Budgeting for Beginners
Learning to budget is not an easy skill but it is a fundamental life skill. Diego Ruiz Duran wants to learn how to budget, let’s walk through a few easy steps to start the budgeting process. Keep in mind that this may take a while, especially to pay off all of his debt. It is just depending on his current situation.
First step is to determine the income he makes. Diego Ruiz Duran needs to determine his average monthly income based on his salary or hourly rate. This can be a bi-weekly, monthly or weekly income depending on his source of income.
Second step would be to determine what his expenses would be for the month. This would include any rent or mortgage, groceries, bills and any impulse buys. This is best to be created in an excel document so he can visually see all of his expenses for the month. At the end, Diego should tally up the total of all of those expenses and that is the grand total that he would need to budget for on a monthly basis.
Now, Diego should take a look at the remaining balance. He would do this by taking the last step’s total and subtracting from the first step’s income. The remaining number would be that amount that is left for him. Diego should take that remaining balance and put it in a separate account to reach his saving goals. The best financial advice is always to keep at least three months of his expenses as an emergency fund, just in case of an emergency.
Now, the last step would be to take some of the leftover income and set it toward paying off his lowest debt. Diego should tally up his debt and incrementally pay off some of this every month. Some would call this the debt snowball but when Diego starts to pay off his debt, he should make a list of all of his debt, regardless of the interest rate and attack the smallest debt first and keep doing this, almost like a snowball effect. At the end of this, he is left with a sense of accomplishment because he will be debt free.
Investing is an additional way for Diego Ruiz Duran to grow his left-over income. He can open an investment account or multiple and watch some of his left over income grow over time. Another way for Diego to divide this is using the 50-30-20 method. This method explains that 50% of his income should go to his needs. This would include mortgage, rent, utilities and bills. Additionally, 30% should go towards his wants, clothing, eating out, gym membership and any subscription services. Lastly, 20% should go towards his savings and debt. This would include emergency funds, 401K contributions, savings accounts and investments.
Again, budgeting is not an easy task but it is essential to be able to manage his income accordingly. With these tips and tricks, Diego will now be able to successfully budget his income.