because psychologically, we spend less money when paying with cash.
3. Zero-based Method
This method is advocated by Dave Ramsey and involves allocating every dollar in your budget. This means everything you save, give, or invest should add up to your total income. When writing down your budget, every dollar has a job. This method lets you keep a close eye on your finances.
4. Reverse Budgeting Method
This is the simplest of the four budgets. It involves focusing on one goal, such as paying off a loan or credit card, or saving a certain amount of money. Once you’ve met your monthly payment towards this goal and paid your bills, the rest of the money is yours.
Track What You Spend
When deciding your budget method, it’s also good to review your spending over the past few months. This way, as you plan your budget, you don’t put too much or too little into a category. If you average $100 in your monthly grocery bill, trying to budget for $50 will only end in failure and frustration.
Tracking your expenses can also help you see where you can cut back. If you find that spending $100 on groceries each month is too much, you can see what you’re buying and if there are ways to save money at the grocery store.
Talk About Your Money Goals
Women don’t talk about money enough. Not with our partners, not with our friends, and not with our coworkers.
“This is something we would change our life energy for, or trade our life energy for, and it gives us a voice. So why wouldn’t we talk about this? Shouldn’t this be the thing we talk about the most?,” says Akasha Absher, Chief Consulting Officer for Syntrinsic Investment Counsel.
Talk with your partner about your budget and finance goals. Tell your friends about your goals and encourage each other. Talk to financial advisors, attend webinars and ask questions. Be vocal about your plans for your money. Studies show that when you talk about your goals, you’re more successful.
Being in control of your finances is a lifetime goal. You don’t have to do it alone. Check out this list of great articles, worksheets, and podcasts to help you boost your confidence in money!
City Girl Savings (resource)
Time is Money, Start Talking (podcast)
Time is Money, Know the Basics (podcast)
Secrets of Wealthy Women (podcast)
Financial Empowerment for Women – ReThink Wealth article
The Complete 401(k) Picture – The Living Balance Sheet
Ready to keep learning? Join our newsletter to stay up-to-date on our blogs, webinars, and podcast!