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Budgeting for Beginners

There are a lot of reasons why budgeting beginners struggle to implement a lasting budget. For many people, especially people new to budgeting, traditional approaches of tracking all your spending in specific categories becomes too laborious and doesn’t actually help people identify whether they are spending on the things that really matter. So if budgeting doesn’t work for you, what do you do? Do you throw up your hands and just decide that maybe your finances will never get under control?

I don’t think so. 

Instead of tracking dozens of categories that are hard to predict and even harder to keep track of month in and month out, I propose what we need is a simpler approach that reveals what matters most to us. If we can quickly see what is important in our current spending and lean into values-based budgeting, managing our finances gets easier.

And, we get better results. 

To begin, make budgeting fun

A lot of times when we think about how we’re planning our money for the next month, it overwhelms beginners to the budgeting process. So, I like to think about the plan in a fun way, almost like gamifying this process of how we’re going to spend our money in the upcoming month.

The first thing I do to take the normally arduous process of budgeting and turn it into fun is not to focus on the numbers. I use this process where I call budgeting by color. It sounds fun, doesn’t it. And we use actual  colors to make this happen.  We’ll need highlighters, markers, crayons, pencils, etc. We then highlight different categories. 

Once you do that, you have a visual representation of where your money is going. It’s a little less intimidating looking at colors instead of all the numbers and doing the math. You can look right at the paper immediately see which categories are monopolizing the money in your plan.

How to color code your spending

When you are going to color code your spending and implement the budget by color strategy, you don’t need a lot of colors. In fact, too many colors and you quickly lose sight of what’s important. The key is to keep it super simple. 

You really only need to color code four categories:

The Needs

Always start with the needs, whether you’re a budgeting beginner or a Certified Financial Advisor. These are the things that you need to survive? Think of it as an umbrella category. The needs include:

  • Food
  • Shelter
  • Clothing
  • Transportation
  • Technology

You may not think technology is a need.  The events that occurred during the COVID lockdowns showed us that technology is a need, not a luxury. I remember how challenging it was for me as a mom managing my children’s online learning. I just thought about all the families who didn’t have access to technology. So truly, when I look at a bank statement, technology, specifically internet access, is a need. 

The Wants

The next category in your colored budget should be the wants. This is the fun category. These are the things that are non-negotiable for you. 

You might think that this is the category that you will cut out when things get tight, but that is not how I see it. In fact, this is the category of things that you will pay for no matter what. These are the parts of your life that no financial advisor is going to be successful telling you not to spend on them. 

This category might not be the things that traditional personal finance says you need to have, but they may be the things that bring you joy. This is the category where hair, nails, makeup, all the fun things come into play. For example, there are lots of women who, if their hair and their nails and their makeup is not done, they are not going to be happy. So we’re not going to create tension from the beginning. The wants stay in the budget, especially a budget for beginners.

Don’t Need

The third category is the “don’t need.” And I let my clients decide. This is not an objective category. You can decide for yourself when you are looking over your bank statement or your credit card purchases what purchases were things you didn’t need. 

Random Expenses

The final category are those expenses that are random. They might be unpredictable, non-recurring, or one-time expenses. 

These are the things that pop up, for example a child’s sports registration or home repairs. 

Once I have my clients highlight their purchases with these four colors, many of them will be amazed at where their money is going.

How to manage unexpected expenses in your budgeting for beginners plan

We might want to address that random category–or the unexpected, one-time expenses–a little bit more. These expenses have the most potential to upend our finances and cause us to get behind month after month. 

The traditional recommendation would be to take the unexpected expenses that have occurred and divide the amount you have spent by twelve. That would the amount of money that you need to put aside every month to cover these unexpected expenses.

The problem arises when you don’t put the regular amounts in your checking account over the course of the year. Many of my clients will look at the account and forget why their putting money aside. The temptation is to either spend it or forget what its purpose is.

I recommend creating a separate savings account altogether for the unexpected expense fund in your budget. This is good advice for the advanced budgeter as much as the beginner. You can then make a note or change the account name to remind you why you have that account. 

Putting the money aside can help you make sure you have the cushion you need for the unexpected expenses, but there is no reason why you have to ration out your savings over the year. Look at your current expenses. Suppose it’s February and you have identified a $300 expense that will come up later in the year. If you have an extra $300 right now, put it aside in the unexpected expense account. Look at what you can actually put away immediately. Why ration out your savings when you can put it away immediately and not have to worry about it again? 

That frees up the rest of your calendar year to do all the things that you may want to do without trying to remember, oh my gosh, did I make my $10 contribution toward this insurance payment that’s going to come up next year?

Using the budgeting for beginners process to stay focused

The first thing many people see when they go through this process is they come to realize they had no idea how much they were spending on one or two of the categories. It’s important not to be judgmental about your past spending. The process isn’t about shaming you based on your past spending. Instead, it’s about processing this new information in a healthy way. 

There is no reason to have an attitude or be judgmental about budgeting,  especially if you are working with a spouse or a significant other. You are just focusing on where you’ve been and where you want to go in the future. 

It’s easy to fall into a defensive posture. The problem is that when you are defensive, you are less likely to think clearly. Or you will not approach this exercise with you at the center. You start thinking about all the information you hear from the media and all the advice you hear from other people. Before long, you are no longer looking clearly at your situation and your goals. 

Values-based budgeting

Rather than focusing on what everyone else is saying, I encourage my clients to start with themselves and what’s important to them. 

We practice what I call values-based budgeting.

The first thing people have to ask themselves is, “What’s important to me?” The answer to that question becomes the foundation of your budget. If Starbucks is important to you, I am not the person to tell you to give up your Starbucks. If hair and nails is important to you, I am not the person to tell you not to do those things. But I will help you see how do those things fit in the bigger picture of your spending plan for the next month. 

So when we’re looking at your bank statement and all the rainbow of colors that it shows using our budgeting by color process, now we can see what’s really important to you and how you can create a plan and a strategy going forward.

Budgeting for beginners in a nutshell

Often, when beginners think about budgeting, they think about the limitations. They focus on what they can’t do or what they can’t spend money on. However, when budgeting is done right, it highlights our possibilities. We can focus on the things that matter to us and helps us to focus on those things. Let’s take the limits off and really move into a space of what’s possible.

Picture of Brandy Baxter

Brandy Baxter