If you’re taking a look at your finances for the first time, chances are that you have at least a few budgeting questions. Here are the most common questions about budgeting we get at Mint.com from first-timers like you.
What should you do before beginning to design your budget?
Before you prepare a budget, you’ll need to take a cold, hard look at your finances. This part is never fun—especially if you’ve wracked yourself up a ton of credit card debt or spend way too much on burritos. But this less-than-pleasant exercise of analyzing your income, calculating your living expenses, and observing your spending habits is the first step to answering your budget questions.
How much do I make? How much can I spend? What percent should I save? To answer those questions about budgeting, you’ll first need to compare your income against your expenses—then you’ll know how much you have to work with every month.
Should I establish goals from the beginning?
When you start budgeting, it is important to give equal consideration to long term and short term savings goals. In order to determine what types of goals should be set and when, ask yourself specific questions like:
- Do I want to develop a plan for retirement?
- Am I saving for my college education, or do I need to set up a fund for my children?
- Is it necessary to set up a fund for large expenses such as a vehicle purchase or a mortgage?
- Do I have any big-ticket, short-term financial goals, like a new appliance or a summer vacation?
These budgeting questions will help you develop a set of financial goals, and create a timeframe for achieving them. For example, saving for retirement is considered a long-term goal, and creating a travel fund could be considered a short-term goal.
Choose a budgeting system that feels comfortable for you.
What is the 50 20 30 budget rule?
One of the best budgeting tips you can follow is the 50 20 30 rule, which suggests that you spend 50% of your after-tax income on needs, 30% on wants, and 20% to savings. This is a great way to allocate your money into budget categories, especially if you’re creating a budget for the first time.
If you’re worried about math and percentages, don’t be. Download a budget tracker that can do the hard work for you and give you a visual representation of how your personal finances are looking.
Should I use paper, spreadsheets, or software?
To create a rough draft of your budget, choose a system that feels comfortable. While some prefer to work directly in an Excel spreadsheet, others prefer writing everything down with pencil and paper. If you are comfortable on the web, a budgeting tool like Mint.com makes it easy to organize everything into categories, and create a system of reminders.
Is a budget just about paying bills?
No! Creating a budget does set up a system by which you can pay your bills on time, but it is so much more than that. In addition to bills, you should also be setting funds aside to:
- Save for educational plans: Either starting a new degree program or furthering your own education.
- Save for retirement: This is especially important for those who are not comfortable relying upon the Social Security Administration, as well as those who do not have the opportunity to set up a retirement plan through their employer.
- Save for emergencies: Anyone can experience unexpected medical situations, the loss of a job, or the death of a loved one. Even though no one likes thinking of these negative situations, it is important to plan for them by putting aside savings.
- Pay down debt: Creating personal wealth through budget strategies cannot occur until the debt is paid down and investments are put into place. These are important ingredients to a successful budget and should be part of your long-term goals.
What should I take into account when budgeting?
This is one of the most common budgeting questions we get asked, mainly because life can throw you so many unexpected curveballs that completely derail your personal planning. In addition to your basic bills like rent, utilities, and student loan payments, you should set aside money in an emergency fund in case your car suddenly kicks the can and demands expensive repairs.
Always remember to account for upcoming special occasions, whether it’s the vacation you’ve been saving towards, your best friend’s birthday next week, or all the holiday spending that awaits you at the end of the year. A budget app can help you plan accordingly and clear up your questions about budgeting.
How often should I update a budget?
Even though the initial budget is the template for all future budgets, you should revisit your budget every few months, or whenever your financial situation changes dramatically. This is especially true for those who have fluctuating incomes. These fluctuations should be updated within the budget, in case you need to make spending adjustments to stay within your budget.
It’s also important to look for trends in your budget. For example, over the last two months, it may become apparent where you can reduce or eliminate certain spending habits. You can also look for where you can save money, shift money between different accounts, or pay down bills.
What’s your budget question? Let us know in the comments below! Mint makes it easy to create your first budget, and stick with it to achieve your financial goals. Sign up for your free account today!