How to Start a Budget
As young adults navigating the complexities of life, one aspect that often takes a backseat is our personal finances. It's easy to get caught up in the excitement of newfound independence, but failing to establish good financial habits can lead to stress and limitations down the road. That's where budgeting comes in. Budgeting is the foundation of financial success. It empowers you to make informed decisions, prioritize your goals, and achieve financial stability. By tracking your income and expenses, you gain a clear understanding of where your money is going and can identify areas for improvement. Budgeting helps you save for the future, pay off debt, and make intentional choices about how you spend your hard-earned money. Not sure where to start? Here are a few of the methods the majority of financial professionals suggest:
Zero-Based Budgeting
When I first began my financial journey, zero-based budgeting was my go-to method. With this approach, every dollar you earn is allocated to a specific category, ensuring that your income minus expenses equals zero. By accounting for every dollar and giving it a purpose, zero-based budgeting helps you stay disciplined and avoid overspending. It encourages a proactive mindset and forces you to make deliberate choices about your spending habits. I really like this method for those who are new to budgeting and not sure where to start. I used the free version of the “EveryDollar” app for a long time, and it forced me to put every. single. purchase into the app right after I made it. This way I always knew exactly where I stood financially. It gave me a feeling of power, control, and independence. I’ve honestly only recently stopped doing this, and I’m still feeling a little bit of anxiety every time I make a purchase and don’t whip out my phone to log it.
The 50/30/20 Rule
After successfully following the zero-based budgeting method for years, I discovered the 50/30/20 rule—a flexible budgeting approach that offers simplicity and adaptability. In this method, you allocate 50% of your income to needs (such as rent, utilities, and groceries), 30% to wants (entertainment, dining out, and hobbies), and 20% to savings and debt repayment. This framework allows for more flexibility in how you allocate your funds while maintaining a balance between enjoying your life today and securing your financial future. Don’t get me wrong.. I am still obsessively checking my bank account. Old habits die hard, right? But this method is teaching me to trust myself that I won’t go overboard just because I’m no longer logging every dollar. I also now have a more detailed Excel spreadsheet where I write out where I plan for my money to go, followed by where it actually went, and includes a cute little pie graph so I can see the percentages.
Pay Yourself First
Throughout my financial journey, one practice has remained constant—paying myself first. This principle emphasizes saving a portion of your income before allocating funds for other expenses. I remember being in probably 2nd or 3rd grade when I was taught the importance of prioritizing God over everything else. The teacher used a visual that I will never forget. She had a bowl and some different sized stones. The small stones resembled everyday life- friends, work, hobbies, etc. The large stones resembled our relationship with God. When she filled the bowl with small stones first and put the large stones on top, the large stones didn’t fit. When she filled it with large stones first, the small stones were able to seep into all the little cracks that were between the large stones— and everything fit. I see paying yourself first the same. If you put money into your savings at the beginning of the month, you’ll make sure you have the money for all your wants and needs. If you wait until the end of the month to put your savings in, there’s a good chance you won’t have enough left over to put in your savings. By prioritizing savings and investments, you create a safety net and set the foundation for long-term financial success. Automate this process by setting up automatic transfers to a separate savings account or retirement fund. Remember, building wealth is a marathon, not a sprint.
The Envelope System
This is one method I’ve never actually used, and I have no proof of this, but I would assume it’s the least used, just because of the cash aspect of it. However, if you struggle with overspending in specific categories, the envelope system can be a useful tool. This method involves dividing your cash into envelopes assigned to different expense categories. Each envelope represents a specific spending category, such as groceries, entertainment, or transportation. Once an envelope is empty, you can’t spend any more in that category until the next budgeting period. The envelope system helps you maintain discipline, control impulse spending, and stay within your limits.
Budgeting is the key to unlocking financial freedom and taking control of your future. Whether you choose to adopt zero-based budgeting, the 50/30/20 rule, or a combination of different methods, the important thing is to find an approach that works for you and your financial goals. Remember, the path to financial success is not about deprivation but about balance, intentional choices, and making your money work for you.
