How to make a budget for beginners. I'm going to show you in a way that is not
overwhelming and will help you succeed financially.
You have to know where your money is coming in from and where it's going out.
Have you ever got to the end of the month and wondered
where did all my money go? A budget is going to help you solve that and give
you the control you need to succeed. Guys this channel is all about
personal finance so please consider subscribing if you want to
learn more about how to be smarter with money. What a lot of people do and what I
used to do also, is only look at "I'm bringing about
this much money per month and I spend about this much money per month so as
long as I make more than I spend i'm good right?"
"As long as my bank account doesn't drop below a certain number
I'm good right?" Not exactly, that's only going to be enough to help you stay
afloat and we don't want to just stay afloat we want to be wildly successful
with money. Because we can! I guarantee when you do a budget
there's going to be certain things that surprise you
about where you were spending your money. For me I was shocked at how much I spent
on groceries every month and going out to eat. A lot of people think of budgets
as something that's very restrictive. Especially for me, I'm a natural spender.
People think because I talk about personal finance that I'm
'super frugal' 'save every penny' type of guy. But I'm actually not.
I enjoy spending money on things like it actually makes me happy.
But what a budget can do is give you permission to spend.
I know if I budget $200 for entertainment this month,
I just gave myself permission to spend
$200 on entertainment and not feel bad
about it because I know it already fits within the budget.
A budget can actually bring you freedom! Come on now if you're a natural
spender and you know what I'm talking about hit the like button down below.
Budgeting has also never been easier than it is today.
There's free budgeting apps that you can download right now. Personally, I use the
budgeting app called Every Dollar. It's completely free. (I'm not getting paid to say that).
You can download it from the app store. There is an upgraded version if you want
to spend $10/month it'll link your bank accounts.
Personally I don't pay, I just use the free version and I think it's the best
budgeting app right now. Usually what I'll do is when I'm at the
gym I'll open up my Banking app and my Every Dollar app.
And I'll just plug in my expenses from my Banking app into my Every Dollar app.
It takes about two minutes and I'm all caught up and I can make sure
everything's still going good. If you want something more hands on or more
handwritten I'll put a link in the description below for a budget planner
or you can just go to excel and make an excel spreadsheet. Print it out at the
beginning of each month and fill out your expenses as you go.
Comment down below let me know are you using something to track your
budgeting right now? There's two parts to a
budget: What's coming in what's going out. The what's coming in part is your income,
your salary, bonuses, commission, overtime etc...
Or if you have a side hustle. Any sort of way that you get money in.
I'm going to do it on my phone and you can follow along on the screen.
So what we're going to use for income is going to be
the average household income which right now is just over $61,000.
We're going to plug in the "after tax" amount.
The amount you actually take home after taxes are taken out.
AKA your "take-home pay". For someone that makes that much it's going to be about
$1,900/bi-weekly. We'll plug that in
and we'll say that he also has a little bit of a side hustle where he's mowing
yards that brings in another
$200/month. So he has about $4,000 in
take home/after tax income to work with. And that's
going to be our first part of our budget The first expense we're going to move on
to is the ESSENTIALS. In other words the stuff you need
to pay to survive. We'll go through the
categories... Like your mortgage or rent.
We'll call that $1,200/month.
Obviously you need to pay that every month.
Water will say
$40/month and we'll put in $50/month for gas.
Electricity we'll say $140/month and trash will do $25/month.
Gas for your car, that's pretty important. I'll say that's $120. And again guys
I know for some of you it's more than that or it's less
then that. I'm just doing this on the fly off top
my head. For some people it's going to be more for different categories. Some
people it's going to be less. For car maintenance we'll do
$100/month. Groceries, you obviously need that, we'll say that's
about $200/month. Phone is pretty much
essential nowadays I would argue in order to have a job and
to maintain communication with them. Entertainment is definitely not.
Insurances that's something important that people look over. We'll
say this guy that has a job that covers his health and dental.
Then life insurance we'l
say $30/month. Auto mine's about $60.
