It may surprise you to learn that this is the most-Googled money topic in Iowa! The company Student Loan Hero analyzed Google Trends to come up with a list of money topics that people Google the most in each state. Here in Iowa, it seems a lot of people are wondering about the best way to set up a budget! So, let’s take a look at it, step-by-step.
Step 1: How much money are you bringing in?
To start, figure out how much money you have to work with every month. If you get a regular paycheck, it’s pretty easy to figure it out. If you have other streams of income, from commissions, side hustles, or bonuses, think about how best to add those in. Perhaps begin with a base amount that you know you can count on every month.
Step 2: How much money is going out?
Write down all of your regular monthly expenses: housing, food, debts, etc. NerdWallet recommends the 50/30/20 budget plan. Roughly 50% of your monthly income is spent on necessities, no more than 30% on wants, and at least 20% on savings and debt repayment. It’s a simple plan and NerdWallet says the guidelines give you room to indulge occasionally, savings to pay unexpected expenses, and the ability to manage debt responsibly.
With this plan, your needs would make up 50% of planned spending every month. This includes things like groceries, housing, utilities, transportation, insurance, and child care. If these needs add up to more than 50% of your income, you may need to reduce the wants portion to less than 30%.
Wants include things like dinners out, gifts, travel, and entertainment. The final 20% would be designated for savings and debt repayment. Some may opt to pay off their debt as quickly as possible and then start saving for the future. Others put 10% to savings, and 10% to debt. Your approach may depend on the amount of debt you owe, career stability, family considerations, etc.
Step 3: Decide how to track your spending
The days of complicated spreadsheets are in the past (unless you love spreadsheets, then by all means, keep using them)! Fortunately for the rest of us, there are several new budget apps and tools that are extremely easy to use. Here are just a few:
The apps will walk you through setting everything up. You can even connect to your bank account so it’s easy to track your spending.
Step 4: Actually track your spending!
Once you have your budget set up in the app, it’s up to you to actually do the tracking. My husband and I use EveryDollar and link it to our checking account. When I buy groceries, for example, it shows up as an expense the next day and I simply drag it in the “Grocery” category. At any point during the month, I can see how much money I’ve already spent on groceries, and how much money I have left to spend. The key is to keep your tracking consistent so you know exactly how much you’re spending each month.
Step 5: Revisit and revise if needed
At some point, you’ll overspend in a particular category. It’s OK. Look at the reasons why, and decide if you need to budget more money in that area next month.
The word “budget” makes some people cringe. But, a budget is really just a plan for every dollar you have. It gives you permission to spend. It reigns you in when necessary. A budget can give you peace of mind, because you now have a plan for the money you work hard to earn!