A Beginner’s Guide to Basic Budgeting

There’s knowing how much money you’re spending, and then there’s knowing HOW you’re spending your money.

Budgeting

Not sure if you noticed, but things have gone a little pear-shaped in the world recently, and the time has never been more right to talk about conserving your precious capital — you know, money.

And the best way to conserve or even grow your money in times of crisis (and, duh, when things are hunky-dory, too) is by being financially literate. That is, knowing how much you’re bringing in every paycheck, and using that to determine how much money you have to spend every month.

Now, I know what you’re thinking: “I check my bank statements every month/week/day, I know exactly how much money I have and how much my credit card bill is.” Sure you do — or at least, at a bare minimum you do. But knowing how much money you have and generally trying to spend less than you’re earning is not being truly financially literate, because you don’t truly know how you’re spending your cash — and whether that’s a good use of your dollars, or a bad use of your dollars.

In order to know that, you need to know how to budget properly, and in order to do that, the first thing you need is to put every last red cent you’ve spent in the last 90 days in a spreadsheet. That might sound difficult to gather, but assuming you spend the majority of your money using credit or debit cards, it’s actually quite easy. Simply hook up your accounts (bank accounts, credit cards) to budgeting software like Mint.com and once connected, download your last 90-days’ spend to a spreadsheet

Once you’ve got your last 90 days worth of expenses in spreadsheet form, you can create a new column in the spreadsheet so you can begin to categorize each line item. For instance, was that $9.89 you spent Monday of last week “Fast Food,” or “Groceries”? Was that $220 you spent on Amazon last month “Home Improvement,” or “Shopping – Clothes”? Tedious work, indeed, but necessary, because once properly categorized, you’ll be able to sum each individual category up (the more detailed you’re willing to get with each category, the better) in order to determine how much you’ve spent, and more importantly, on what exactly.

Once you’re summed up your expense categories, the next step is to find the average, then, that you’re spending in each category over a month period, and then adding those averages up to see if your total spend is less than how much you’re earning in that same month period. If not, you now can look at each category and see if you’re overspending; for example, maybe it’s clear that you’ve been ordering takeout more than you probably should, or you’ve spent too much on clothes, or home entertainment. But even if your expenses are less than your income, you can always do the same thing to tighten the belt further, in case you’d like to jumpstart your savings.

Either way, now that you’ve got your averages, you can use those numbers to set your budgets in each expense category back on the budgeting software, which will then keep track of your spending moving forward. If you spent, for example, around $600 on average each month on groceries, you can set that as your monthly budget, and so on and so forth. Don’t exceed your budgets in any one category and you’re golden!

Your finances don’t have to scare you, even in scary times. If you’re aware of what money is coming in, and exactly how it’s going out, nothing will be a surprise. And that’ll make you the master of your moneynot the other way around.