Alejandra Sayavedra is a CPA and tax senior based in Chicago, Illinois. She shares with us her budgeting tips for singles so that they can gain more control over their financial lives.
If you're deciding to start a budget, it's probably because you've realized that your current financial situation needs some improvement and you have the desire to do something about it. I think the hardest part about starting a budget is accepting that you have to change things in your life to improve your financial situation. Once you are there and want to change for the better, you're set and ready to go. I should also add that creating a budget is just the beginning, because having a budget won't do you any good unless you follow it!
TRACK ONE MONTH
If you're a beginner like I was when I first started budgeting, you probably have no idea how much you spend on anything. I had no idea how much I spent on groceries or entertainment or anything every month. So the first step would be to pick a month and keep track of all your expenses in that month (absolutely every expense!). I'm old school, so I just use a regular Excel file and keep track of expenses by categories. My list of categories includes all expenses that are recurring every month, such as rent, phone, gym, Netflix, tithing (charity or church donations), groceries, eating out, savings, and fun. I also include a “miscellaneous” category for all other expenses that don’t occur every month, such as medicine, decorations, clothes, gifts, and so on. For this to work, you need to keep track of everything you buy in one month; at the end you will subtract all of the expenses from your income received during the month.
Most likely at the end of the month you decide to track, you'll end up with a deficit balance. That is OK. That is exactly the reason why you are learning to budget! This little exercise is for you to get a better understanding of how you allocate your money throughout a typical month. We all have unexpected expenses that happen from time to time, and that is when budgeting becomes a little bit trickier, but if you plan for things in advance (such as vacations or buying something out of the norm), then you can get rid of some unexpected expenses since you would already have considered them in your budget.
CATEGORIZE YOUR SPENDING
After tracking your expenses for one month, you can begin to create your budget. Take a look at the amount you spent under each category and decide if that is an adequate amount or if you can realistically reduce your expenses in that area (in some categories you may even increase the amount you estimate to spend each month). You want to start with baby steps and goals that are reasonable because you haven't yet developed the discipline that it requires to follow a budget; don't set yourself up for failure. For example, let's say you spent $300 eating out the month you tracked your expenses. Setting up your budget to allocate only $50 to this category may be hard to follow. Find areas where it would be the easiest for you to cut your expenses (maybe cancelling your unused gym membership, changing to a less expensive Internet carrier, or eating out one or two fewer times a month). You want to be realistic about your expenditure goals, but at the same time it should feel a bit uncomfortable. You are trying to change and develop a more frugal mindset that will allow you to reach your financial goals.
Your first budget will be based on the month you tracked and what you feel is doable for you. You will probably need to adjust your budget a little bit during the first few months as you gain a better idea of what you’re capable of doing in terms of cutting out certain expenses or spending less on a certain category. After my first month, I realized I didn’t have to spend that much on eating out or buying clothes every month, so I reduced my expenses in those areas.
WRITE EVERYTHING DOWN
You should record your expenses as often as you can. I do it on a weekly basis, but the more often the better so you don’t end up working on your budget for hours at a time. Also, there are tons of apps and online tools to create a budget. As I mentioned earlier, I’m old school so I use a regular Excel file; however, use whatever is best for your particular needs.
PAY THE LORD FIRST
There are a couple of strategies to help you be successful in following your budget. The first thing would be to set aside money for tithing (church or charity donations) and your savings as soon as you receive income for the month. Then you know that whatever is left can be allocated to your expense buckets and you can choose whether you’d like to have something left that can be added to your savings bucket or not (since you already put your savings money aside).
It also helps to think of any particular financial goals you may have that are driving your desire to start budgeting. Whether you want to save money for a house, furniture, a big vacation, or just a rainy day, you can think about how much you want to save for the next year and set up your budget accordingly. For example, let's say you want to go on a big vacation next year for which you'd need $3,000. Take that amount and divide it by 12 months to figure out what you'll need to save on a monthly basis ($250), and incorporate that into your budget.
The first time I started budgeting, I remember I felt so empowered. I was in control of my money and finances for the first time. I realized that I could have a financial focus and direction. I hope you feel the same and remember that your goal here is to change your mindset so that you can reach your financial goals. After a year of budgeting, when you realize that you were able to reach your savings goals, you’ll be wanting to budget for the rest of your life. Best of luck!