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Sitting down to get your finances together can be overwhelming. Perhaps you are afraid to look at the balance on your credit card bill or know that you have some medical bills that have not been paid. Still, it is something that must be done in order to secure a better financial future.
The first part of the budget is income. Write down what you make per month. For variable pay, look at what you have made over the past six months and choose the smallest amount. Whatever your income is sets your budget. While you may need to increase your income, the goal for the beginner budget is to know exactly where your monthly financial situation stands.
Next work on the first block of expenses. Living expenses are payments that you have to make to ensure that you have your basic needs—food, shelter, and transportation—met. Start with the simple ones. Include your rent or mortgage, cell phone bill, car or other types of insurance, and other static living expenses. Here is the place to put subscription services—although keep in mind that they are an excellent place to look if you need to cut.
Then look at utility bills. Consider each one carefully. If you no longer have physical copies, most utility companies have 6-12 months of bills online. Look at the average of your bills. Consider putting all utilities on budget billing plans to help make the budget more consistent. Another option is to set aside the average of each utility each month, being sure not to spend the excess in low bill months to have it available when needed.
Finally, groceries are part of living expenses. The amount you spend on groceries should not come at the very end of the budget with what is left. Rather, set an amount that you would like to spend on groceries. The USDA suggests $25 per week per person on the low end. A family of four would need to budget $100 under those guidelines. Of course, this budget is minimal and requires careful attention to shopping, but it is a starting place if you are not sure how much you are spending.
Debt is the next step of the beginner budget. Take the time to make a spreadsheet separate from your budget document and include each of your debts. Include credit cards, car loans, and student loans but also consider medical or other bills that you need to pay. Anything that has an end to its payment except your mortgage should be in your debt section. On the spreadsheet, include the amount owed and the amount of each month’s minimum payment. Now, transfer those minimums to your budget document.
The final step of your beginner budget is to think about future expenses and savings. How much you save depends on what is left in your budget but try to include at least a small amount to go toward savings for living expenses should you lose a job or have an emergency expense. Also consider in this section bills that are not monthly, such as HOA dues or six-month car insurance policies. Divide what you owe by the number of months you have to make the payment and set aside that amount each month to keep those bills from “surprising” you when they are due. Include a budget for holiday gifts and start of school expenses.
Other set asides should be for discretionary monthly expenses. Clothing, party gifts, travel, and entertainment are some of the items that go in this category. There is no need to expect to spend all of this money each month but have an amount to set aside for use as needed.
The first time that you make a budget, you will not get everything right. Budgets take about three months to get done properly. Don’t let needing to make changes in the first months turn you off to the idea of budgeting. Hang in there and watch your financial life stabilize and eventually grow.