Budgeting for Beginners: Why Being Basic Is A Good Thing

Starting anything from scratch is rarely a simple proposition, and knuckling down to implement a budget can be enough send anyone's nerves into overdrive. Tackling your finances can seem like complex and arduous process if you don't have any prior experience managing your money.

But creating a budget doesn't have to be an exercise in masochism. In fact, starting from the ground up to establish a simple and tenable budget is the best way to ensure that you will be able to stick with it and develop your saving skills.

Below are three basic steps you can take toward building a simple and intuitive budget that will save you time, money and a lot of financial heartbreak in the future.

Divide Your Budget

In order to begin your budget, you first need to know how much money you are working with and where it is going.

There are several ways to go about this, but the most reliable and telling strategy is to collect bank statements from the previous few months. You can then take your statement numbers and tally them up on a sheet of paper or spreadsheet program.

Before you start crunching digits, create three to five categories to divide your credits and expenses. These categories can be anything that you believe are regular transactions for you, but they should generally include your regular income, necessary expenses like groceries, rent and utilities, and any extra spending on things like entertainment or dining out. Otherwise, you can divide and subdivide to your heart's content.

Once you have your materials in order, you can start collating for each month to include every credit and expense in one of your categories. After you complete a month, find the sum for each category. When you've completed this for each of the statements, add up and average out these amounts. With these rough averages, you see a broad picture of what percentage of your income is going to each of your expense categories.

With that, you have started budgeting. It doesn't matter if the numbers look bad right now, or if one category isn't where you like it. What is important is that you have the data you need to do something about it.

Set Simple Goals

Now that you're kitted out with hard numbers, you can begin tweaking them. Did one category seem way out of whack with what you thought you were spending? Did you get down on yourself because your savings category was a little too barren for your liking? Now is the time to fix that.

Break out a new notebook or spreadsheet and knock out another list of where you want your money to go in the next month. Include all of the expense categories that you generated on your previous list and include any that you want to focus more on. For new budgeteers, this generally means savings and retirement planning, but your budget is your own. Just try to keep the number of categories low; you are trying to stay simple with this, and the more granular you get, the less likely you will keep to the budget.

Also, while you want to be ambitious, don't neglect the facts of your income and your previous spending habits. Even though you're getting on the right track, you need to keep a sober eye on what you are, and are not, likely to do with your money given your history.

Below is an illustration from WellFitsYou of the general consensus for a balanced budget.

Again, while these percentage breakdowns are ideal, they are the end goal. One good way to approach these is to create one or two benchmarks each month that you would like to achieve. These could be simple recurring achievements like setting aside $200 a month for your savings or spending less than the previous month on groceries. These separate benchmarks can help you gradually tidy up your numbers and get your money to where you need it.

After a few months, you can begin to set longer term goals like investing in a 401(k) or Roth IRA. Or maybe just saving up for a new couch.

Don't Lose Track

While you may be a little tired of arithmetic after macheteing through your finances, you still need to keep tabs on your daily transactions. Luckily, there are simple ways to do this with the same tables and metrics you have been using so far.

Obviously, you could set aside 10 minutes each day to shuffle through receipts or check your bank statement online, transcribing those numbers into your budget breakdown. The benefit to this approach is that you will have time to meditate on what you did right or wrong vis-a-vis your budget.

However, if your time is at a premium, you could rely on free budget software and applications to keep track of your spending for you like Mint and Level Money. These programs can be linked with your bank account and can be personalized to match your spending goals. However, you shouldn't neglect going over those number and remaining vigilant with your spending.

There are also countless other strategies you can find online for keeping tabs on how you use your money, whether it is switching completely to cash for all of your day-to-day purchases or segregating your cash each month based on the limits you set for each spending category. The point is to find the process that you will be able to keep current with and utilize as a resource.

Stay Ambitious

While it is not a concrete step you can check off of a list, you should always remain hungry for a tighter and more forward looking budget that will ensure your financial security further and further into the future. If you find that you are meeting a category's goal each month, consider tightening that spending limit and diverting that money somewhere else.

And if you are having trouble getting started with your budget, or just can't seem to save enough each month, take advantage of the resources available through your bank or a financial planner.

Being basic has its merits, but it shouldn't be an excuse to not become better.