How To Set Up A Budget for The First Time

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Budgeting is the key to financial success, but can be challenging for beginners.

This guide will show you how to set up a budget for the first time.

I’ll admit just reading or hearing the word ‘budget’ does not sound exciting.

Compare the way you feel about ‘budgeting’ to the way you feel when you read ‘investing’ or ‘making money’.

The air in the room usually dries out when budgeting is mentioned. 

But the truth is, I’ve grown to love budgeting.

Budgeting has brought so much clarity and purpose in the way I manage my money.

However, I remember in the early days it really felt like a tug of war.

My budget on a spreadsheet and my bank statements were total strangers.

What I would budget for never happened and I would spend the money in a totally different way each month.

I’ll break down budgeting and the mindset shift I made to really set up a budget for the first time.

What Is A Budget?

There’s a quote that I love that resonates well with how I see a budget:

A budget is a way of telling your money where to go, rather than wondering where it went.

I’ve heard this many times from various sources and I love it. A budget is about you being in control of what happens with your money rather than your money aimlessly splashing everywhere.

Beyond control, there are so many benefits of budgeting that we are enjoying right now!

Without a budget you will be wondering where your money went. Or in other words you won’t know where your money is going.

I’ll put my hands up. That is a common feeling. 

I’ve had the text from the bank telling me I’m in my overdraft after purchasing something.

You may know what’s going on with your fixed expenses but what about food, clothes shopping or weekend trips? How much do you spend on those every month?

Hard question to answer without a budget!

Budgeting for Beginners

We’ve established that a budget is you telling your money where to go! Well, in order for you to tell something where to go there are some prerequisites needed before that. 

For instance, where are you telling your money where to go?

How much of that money should go to that place you are sending it to?

How should it go to the place you’re sending it to?

So you can see there’s some thinking that goes into your budget before you even actually begin, well, budgeting.

Budgeting Mindset

In order to shift your mindset on how a budget works, let’s look at Google Maps.

I’m sure you all know what Google Maps is and we’ve used Google Maps for a lot of things.

We use it to see where the nearest takeaway or fuel station is.

And we use it when going on a long distance road trip. 

To me, budgeting give me the same results as any navigation app does: direction.

Planning your your short-term and long-term financial journeys.

Short-term financial journeys could be how you’re going to afford the 2 week break when you’re off work because you don’t get paid when you don’t work. Or how your current pay will take you through until your next pay.

The long term journey’s could be to get out of debt, buy a house, or changing your lifestyle so you can live on less than your income. 

How To Set Up A Budget For The First Time

I want to help you set up a successful budget.

So I’ll talk about my approach to budgeting so you can have direction with your money.

For Google Maps to work on your phone you first need to turn on your Location settings!

Why? So the app can find you where you are.

STEP 1: Where are you?

The first step in your financial journey is to turn on your location settings.

Take the time to figure out where you are and what is happening with your money.

When setting up a budget for the first time it’s important to get an accurate picture of your current surroundings.

The 3 main areas that make up a budget are your living expenses (both essentials and non essentials), your debt repayments, and your savings.

Living Expenses

Do this by looking back over the last 3 months of your spending. This could be printing out your statements or going through the app and making sense of your situation.

3 months gives a more balanced view of your spending as some months have unexpected costs or increased spending from special occasions.

I'll warn you, you'll find some things that will shock you! 

When Lindie and I did this we realised we spent almost 3 times more on food than we would have said!

And that is the point of this exercise.

We sometimes underestimate how much our variable costs really are and overestimate how much we can afford. 

Let’s not estimate, let’s get the real figures!

Types of Living Expenses

You’ll have essentials expenses and non essential expenses, which will either have a fixed monthly payment or vary in amounts per month.

Your essential expenses are the things you have to pay for to live and survive, your basic needs and your debts.

Non-essentials as discretionary payments based on your lifestyle and without these you can survive.

To get you started on your journey, download our Free Expense Tracker spreadsheet that will enable you to get a clearer picture of your outgoings.

Savings

Take stock of your savings balances and how much it all ads up to.

Although not necessary, it’s also good practice to just get an understanding of the accounts that they are in.

Particularly knowing the interest rates, withdrawal rules, and any deposit limitations.

