Broke Budgeting 101: How to Get Control of Your Money

You know the feeling. It's the end of the month and it's been almost two whole weeks since your last paycheck. You're heading home for the weekend and you get a call from your friend. She wants to know if you can join her for dinner.

You sigh. You have a measly amount of money in your bank account and you need to save it until you get your paycheck next week. You regretfully decline and end up eating microwavable noodles at your place.

Okay, so maybe this is a bit dramatic. But you get my point!

If this sounds all too familiar to you, don't worry. When you run out of money at the end of the month, it's likely not because you don't make enough. Instead, it's probably because you aren't completely in control of it.

I know what you're thinking. Your money sits in your bank much more control could you have? But more often than not, we let our money control us rather than the other way around.

The truth is, it's so easy to spend our money when we don't make a plan for where it should go.

We aren't taught how to budget our money well. In fact, we live in a consume, consume, consume kind of world, so saving isn't something we inherently know well.

That's probably why you're reading this in the first place! Maybe you know you need to get your finances in shape. Maybe you're sick of living paycheck to paycheck. Whatever the reason, getting control of your money is pretty easy with a few key principles to keep in mind!

Let's break down broke budgeting 101.

What's a Budget Anyways?

A budget is simply any plan you make for your money. If you haven't ever sat down and made a budget before, you've still probably practiced the concept. You make a budget when you tell your money where to go.

There are a few popular budgeting methods I like the most.

1. 50/30/20 Budget

The 50/30/20 budget is one of the most commonly used budgeting methods out there. Big money guys like Dave Ramsey recommend this method, probably because it focuses so much on savings and debt!

There are three parts to this budget, and each represents a percentage of your total income after taxes.

The first number represents 50% of your income. This much can go to all of your fixed expenses, or needs. In other words, you should only spend 50% on mortgage payments or rent, insurance, car payments, utilities, groceries, any minimum debt payments you have, and anything else you absolutely need to survive. Other things that could fall into this category are internet if you work from home or gas if you commute a lot.

The next category represents 30% of your total income. This is what you're able to spend on variable expenses, or your the things you want. Netflix and subscription services, coffee, dining out, entertainment, and clothing fall into this category. So, if you've been dying to buy a new pair of sneakers, or the latest iPhone, this would come out of your 30%.

This also begs the question: how much should you spend on housing? It varies between 25 and 30% but most Americans that do spend a total 30% on housing report tight finances throughout the month. And remember, this is what we're trying to avoid!

It also depends on whether you're living in a house or apartment. Owning a home comes with property tax, interest payments, repairs that you're responsible for, home insurance, utilities, and more! It can be a worthwhile investment, but don't forget to include those extra expenses in your calculations.

The last category represents 20% of your total income that goes straight to your savings. Things like your IRA or retirement fund, mutual funds, and emergency fund count for this category as well. Plus, if you don't keep your "savings" money in the bank, this can count as your investment money too.

Having a solid savings account is important if you encounter an emergency or lose your job and have to live without income for a few months. Most experts recommend having at least 3-6 months of income saved up in your emergency fund.

But who says you have to keep this money in the bank? There are tons of low-risk investment options out there where you can withdraw money anytime. Aren't sure where to start? Talk with your financial advisor about what options are best for you to make your money work for you!

2. The "Pay Yourself First" Budget

This budget is almost completely focused on your savings. The basic idea is that you come up with a certain savings goal and use each paycheck to pay towards this goal before using it for anything else. After you pay yourself, you can do whatever want with the rest of your money.

Maybe you want to set aside 20% for savings. Maybe you want 5% in savings, 5% invested, and 5% towards a new car. Or maybe you're splitting rent with some friends, so you want to save 35% while you can.

Whatever goal you have in mind, you set up an automatic payment towards these things and use the rest of your money for whatever else you want! The idea of this budgeting method is that it doesn't matter where the rest of your money goes as long as you're able to pay all your bills and meet your savings goals.

There are some pro's to using this budget, however. You still have to keep an eye on your money when using this method so you have enough money to pay your bills. If you struggle with this, this budget may be a challenge as it's a bit looser.

This method also isn't the best if you have lots of debt, as paying off debt is more important than saving! I mean interest accruing every day? No thanks. Pay that off first!!

3. The "Zero-Sum" Budget

The last budgeting method is known as the zero-sum budget, and it works almost exactly how it sounds. You simply take each paycheck and spend all of it, so you don't have any leftover money to spend on random stuff you don't need.

Okay, you can't just spend it on whatever you want, but it is important to think of it as spending. With this method, you allot every dollar you earn a specific purpose, even if you're just putting it in your savings account.

Take your after-tax income and divide it up based on what you need to pay for each month. For instance, here are a few things you might "pay" using the zero-sum budget:

  • $800 in rent every month

  • $400 to your investment fund or retirement fund each month

  • $200 in extra debt payments

  • $60 to dining out each month

  • $30 on TV each month

This budget is great because it makes you think critically about every single purchase you make. It also eliminates the "left-over" thinking! So if you have extra money at the end of the month, you'll be more likely to "pay" it to your savings or investments than spend it on random stuff.

There are cons though too, as this budgeting method also requires a lot more thinking, and can get finicky if you happen to be on a tight budget.

How to Know Which Budget is Right for You

There is no one-size-fits-all when it comes to budgeting and getting control of your money. Something that works for you might not work for me, and that's okay.

The most important part of this whole process is that you're telling your money where to go, instead of it tell you where it wants to go! Give one of these methods a shot, and try it out for a few months. If you don't like it, or don't feel like it works for you, try another one! Be patient, and cut yourself some slack.

What Budgeting Isn't

Budgeting isn't denying yourself from having nice things. If you get into the mindset of all the things you can't have, you'll likely feel deprived and controlled. And, let's be honest, the rebel in all of us won't be happy.

Instead, focus on all the things you can have because you budgeted for them!

Tips for Budgeting

Here are some tips that make budgeting easy!

  • Live within your means! If you pay too much for something, you'll end up not having as much for everything else. This can make you go broke, which makes budgeting feel more like living paycheck to paycheck. There's a lot more freedom in living within your means than outside of it!

  • Cut yourself some slack! It's okay if it takes a few months to stick to a budget. Give yourself some grace and get back on track!

  • Don't forget all the irregular expenses you have each year like your best friend's wedding or Christmas gifts for your family! Living within your means will help you afford these things when they pop up.

  • Keep it simple! If you're the kind of person who wants to make an excel sheet for every dollar you spend, go ahead. But scribbling it in a notebook works too. Remember, your budget doesn't have to be fancy!

  • I like Starbucks just as much as the next person. Just because you're budgeting doesn't mean you can't spend money on what you love. Just keep track!

Final Thoughts

Budgeting doesn't mean you can't have fun, and it doesn't mean you aren't making good money. It's simply a way to work smarter and not harder!

Have a budgeting method you swear by? Tell me about it in the comments!