How to Make a Budget Plan for Beginners + Free Budget Plan Template
3 Benefits of Budgeting:
Budgeting is not only important for companies and entrepreneurs but also beneficial for any household worldwide.
- Overview of all the occuring costs:
Do you know how much you actually spent on coffee the past month? How much money you used on your last shopping trip? Why your costs are suddenly so high on certain days? I had a colleague, who never knew he spent 400$ on Sushi a month, until he did his budget plan.
Especially with credit cards it is hard to know how much money we actually spend. Take your card. Swipe it. Type in your password –if even necessary and ZAK! The bill, thrown away or stashed in one of the shopping bags (Or in my case my purse – I already have a bill collection in there). Mostly we don’t even look at the costs at all. Especially, if we talk with a chatty friend, if you know what I mean. But if you take your time and write down your expenses – maybe even just once a week you will always have an overview of where your money goes.
(I probably shouldn’t add this to the blogpost – but do Americans really buy toilet LEDs with air freshener? I need to say that I was kind of stunned at the beginning but looking at it for a second time – it looks pretty cool. If you are curious: here is the Amazon link)
- Saving more money and hitting money goals
If you know where your money goes, you can start thinking about where to cut costs and where to cut the expenses completely. Do you really need another flower pot if your room already looks like half a jungle? Probably yes, but I am sure you can cut down on coffee costs , the magazine subscription you pay for, but never read, or eating out five times a week. (Easier said than done – I know).
If it is really hard for you to give up on anything and you really think you need to buy the extra super expensive bag, or another video game, then just think about your money goal. (A personal tip; Write down! The exact number and pin it to your desk wall! – You will always be reminded of your goal). Before, I always thought, this month I will spend less, but never actually achieved the goal. It was simply too vague. Saving get so much easier, when you have an actual number in your mind instead of a vague, undefined number.
Why is it important for you to hit this money goal? Also, if you cannot withstand the urge to spend money, just tell yourself to wait for another week. One week will turn into two, and two will turn into the day you hit your money goal! I am not saying never afford anything, just not spend money recklessly.
- Calculating debt repayments and possible debt amounts:
Budgeting can help you hereby in two ways:
- If you already are in debt you can calculate and find a way to decrease your debt with a cost reduction plan or
- if you plan on investing in a bigger project ( for example taking a loan to buy a house or to pay for tuition fees) you can take a look at your total expenditures and figure out how much money you can pay back and how long it takes for you to pay back this debt amount. Here you can set yourself a personal goal date to become debt free and work towards a positive number.
LHow to create a Budget Plan- The 50/30/20 Rule
One of the most used budget plans is the 50/30/20 budget.
50% = Basic costs (you need to live)
30% = Wants
20% = Savings or debt repayment
As you can see in the list above, you do not have to abstain from the things you want, you merely have to restrict the amount you spend on them to 30% of your net income.
50 %
If , for example, you have a net income of 1800$ you first pay off your basic living costs, such as your rent, food costs, car costs, insurances, water and electricity and your phone bill and most importantly, to read our blog, internet costs. Think about all necessities you need to fulfill your basic needs. If the amount reaches more than 50% think about small reductions of those costs: Can you drive with public transportation? Can you save money when buying groceries? Can you reduce your rent or electricity bill? Let us know if you would like more information on how you can save money?
30 %
are your want-budget. With a net income of 1800 $, this would be 540$ per month, which you can spend on books or short travels. Moreover, spendings to increase your skills like online classes and a visit to your favorite coffee shop also count to your want money
20 %
The rest, consisting of 20% goes to debt repayments and savings. 360$ a month is put aside for unexpected expenses.
Personal Tip:
If you are interested in investing I would recommend you to reduce your “want” percentage to 20% and use the remaining 10% to invest.
How to create a Budgeting Plan
Step 1: Set up your categories: You can use the categories of the 50/30/20 Budget Rule or form your own ones.
Step 2: Add the month you are budgeting for
Step 3: Write down all costs
Step 4: The space before “Amount” is to highlight the acceptance of the amount spend.
Let’s say you buy groceries for 100$ but your goal was to spend less than 80$: You can either color it orange if it is still in the “okay” range for you or “red” as it went way over your budget.
If you, instead of 100$ only spend 70$, it would be colored green as you hit your planned budget goal. Checking your budget plan you can immediately see where you spend too much money. If you don’t want to color, you can just add a x for “over the budget” or leave it empty if you are below.
Step 5:
Every time you save money or you a set amount to pay back debt you can “fill” the bottle. To know the size of the circle added, we use following calculation:
100% / your money goal x the amount you saved
If you have, for example, a money goal of 2000$ – and you put 100$ in your saving jar:
100% / 2000$ x 100$ = 5%
Now estimate what 5% of your bottle are and color it in your favored color.
Step 6: At the end of the month you sum up your costs.
Step 7: Calculate the % of each category based on your total income. Color the percentage on the graph.
Calculation: 100% / total income x costs of category
Lets say you have an income of 1800$ and your total expenses for “Basic Costs” is 1080$:
100% / 1800$ x 1080$ = 60 %
Step 8: Compare different month’s to figure out your spending habits.
Setting Goals for Budgeting:
One very important money goal for budgeting is being debt free and not making debt on a monthly basis. But in general budgeting is based on your personal needs and the different activities you add to your life. We can’t decide your money goal, but we can help you with goal setting. Read more about goal settinghere..
If we think about the reasons why we buy unnecessary items we probably immediately think about items connected to friends or social media, or stuff we collect. I, myself, got seduced by ads on social media. I bought a new bag I didn’t need. Do I regret it ? No. But I cannot deny that I could have saved the 40$ and invested the money.
Or have you ever had a situation where you went out with a friend and she talked you into buying something? Maybe a new shirt that looks fabulous on you? Maybe a new computer game? Or maybe it is the other way around and you bought something to gain respect from your friends?
My sister always gets weak when she passes bookstores. She always picks up a new book.
In general it is not a bad thing to spend money on yourself. It is the reason behind the purchase and the amount you spend that makes it acceptable (in your perspective) or not. So, if you consider buying something the next time you are in between a group of people (or social media) consider for yourself if the item is worth buying and will have a good use or if the money is wasted.
If you have a question to Budgeting – feel free to leave a comment or write on our social media!
Also, if you are curious about how to overcome procrastination or how to be more motivated: Check out our blogposts! And if you are curious about our progress check out the progress report.
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