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How to start budgeting for first time

If you’ve read any personal finance advice, you know there’s one simple rule that comes up time and again: You need a budget. A budget is a roadmap for where your money will go so you can make your hard-earned income work for you. Budgets assign your money a job and establish spending limits for specific expenditures so you can use your money responsibly. 

Creating a personalized budget is essential to developing the right spending habits, setting aside money for the long term, and ensuring the money in your bank account goes where it needs to. But how do you make a budget?

Getting started with your first budget may seem complicated, but this Budgeting 101 article will walk you through every step in the process. You’ll learn how to budget, how to avoid common budgeting mistakes, and how to ensure your budget is one you can actually stick to.

Jump in, get started, and design a budget you can live on in no time.

Determine why you want a budget 

According to surveys, only around a third of all households live by a strict budget. By deciding to budget, you’re joining a select minority — and your decision will pay off. Budgeters are almost twice as likely to report no financial worries compared with spenders, and they’re less likely to live salary to salary or struggle with finances.

While budgeting is always a great decision, it’s good to define goals before you start the process, since the reasons you’re budgeting may impact choices you make during the process. Common reasons to create a budget include:

•Finding a way to save more money

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•Reducing overspending on problem areas

•Ending fights about money for couples

•Making sure your spending reflects your goals and values

•Breaking the salary-to-salary cycle

•Avoiding spending money you don’t have

•Getting out of debt

•Staying on track toward long-term financial goals

While it may seem silly to think about your motivations, psychology plays a big role in how we handle money. In fact, University of Maryland research into budgeting showed the process of creating a budget makes it more likely that goals will be achieved because the process of hashing out the numbers creates an emotional investment, enhances motivation, and discourages cheating.

Do a deep dive into current spending habits

Before you can create a realistic budget, you need to know what your current spending habits are. If your budget isn’t realistic, it’s nothing more than a wishlist.

You won’t know if your budget is realistic until you’ve got an idea of where your money is currently going. Most experts recommend tracking your spending for about 30 days to get a clear picture of spending. There are a few ways to track spending:

•Enter your expenses into a spreadsheet or notebook: Whenever you make a purchase, write it down or enter it into a spreadsheet. This is the most hands-on approach but can be time-consuming and you might forget expenditures if not entered immediately. It helps to keep your receipts.

•Use an app: Apps such as Mint, Dollarbird, and PocketGuard make it easy to track spending by linking your credit cards and bank accounts. Link all accounts and ensure each purchase is labeled correctly to get an accurate assessment.

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•Use your statements: Credit card and bank statements can help track spending, although this approach is less likely to produce detailed results because you may not remember what a particular transaction was for. Still, if you want to get started with your budget right away, going back over a month or two of old statements will give you a big picture to use as a jumping-off point.

Fewer than half of all Americans responding to Consumer Financial Literacy surveys indicate they have even a “somewhat good idea,” what they’re spending on food, housing, entertainment, and other essential expenditures — so figuring out where your money is going must be part of the budget process.

Use a calendar to catch irregular expenses

While tracking spending shows you where money goes on a day-to-day basis, your budget should also factor in funds for irregular expenses, such as holidays and birthdays.

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