Home and renter about $10. And again I know some of you live in
a bigger home or whatever it's going to be more money.
Second place we want to start budgeting for is going to be our DEBTS. If you
have any sort of consumer debt, personal deb, or anything like that.
For Average Joe here we'll say he has a $300/month
in student loans. The third place we're going to move to for your budget
is going to be our GIVING category. If you give to a charity, if you're tithe to
a church, or if you just give a gift to somebody.
We're gonna say 10% of his salary which is
($4,000 take-home pay)
Therefore, he's gonna give $400/month.
Fourth place you want to move to is going to be your
INVESTING category. This is absolutely crucial do not skip over the
step. Especially if you're younger, start sooner! I cannot tell you enough to
start sooner, start giving more sooner! So for investing the minimum I recommend
is going to be 15% of your salary. So if he takes
home $4,000 the minimum he should be doing is about
$600/month. Investing is going to be anything such as
your IRA, 401k, 403b, TSP, any sort of employer plan you have
in addition to your individual retirement account. If you have any
questions about how to open up that sort of thing or
where to start just comment down below your question and I'll answer them for you.
Fifth place we're going to look is going to be our SAVINGS. This is
different than investing. This is money that as you can see on the
app on the screen here you have your "emergency fund"...
So everyone should have an emergency fund or some type of "rainy day fund".
I recommend 6 months of expenses so if you lose your job or something bad happens...
your car just blows out, something like that you have
a good 6 months to keep going or pay for a damage. That way when emergencies
do come they're not really emergencies they're just a bump in the road.
Once you have that funded, (that should be
first). Once that's funded
then you could do what they call "Sinking Funds".
You can just call it like a "Saving Fund". For ex: If you're saving up for a car,
for a vacation, a house down payment, house renovation,
just start a line item for that.
Let's say he's going to save up for his next car.
He's going to do $120/month
towards a car. Then vacation, he's going to do
$200/month.
That's basically what a sinking fund is so just set aside money
every month and whether you use the $200 every month for a vacation every month
or you just pile it up until it hits a certain number...
or you're saving for next summer or whatever... you have that money
set aside (earmarked) in some sort of savings account
for something specific. This is important, don't miss this-
You want to have an assignment for everything in your savings account. For
every dollar. So like I said you have your emergency
fund which for a lot of people is going to be about $10,000, $15,000, or $20,000
set aside. You do not touch that unless it's an emergency.
Your other savings in your bank account should be
designated for something like a vacation, a car, a large purchase.
If it's just sitting there it's going to end up getting spent on useless stuff.
You need to give it an assignment. Being intentional is what's going to make you
wealthy. Any money that's sitting in a savings
account that's not designated for something you should be investing.
You shouldn't just let it sit in your savings account making less than 1%
That's pretty much nothing. Put it in
some sort of brokerage account and invest it in an index fund or
something like that. Where your money can make
money while it's sitting somewhere. The sixth place you're going to move to
in your budget... because we have $365 left. Is going to be your OPTIONAL EXPENSES.
This is going to be your "fun money". Internet will call $60/month.
Restaurants- we're gonna do $120/month.
Clothing we'll do $50. For some people
it's going to be more for different categories. That's fine.
Entertainment- this is going to be like your fun money like for me it's
golfing or even if you like buy a book and you
enjoy reading like I do. This is going to be your
entertainment category. We'll do $100
there. *By the way I put a link in the
description to all these videos for the best financial books that I highly
recommend. So you can just click that link
down below if you want to check that out. Miscellaneous category is important.
This is going to be like a 'catch-all' category. If you buy something random off amazon you throw it
in your miscellaneous category. Ex: $30 or whatever it is.
If you notice that you're buying the same thing over and over again or it's
like a target like shopping fund. You need to
create a separate line item for that. It's not miscellaneous if you're buying
it every single month. Miscellaneous is just like odd end type
things that you can't really plan for.
We'll use the rest $35. And there we go.
