Where to Begin with Managing Your Finances

Are you interested in better managing your finances but are feeling overwhelmed with starting…this blog post is for you!

This is for informational purposes only. For financial or legal advice, consult a professional. View the DISCLAIMER for more information.

There are many reasons that could be urging you to develop a more concrete budgeting plan. It could be that you have a big life event coming up that you would like to save money towards such as a wedding, or buying a house. You could have debt that you want to payoff so your hard earned money can start going towards things that you actually want to spend money on instead of interest. Or perhaps you have a big life event coming up such as a new family addition like a new baby or a pet. Whatever the reason may be getting started can be incredibly overwhelming! Maybe you’ve decided that this is the month where you get control of your finances and you organize your spending into a budget, you may have even found a budgeting template that you want to use, that is fantastic, I love the motivation, if you need a budgeting template I’ve got a free editable template for a 70/20/10 monthly budget here. If you have questions about how a 70/20/10 monthly budget system works be sure to check out my blog post that goes into detail about how to use the system here!

Where to Start

Okay, so you have a budgeting template that you would like to use, you’re feeling motivated so you are ready to get started right?? Actually there are two things that I’d recommend doing first before you jump right into monthly budgeting. The first is tracking your past three months of expenses and categorizing them, another name for this is creating a “Reverse Budget.” The second thing is to list out ALL the details related to your goal. If your main motivation is debt payoff you need to list out all of your outstanding debts, whereas if your goal is related to saving for a house down payment you’d want to list exactly how much you’re hoping to save.

Creating a Reverse Budget

This step is crucial for creating an accurate budget as it is how you will determine your budget category amounts. For instance if you set a budget of $300 per month for groceries (in 2024 inflation yea right) but after reviewing what you’ve spent on groceries over the past three months you find that you’ve been spending closer to $1000 per month a budget goal of $300 is likely not going to be realistic for you. The easiest way to do this is to print out your credit card or bank statements whatever you’ve been using to pay for your regular expenses, you will need to list out every expense that you’ve had over the past three months and then you’ll categorize each expense into your main budget categories. You can simply write this out on regular notebook paper, but I also really like this expense tracker. When creating the reverse budget I find writing it all out to be the easiest, but after getting started with budgeting I prefer a digital tracking method-I will discuss this more in a future blog post so stay tuned! Unfortunately there is no easier alternative to doing this, it will take some time so make sure you give yourself enough time to do this or even consider breaking up the task over a few days to make it easier on yourself.

I’ve Created my Reverse Budget…Now What?

You’ll likely find consistent patterns by doing this and your main budget categories will likely reveal themselves. For instance when I did this several years ago when I started my budgeting journey I realized that I do not need a monthly budget category for clothing as it is not something that I buy monthly so this wouldn’t make sense to include in my monthly budget and instead is funded with a sinking fund (more on sinking funds in another upcoming blog post so stay tuned). However if you find that over the past three months you consistently buy clothing every month this would make sense as a monthly category for you and should be included in your monthly budget. One important thing that I want to note is that you should be judgement free as your developing your Reverse Budget, you may find yourself feeling frustrated that you’ve spent $500 on beauty supplies over the past three months but I would strongly urge you to go easy on yourself and let these types of feelings go. Make a mental note that you plan to avoid doing this in the future as it perhaps really isn’t a priority but then let any guilt about having spent this money go.

Making A Future Plan

After developing your Reverse Budget you will know exactly how much you’ve spent on average monthly in your budget categories up until this point. However that was before you decided to prioritize managing your finances to focus on your goal. Now is the time to set realistic amounts for each category in your budget, I want to emphasize that these should be realistic or you will be setting yourself up for frustration, and they also have to be within your monthly take-home income (if you’re making $1000 per month $900 of that can’t go towards your clothing budget for example). This is how you will find “extra” money in your budget to throw towards your goal so be realistic but this is also where you should challenge yourself. For example if you’ve been spending $250 per month on eating out/take out but feel that you can really cut back on this to prioritize other goals you may want to challenge yourself to spend $150 per month on eating out/take out. I would recommend starting slowly on cutting back and wouldn’t aim to reduce spending in a category more than $100 per month. You may find that you can tolerate a greater reduction but for most $100 is a big reduction that will be challenging and noticeable and anything more could lead to a deprivation mindset which can increase chances of burnout before you get the chance to achieve your goal!

Listing Out Your Goal

If your goal is debt payoff you need to list out ALL of your debts, including any credit card debt, student, car mortgage or private loans, including any personal loans to friends or family members. This list should include the total owed, minimum payments required with due dates, as well as the interest on the loan, you may have to login to your creditor accounts to determine these numbers. If the goal is a savings related goal you want to list out your target amount to achieve your goal.

Next Steps

Any “extra money” that you find from making cuts to your monthly budget categories will go towards your goal. I will talk more in depth about creating a debt payoff plan and different options for a savings goal plan in future blog posts so stay tuned for that but for this very first starting point this is all that is needed for now!

To Dos

1. Choose a budgeting template that you want to use to get yourself started, you may end up changing this as you move along your budgeting journey, that is a-okay, but for now you want to choose a budget template system to get going! Reminder I have a simple beginner’s budget 70/20/10 monthly method that you can access here! I also really like “The Budget Mom’s Budget By Paycheck Method, you can find this one here. Her First 100K also has a good basic monthly budget spreadsheet found here.
2. Create a Reverse Budget, review your past three months of expenses to determine what your personal budget categories should be as well as what amount you should be budgeting for each category. Make sure this is realistic but also don’t be afraid to challenge yourself, remember this is where you will potentially find extra money to throw at your goals!
3. List out your goal. If your goal is related to savings list out what the savings is for as well as the total amount you are aiming to save. If your goal is debt repayment you need to list out ALL current debts, everyone and anyone that you owe money to including total amount owed, interest rates, and minimum payments with due dates.

Conclusion

Okay, phew, step one is DONE, we’ll call this step the pre-budgeting budget step as this stage is ALL about the prep work that will set you up for success as you begin your journey towards better management of your finances! Next we will discuss developing a debt payoff plan so stay tuned for that blog post coming up! Let me know in the comments below if you’ve found this helpful and/or if you think I missed any important steps in this phase!!!