Have you tried basic budgeting before but struggled to get anywhere with it? Maybe you’ve even downloaded an app or two so that you can track your spending, but you’re still not making any real progress towards your goals.
Sometimes, the best thing you can do is go back to the drawing board and make sure that you know how to create a basic frugal budget. Although apps and digital tools are designed to make budgeting easier, some people find that the simpler their spending plan is, the easier it is for them to stick to. That could mean just tracking your money with a pen and a piece of paper.
If it’s your first time creating a frugal budget for you and your family, here’s what you need to know.
Before you do anything, remember to think carefully about what you want to accomplish with your budget. Knowing why you’re doing this will help to keep you on track. It’s also important that you commit to being honest with yourself about your spending habits. No-one is going to judge you and trying to sweep spending issues under the rug will just lead to more problems in the future.
Here’s what you’ll need to get your budget ready:
- Paper and a pen/pencil
- A calculator
- Information about your income
- A list of your bills or bank statements
Step 1: Understand your Incoming and Outgoing expenses
There are two parts to a basic frugal budget. The first part addresses the amount of money you have coming in. This money includes any dividends or benefits you’re entitled to, money from your income, and any other earnings you might receive from investments.
The second part of your budget belongs to your monthly expenses. You’ll need to look carefully at your bank statements to get a list of these. Remember, you’re not just looking for common monthly costs like utility bills and rent payments, you’re also looking at how much money you spend on things like streaming services and morning coffees too.
Step 2: Separate your Needs from your Wants
With an overview of your monthly expenses in front of you, it will be possible to separate the things that you have to buy, from the things that you want. For instance, you need food and to pay your mortgage, but you want things like entertainment, expensive clothes, and television subscriptions.
You can dive deeper into the details of each payment later. For now, assign your expenses into a “need” and a “want” column. Then, when you’re done, subtract the “needs” from your incoming money. You should hopefully have some cash left over. Before you begin looking at your “wants” again, make sure that you’re also counting “savings” and “emergency expenses” into your “needs” column. These are things that you can’t do without.
Step 3: Re-Align your Budget
Now is the time when you can begin adding wants back into the mix. The chances are you’ll have more wants than you can reasonably afford – which is why you’re making this frugal budget. With that in mind, list the things that you want most, to the things you can do without. Remove anything from your “wants” list that you don’t need in your life. For instance, you can probably get by without a morning coffee every day – particularly if you start making your drinks at home.
Remember, although you’ll want to assign as much of your money to things like loan repayments, emergency savings and other savings as possible, it’s essential to have money aside for fun too. Otherwise, you risk giving up on your budget entirely because you feel too restricted.
Step 4: Look for ways to Cut Your Expenses
Remember, a frugal budget isn’t just about removing things from the “wants” column of your expenses. It can also be about finding ways to make your needs less costly too. For example, you could consider switching to a different utility provider if you can get a better deal on your gas and electric. If you’re willing to switch to supermarket-own brands when you buy food, you’d be surprised how much you can save on your weekly and monthly shop.
Look for opportunities to save money wherever they might be. You can even cut costs when you’re taking out a loan, especially if using someone like HappyPenguin Loans. If you make sure that you compare your options online, you can reduce the amount you need to spend on fees and interest repayments over time.
Step 5: Put your Budget to Work
Once you’ve cut costs wherever you can, and given every penny in your budget a purpose, you can start putting your strategy to work. Track your performance and make sure that you pay attention to any areas that you regularly go over the limits you’ve set for yourself.
After a while, if you decide that your budget isn’t working as well as you had hoped, you can go back to the drawing board and think about what you need to do differently. You might need to reassign money from one part of your budget to another or cut costs elsewhere.