The optional expenses
category is going to be where you pull money from
if you're over on other essential type items. Let's say your gas or your groceries
end up being $50 more that month. So what you're going to do
is instead of pulling from your retirement investing or something
slightly more important on the scale. You go back into your app
and if gas ends up being $50 more that month
now we're $50 over budget. Now where are we going to pull that
$50 from to balance this budget? It's going to
be from the optional expenses that we talked about.
We're not going to go out to eat as much so we'll bump that down to
a $100. And we'll just say we're not really buying any clothes this
month... $20. And boom our budget is balanced again.
That's what the app can do. So it's an every dollar
budget. This is called a "zero based budget", where every single dollar
has an assignment so at the very end of the budget
there's zero dollars left. You know exactly what's coming in and you know
exactly how much is going out towards expenses, investments, and things like
that. If you notice as you're plugging in expenses that you run
out of money. So it says that you're over budget this is called living above
your means. This is going to cause a lot of stress and disaster in your life
and this is why people go into extreme amounts of debt
or go broke or things like that it's because they're living above their means.
This is where you realize you need to dial back certain things and pull back
from those optional expenses. If you get to the end and you have money
left over this is a good thing this is called living below your needs.
The first place we're going to apply extra money to is going to be our debt.
So like Average Joe had student loans, any money left over we're going to start
hammering out those student loans. This includes your mortgage too, so
you don't have to be as aggressive for a mortgage as you do like credit card debt,
student loans, any sort of personal type loans.
But we're going to start to put extra money on our mortgage. If you take out a
30-year mortgage at $300,000 you're going to pay over a
$150,000 just in interest alone.
We want to chop that down. The sooner you pay off your debt,
mortgage, credit card or student loan the less
interest you're going to pay on it and the sooner you're going to be able to keep
that money instead of paying a bank. If you're keeping that money you're
going to have more money left over to spend on
fun thing! Come on now, somebody hit the like button if you want that. So let's
say Average Joe doesn't have any debt because he paid that all off. We'll
take out those student loans he has... $0
He now has $300 left to budget. Where is the second place we're
going to put that money- Investments, you can't go wrong with investing more
money. It's a great place to start if you want
to retire early or retire better off than you live right now.
He's going to put say $700 towards investing instead of $600.
Third place that you're going to put extra money is going to be that optional
expenses. That "fun money" type stuff. We'll put
more towards a car because he wants to buy a nicer car
because he can because he's saving more money.
More towards a vacation. We'll say that Average Joe can do
some subscriptions now. So Netflix $15/month and then we'll
do Spotify $10/month. He's going to have a
gym membership, $25/month. And still $60
left to budget. We can just throw that $60
into entertainment. We'll say so he's going to have $160 dollars and again
we're back to zero dollars left over. So every dollar
has an assignment. It's about being intentional. Personally, where I put money
in my budget when I have extra left over every month is first usually towards my
mortgage because I have a 15 year mortgage and I want to pay that off as soon
as possible. I don't want the bank on my house, I want to own it.
the second place is investing. I do a lot more than 15%.
Usually more like 30%-35% in investing. Then the next category just like I
talked about is more fun money. I'll go golfing more. I'll go to a nicer
restaurant.m I'll go out to eat more that month. So guys once you start having
expenses, once bills start coming in and stuff like that just open up your app. Or
Open up your spreadsheet, or wherever you're keeping your budget and just start
writing down those expense. Plugging them in
and keeping track. It's not as hard as it sounds. The first 3 months are going
to be the hardest because you're not really sure how much
you spend on certain things. That's okay, that's fine.
Just adjust things throughout the month as you go. When you realize your water
bill is more than what you thought
just make slight adjustments. The same thing if you have an irregular income.
Start with the basics. With the essentials and just make adjustments
throughout the month depending on how much you get paid and
how much is going out. Thanks for watching guys! My videos are all here to
help you be smarter with money so please consider subscribing and hitting the
bell to be notified of my video that comes out next week.
It's like following someone on instagram and if you want something more
personalized go to timwolffe.com you can sign up for a
one-on-one session today.