Budgeting can be a daunting task. Many don’t know how to get started with a budget, worse still some people don’t fully understand the true power behind a budget.
I always considered I should have had a better view of my finances. When I got into debt and money seemed to be pouring out of my hands I finally took the time to set up a budget spreadsheet on my computer.
When I did I got a shock!
The insight into where my money was going was incredible. By maintaining a budget I was able to make changes to my finances that put money back into my pocket almost instantly.
If you need to make extra money fast, and you don’t keep a budget, I guarantee you this is the fastest way to find extra cash.
Step 1: Set up a budget spreadsheet
Setting up a budget isn’t as hard as you think. There is plenty of software or apps out there to help you do that but you can create your own.
It’s easy enough to create a budget using a spreadsheet, or with pen and paper. I have a post that shows you how you can create your own budget.
Easier still, I will give you a copy of the spreadsheet I use. How awesome is that? Just sign up to my mailing list and I’ll send you a link via email.
This will get you up-and-running with a budget in minutes.
Pro Tip: If you’re not using budgeting software use one bank account for your transactions. It makes it so much easier to input your figures in each week.
Step 2: Categorise your expenses
Once your budget spreadsheet is set up you want to identify categories to group your expenses.
This is will be personal to you. You’ll have your fixed or living expenses, such as rent, loans, gym memberships. Then you will have variable expenses such as groceries, travel and phone charges.
You may want to break out your expenses into subgroups to track your spending in certain areas.
For example, I broke out a row for coffee and another for lunches from my “food and drink” category. I got a shock when I realised I was spending $1200 a year on coffee and $1200 a year on buying lunches at work each day!
Step 3: Track a month’s expenses
If you are able to enter at least a month of expenses you’ll get an immediate view of where your money is going. The more backdated months you can add to your budget the better. This information will really inform your spending habits.
If you can’t enter old data then enter your transactions each week, a picture will form over time.
Pro Tip: Track your expenses and maintain your budget weekly. Doing so makes entering transactions super quick and easy. Weekly insights also keep you on plan and super motivated.
Step 4: Set financial goals
Keeping a budget will provide an accurate view of where you money is going. You’ll need a goal to effectively put your budget to work for you.
A budget helps you channel your money into the places you need it to go. By defining a financial goal you will have a reason behind your budget. It will help you be more strategic with decisions on where to channel your money and where to cut costs.
For example, you may want to save for a holiday, pay down your mortgage or pay off debt.
You’ll be able to start reallocating that $1200 a year you spend on coffee to pay off that credit card that’s been costing you a fortune in interest. I’m talking about me if you didn’t guess already!
I set a goal to pay off $5000 of debt in 9 weeks. Through the effective application of goal setting my budget was able to help me work toward that goal easily. When you start to make progress toward a goal some clever psychology kicks in. You find extra motivation to work a little harder.
It happened to me and I nailed $5000 of debt in just 6 weeks!
Pro Tip: One great tactic is to break your goal up into more achievable subgoals. Make sure to reward yourself with small treats when you achieve these mini-milestones too. You can read more about that in my post about goal-setting.
Step 5: Divide up your income using the 50/20/30 budgeting rule
The 50/20/30 budgeting rule is more of a guideline to help you approach to dividing up your income in a manageable way. You can read more details about the 50/20/30 rule here.
In short, you assign 50% of your income to fixed or living expenses, 20% to savings and 30% for variable expenses.
This approach tests if you are living beyond your means. It also forces you into good habits of putting 20% of your income into savings. It’s pretty powerful and definitely worth consideration.
Step 6: Cut costs
Once you have a financial goal and you understand your income and expenditure better you can start to determine if and where to cut costs.
The 50/20/30 rule will help you understand, from a higher level, where to start. You may immediately be able to see that you are spending far more than 50% on your fixed expenses.
If this is the case this area needs some attention. Fixed expenses, such as rent, mortgages, and loans, are harder to reign in.
Variable expenses, like groceries and phone bills, are easier to control. These expenses should be the first point of call when making cuts to your budget.
Check out my post on how to cut costs in your budget for more in-depth information.
Reducing your living costs is the fastest way of putting cash back in your pocket for sure. They say, “a penny saved is a penny earned”. I find that to be very true.
Step 7: Increase your income
When you’ve managed to slash your budget to the maximum then you can focus on raising your income.
If you want to achieve your goal faster raising your income is naturally the next step.
You may think that it’s pretty hard to find the time to make extra cash.
Yes, I’ve been there, sometimes it’s not easy.
There are a bunch of ways you can make extra money to suit your life. These don’t necessarily entail getting a second job.
To create a sideline income, follow my lead and make money by setting up a blog. I can show you how easy it is to set up a blog in this post. There are bloggers out there earning 6 figures a month and many earning a nice little side income.
Alternatively, you could rent out a room in your house. You could sell your unwanted crap on eBay, after all, one man’s junk is another man’s gold.
Throw a yard sale. Turn a creative hobby into a business by selling on Etsy. Take online surveys.
The list could go on. I have a whole Pinterest board of ideas on how to make extra cash.
You may not get rich from these but they’ll help you step toward your financial goal a little faster, and sometimes with very little effort!
Budgeting is not as hard as people think. The key to successful budgeting is setting you financial goals and committing to maintaining your budget. It’s often the fastest way to find extra cash as opposed to raising your income. Once you get started it is incredibly motivating to see the results, particularly if you break your financial goals into milestones.
What do you think? Do you keep a budget? What did you find the greatest hurdles to getting started were or are for you?