How to Start Budgeting in 3 Easy Steps

Category: Financial Literacy

By BankSource on 7/17/2023

Let’s make something clear: this blog is not about donuts. However, the donut analogy can help with understanding why writing down your spending habits will lead to better budgeting.

Say you’re on a diet and tracking your eating habits in a journal. When you go to eat a salad, you’re excited to write it down. But what about a double chocolate cream cheese icing donut?

Are you as likely to eat that donut if it has to be written down? Probably not. The same goes for budgeting. If you are tracking your spending habits and paying more attention to your money, you are more likely to save.

TIP: Keep a daily spending diary to allow yourself to visualize what you are spending your money on and whether it’s money well spent.

Budgeting is for everyone. Whether you just got that new job you had been hoping for or you’re getting ready to retire, there is a need for financial transparency in every life stage. Using a daily spending diary is just one of three important steps in creating your budget.

The Three Steps:

Daily Spending Diary

Whether it’s how much you spend on gas, groceries, or little things like a morning coffee, knowing where your money is going is the first step to putting together a successful budget. If you want to create a monthly or quarterly budget, start by tracking your money spent in that amount of time. Keeping a diary will allow you to get a firm grasp of how much you typically spend within a certain period as opposed to just guessing. You can track your spending using a journal, excel, iPad, or whatever works best for you. Practice keeping receipts of everything you bought and write all of your spending down at the end of the day.

TIP: Automate your savings. Portion a part of your income to go to a savings account at a regular interval (ex. once per paycheck, once a month) so you won’t even have to think about it! Set up an automatic transfer in Online Banking or Mobile Banking. From $20 a paycheck to $200 a month, your savings will start to add up.

Income vs. Expenses

A budget has two parts: your income and your expenses. The difference between the two can reveal a lot about your spending habits. Income is a source where money is coming in. That could be a job, child support, or a side hustle. All these sources are added together to create your net income. This is how much money you have available to spend. An expense is when you spend or allocate money. There are three types of expenses: spend, save, and share. What are you spending, what amount are you saving, what for, and how will you share your money? These are the questions you ask yourself to determine your expenses.

Look in your daily spending diary, check your savings, and look back at past gifts for friends or donations to determine the amount you spend. Add these up and then compare the number to your net income. Are your expenses higher than your income? Are they almost the same? If yes, it may be time to see what you can cut back on and reevaluate your spending.

Evaluate Needs vs. Wants

If you start to notice your income and expenses are too close, focus on your needs and cut back on your wants. This looks like going over your daily spending diary and separating out necessary expenses: bills, loan payments, groceries, etc. Then review the transactions remaining and determine what habits need to change. This includes those streaming services like Netflix or Disney Plus (although those can often feel like a need). Do you need that Starbucks coffee, or can you make a pot at home? Maybe you need a car for transportation to work, but maybe you want the BMW. It’s important to be honest with yourself in the evaluating process.

TIP: Have a friend or someone you trust look over your spending habits to help you separate your wants and needs. It can be helpful to get an outside perspective!

Budgeting is intimidating but it’s important to your financial wellbeing. Starting as soon as possible is the best thing you can do for yourself to gain momentum for the future. Form the habit of tracking your money now so you can enjoy life later.

BOS wants to help you on your financial journey. We have resources linked below for you to get started on, or to continue growing toward, reaching your goals.