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Budgeting for beginners: 6 steps to get started

Learn how to budget and gain control over your finances.

It’s no secret that budgeting your money is the best way to attain financial freedom, but actually sitting down crunching the numbers is a whole other story. Luckily, we’ve laid it all out in an easy-to-follow process. Here’s how to budget in six simple steps.

1. Find your budgeting method

First things first, think about how you want to budget. Do you want to track everything manually in a spreadsheet? Use a budgeting app to help you automate the process? There’s no wrong answer, but choose a method you think you’ll stick with — and dare I say — even enjoy.

If you’re a numbers person who loves a good spreadsheet, an automated software like Tiller Money may fit the bill. If you despise the thought of budgeting and want to automate the process as much as possible, a software like EveryDollar may be a better fit.

2. Tally up your income

Once you have your budgeting method, add your total monthly net income. This could include your salary, interest and dividends, investment income, family allowances, child support, alimony and even income from your side gigs or hobbies.

3. Calculate your expenses

Create budgeting categories for all of your monthly expenses. Look at your receipts and past credit card and bank statements to find the average amount you spend each month on each spend category. Some common expenses include:

Mandatory fixed expenses

  • Rent or mortgage payment
  • Phone bill
  • Car insurance
  • Internet
  • Phone bill
  • Utilities

Mandatory irregular expenses

  • Groceries
  • Haircuts
  • Gas for car
  • Transportation/parking

Occasional expenses

  • Car repairs
  • Medical expenses
  • Holidays and gifts
  • Renter’s or homeowner’s insurance
  • Property taxes
  • Bank fees

Optional spending

  • Dining out
  • Subscriptions
  • Entertainment
  • Fun money
  • Forgot to budget for — this category catches all the little things you forgot to set aside money for

Debt

  • Credit card
  • Student loans
  • Medical bills
  • Auto loan
  • Mortgage

Savings

  • Emergency fund
  • Vacation fund
  • Down payment on a house
  • New car fund
  • Retirement

You may realize you have way more expenses than you thought when you start calculating them, but that’s okay. Simply adjust these categories as you get more in-tune with your spending.

4. See where you stand

When you finish your budget you should have a figure that shows money left over at the end of the month. This is your income minus expenses.

  • If your budget shows a positive figure, then you’re spending less than you earn. Congratulations! Take that extra money and put it toward your savings goals and debt.
  • If your budget shows a negative figure, living beyond your means and possibly accruing more debt. Evaluate your expenses to see what you can do without. Maybe you can shave $50 off your dining out budget or cut out the one subscription service you use least. It doesn’t have to be anything drastic, but small changes will add up over time.

5. Track your progress

Set aside 15 minutes each week to import expenses into your budget, so you can see how much money you have left in each category. If you’ve overspent in one category such as car repairs, move money from another category such as dining out or fun money, to cover the difference. That way you don’t end the month in the red.

If you use cash a lot, keep receipts so you know what you’ve spent your money on. Otherwise, log in to your bank and credit card accounts to see how much you’ve spent.

6. Be flexible

No two months are going to be the same, so your budget needs to be adjusted regularly to match your changing finances. The interest rate on your mortgage may go up, straining your budget more than the previous month.

Or, you may pay off debts and find you have more money to put toward your savings goals. Whatever it is, stay flexible and be willing to adjust your budget as often as necessary.

Example: Budgeting spreadsheet

Here’s what my budgeting categories looked like before I paid off $18k in student loans. I put all of the leftover money toward my debt, then I used it to build a three-month emergency fund once it was paid off.