Debts

Same as the savings, take stock of all your debts.

List all your debts, the amounts owed, the interest rates on each debt, and the minimum/monthly payments on each.

The total of the amount owed is how much debt you have altogether.

The total of the minimum and monthly payments will be the total minimum monthly payments that you have to make on your debts.

We have created a budgeting spreadsheet called the Ultimate Money Plan. This has been designed to empower you to take control of your finances and start to command your money according to your plans.

STEP 2: Where Do You Want To Go?

Now that you know where you are, it’s time to put your intended destination in mind. Time to plan your journey from where you are to where you want to go. 

Remember a budget is you telling your money where to go but you cannot go anywhere without a plan.

When going on holiday you choose the destination before booking the flights.

You first think about which restaurant you want to go to before making a reservation. 

Thinking about where you want to go helps you to budget accordingly! 

Set Financial & Life Goals

Setting goals is the best thing you should do in your life and your money.

Take the time to consider genuine answers to these questions:

• What would I like my ideal life to look like if money wasn’t an issue?
• What’s the one major thing I’d love to change about my money habits?
• What are my big and scary money dreams?
• Where do I see myself in 1 year’s time?

These are prompting questions to get you to really think about where you want to go in life.

Budgeting is not just about paying bills and having money left over, it’s about directing your money for your goals.

Money is a tool and it is a great tool to use for bringing your goals to life.

Prioritise Your Financial Goals

Once you have outlined what your future life could look like, break it down into short term and long term goals.

Breaking these down into key goals would help to set priority over your goals.

Let’s say your goal is to buy a house. Based on the house type you want in the location you desire house prices are on average £200,000.

Long term:

• Save at least 10% of the house price as deposit (£20,000)
• Improve credit score to be eligible for a mortgage

Short term:

• Save money every month for house deposit
• repay defaulted debts and stop signing up to buy-now-pay-later debts so credit score can improve

Skipping this step will be detrimental to your longevity as your money will aimlessly be spent on things with no real purpose behind it.

STEP 3: Plan Your Budgeting Journey

In Google Maps when planning your journey you can choose whether you’re in a car or using public transport, alternative routes and even time of departure.

In this step you’re analysing your money against your goals and seeing the options you have to achieve them.

Analyse Your Expenses

Look at your current money habits and outgoings from step 1. Analyse each spend type and weigh it up against your goals.

You may decide that you will stop spending money on lunch at work, prepare packed lunch, and redirect that money towards your savings goals.

You may realise that you spend £60 per month on a gym membership when you can do the same workout at a £10 per month gym. So you make the shift and repurpose the £50 towards your debts.

The aim is to ensure that you are telling your money to go to places that you value and want to.

Once you’ve got your financial numbers from step 1 and integrated your life and financial goals from step 2 into those numbers, you’re budget is now set up.

When I set up a budget for the first time, this was a crucial step that I neglected.

Yet this is the biggest game changer to this method of budgeting.

It’s more about controlling your money for a purpose rather than just keeping the lights on.

Pick Your Mode of Transport

Just like in real life you can commute in different ways, you can budget in different ways to.

Whether you use spreadsheets, mobile apps, notebook, or a combination of all three it doesn’t really matter. What matters is that you find a system that works for you.

This doesn’t have to be right the first time, you can try the different methods until you find one that works for you.

We use our Ultimate Money Plan spreadsheet for our budget and this ensures we always direct our money towards our plans.

STEP 4: Enjoy the Journey

Now that you have set up your budget for the first time, enjoy the journey.

It may take some time and effort to get used to it, much like a first time driver would be.

Give it time, don’t rush.

When you invest time and effort into managing your money you are showing to yourself and your mindset that you are serious about growing your skills to maximise your money.

The journey to change your financial habits and develop your financial skills is not going to be easy.

But it’s better to plan and somewhat miss the intended mark than to not plan at all.

Take Action

This guide for budgeting for beginners is to enable you to take action.

Check out the Ultimate Money Plan budgeting spreadsheet template and set up your budget for the first time with the right tool.

Share this with your friend, family, or partner and discuss your budgeting plans.

Let us know how you’re getting along by getting in touch with us, we’d love to hear from you

Knowledge is powerless without action 

Take action, and take care

Thando