Learning About Finances 101 — Budgeting
Over the years, I have tried budgeting in so many different ways. Some of them worked better than others. Some didn’t work for me at all. The big question is how do you want to categorize your money. We all tell our money what to do, sometimes passively, when we don’t hold budgets. Sometimes actively when we do hold budgets. I’ve been on both sides of the line, for better and worse.
When I first began budgeting, I had no idea what to do. Really. Not a clue; I knew I needed to pay my bills, but that was the extent of it. So I did, then I spent the rest on my wants. This was childish, but it was all I knew at the time.
There are various strategies for budgeting, but at the end of the day, it comes down to.
What are you earning [Income] vs spending [Expenses]?
What is Income (earning)?
Income is the money people receive in exchange for working, producing a product or service, or investing capital. (Investopedia)
// e.g., income from a day job, selling items on eBay, or dividends from stocks.
What is an Expense (spending)?
An expense is the cost of something.
// e.g., expenses from rent, utilities, going out to eat, or a new laptop.
Budgeting is a fundamental building block for finances. It maps out how much we have coming in and how much we have going out. Let’s look at how to budget and the two simplest budgets I have found.
How do I budget?
Before you start, you need to collect a little information. Your check stub or how much you’re earning every week, month, and for the year. Second, you need to know how much you are spending. You should be able to get this information on your bank statement, credit card statement, or somewhere similar. Once you have that, you should pick the type of budget that want to try. Below are the two simplest budgeting options.
The 20/30/50 Budget — This budget keeps it simple for you. You spend the first 20% on saving. You spend 30% on your wants; new shoes, a new laptop, going out, new furniture, etc. Finally, you spend 50% on your needs; rent, utilities, car, insurance, etc.