A Step-by-Step Guide to Budgeting Like a Pro

coupleMeet John and John and Sarah. They were tired of living paycheck to paycheck and feeling stressed about money. They knew that they needed to take control of their finances, and create a step-by-step guide to budgeting, but they weren’t sure where to start. That’s when they decided to take the plunge and create a budget. Follow along as we walk through John and Sarah’s journey to financial freedom and learn how you can do the same.

Keeping Track of Their Expenses

track expensesThe first step to Budgeting Like a Pro John and Sarah did was to start keeping track of their expenses. Every coffee, every grocery run, every utility bill, whether cash, credit or debit card – they wrote it all down. It was eye-opening to see where their money was really going. John and Sarah realized they were spending way too much on eating out and impulse buys.

Tip: Whether you use a notebook, spreadsheet, or budgeting app, find a method that works for you and stick with it. The key is to track every single expense, no matter how small. Get Mr Idea’s Free Weekly Habit Tracker and find out.

Evaluating Their Spending Habits

With their expenses laid out in front of them, John and Sarah took a hard look at their spending habits. They realized they were spending money on things they didn’t really need, so they started cutting back in areas where they could save.

Tip: Be honest with yourself about your spending habits, but don’t beat yourself up. Changing behaviour takes time, so start small and celebrate your progress along the way. Expect the odd slip. Celebrate your successes and learn from your failures.

Establishing Their Financial Priorities

Set GoalsNext, John and Sarah sat down and thought about their financial goals. Did they want to pay off debt? Save for a vacation? Build an emergency fund? Save for retirement? Some other financial goal?

By establishing their priorities, John and Sarah were able to focus their efforts and make meaningful progress toward their goals. John often remarked how having goals made it so much easier to set money aside.

Tip: Take some time to think about what’s most important to you and prioritize accordingly. Remember, your financial goals may change over time, so it’s okay to adjust your priorities as your needs change.

How do I decide if it is a want or a need? Read Mastering Personal Finance.

John and Sarah Decide to Make Savings a Priority in Their Budget

One of the most important steps John and Sarah took was making savings a priority in their budget. They committed to saving at least 20% of their income each month, no matter what. It wasn’t always easy, but John and Sarah knew it was important to pay themselves first.

Tip: Treat your savings like any other expense in your budget – something you can’t afford to skip. Set up automatic transfers from your checking account to your savings account to make it easier to stick to your savings goals.

John and Sarah Allocate Their Budget Using the 50/30/20 Rule

Now it was time for John and Sarah to allocate their budget. They decided to use the 50/30/20 rule. They allocated 50% of income to needs, 30% to wants, and 20% to savings and debt repayment. This simple rule helped John and Sarah create a balanced budget that allowed them to live sensibly while still making progress toward their financial goals.

Tip: Pros and Cons of the 50/30/20 Rule.

Adjust the percentages to fit your own financial situation, but aim to save at least 20% of your income each month. Remember, small changes can make a big impact over time.

Note: A regular contribution to a company pension counts as part of the 20% savings.

They Regularly Review Their Budget

Finally, John and Sarah made a commitment to regularly review their budget and make adjustments as needed. Life changes, and so do your financial needs and priorities. By regularly reviewing their budget, John and Sarah were able to stay on track and make sure they were still working toward their goals.

Tip: Set aside time each month to review your budget and make any necessary adjustments. Look for areas where you may have overspent or underspent, and adjust your spending or your budget accordingly for the next month.

What John and Sarah Learned

educationBy keeping track of their expenses, evaluating their spending habits, and establishing their financial priorities, John and Sarah were able to take control of their finances and work toward their financial goals. By making savings a priority in their budget and using the 50/30/20 rule, John and Sarah created a budget that worked for them. It allowed them to live sensibly while still making progress toward their goals.

By regularly reviewing their budget, John and Sarah were able to stay on track and make adjustments as needed. With a little discipline and planning, you too can master your money and achieve financial freedom.

As always, I am not a qualified financial advisor. I just relate financial management to my own experience which may not resemble yours at all. Advice is frequently worth exactly what you paid for it. Most of mine came from expensive experiences.

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