Cassidy’s monthly income and expenses

IncomeExpenses
Salary$4,000
Rent-$750
Groceries-$450
Dining out-$355
Car loan-$305
Utilities-$150
Miscellaneous expenses-$150
Cat expenses-$100
Car insurance-$95
Cell phone bill-$75
Car fuel-$55
Subscriptions-$15
Total income and expenses$4,000-$2,500
Leftover money $1,500

4 budgeting tips and tricks

Keep these tips in mind when creating your budget:

  1. Think long-term. You’ll most likely budget for the month, but remember that improving your finances is a long term commitment. You may not see results at first but keep at it. The reward will be worth it.
  2. Set realistic expectations. The first month your budget is in place is a good barometer of how realistic it is. If you can’t stick to it in the first month then you may need to revise it.
  3. Keep it simple. Less is more when it comes to budgeting categories. Instead of having a category for every little expense, create your main categories, then one “Forgot to budget for” category to catch the miscellaneous.
  4. Make reviewing your budget part of your routine. Get in the habit of reviewing and adjusting your budget at least once a week. Maybe you can do it with your morning coffee on Sundays as you begin to mentally prepare for the next work week.

Consider a checking account that helps you budget automatically

4 types of budgeting methods

This table showcases the different types of budgeting methods and how they compare. Use it to decide which process may work for you.

TypeBest forHow it worksPopular accounts
Zero-based budgetingThose who want to know how they’re spending every single dollar they make
  • Take all income and allocate it toward expenses, debt and savings
  • Make sure income minus expenses equals zero each month
  • Can be automated or manual (manual would be tedious)
Envelope budgetingThose who need help curbing spending but don’t want to track every purchase
  • Set a spending limit for each category
  • Fill envelopes with money
  • Once envelope runs out, you can’t spend any more money in that particular category
  • Can be automated or manual
50/30/20 budgetingThose who are new to budgeting or want to budget quickly
  • Allocate 50% of take-home pay to necessities, 30% to wants and 20% to savings and debt
  • Don’t track individual expenses, just make sure you stay within certain range
  • Must be done manually
  • N/A
Kakeibo budgetingThose who want to take a more mindful approach to budgeting using a Japanese technique
  • Set aside money for savings first
  • Split remaining funds between Survival expenses, Optional expenses, Cultural expenses and Extra expenses
  • Tally up expenses at the end of the month to see how you did
  • Can be automated or manual

Which budgeting method should I use if I’m short on time?

A program like Tiller Money is great for budgeters who are short on time. It has two main benefits:

  • It uses Google Sheets or Excel, which means you won’t have to learn a new app or software.
  • It connects to your financial accounts, so transactions automatically get deducted from your budgeting categories as they import.

Compare budgeting apps

Use this interactive table to compare budgeting apps by monthly fee, service fee and platforms.

Name Product Fee Service fee Platforms
Chime Spending account
$0
iOS,Android
When you use your Chime card, Chime rounds up your purchase to the nearest dollar and transfers the rounded amount to your Chime Savings account. Plus, you can opt in to automatically transfer 10% of each paycheck into savings.
Digit
Digit savings is a microsavings app that helps you avoid overdrafts and passively set aside cash for short-term goals.
Bright
Free or a 6-month subscription of $53.94 or annual subscription of $83.88 for the Premium package
Secure a Brighter financial future
Trim
$0
33%
PC,Mac
Trim analyzes spending and offers personalized advice to help you reach your goals.
Tiller Money
PC,Mac
Use Tiller Money to automate your budgeting spreadsheets and pay off debt.
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Compare up to 4 providers

Why should I budget?

When you create a budget, you’re building a plan for your money and your future. A budget guarantees you’ll always have the funds to pay for upcoming expenses as well as any unforeseen bumps that crop up along the way. A budget can also help relieve you of the burden of debt or allow you to grow your savings at a steady rate. It provides a good overview of all your expenses and help you establish financial goals and future savings plans.

Bottom line

Far too many individuals don’t have a clear idea of where their money is going. They just know they never have enough leftover at the end of the month. Budgeting puts you in control of your money and makes it much easier to track spending habits, reach savingsUSFIN | USPE-0 | WP-0 | Biweekly editorial forumns

Why should college students have a budget?

Most students are on limited incomes, so using a budget can be a great way to ensure you manage your income and expenses. When you have your expenses set out in a budget, the temptation to overspend on other things is reduced. You become far more aware of what money you have available and what areas of your spending you can cut back on. Learning to budget as a student can help you develop sound financial management habits that will help you in your adult life.

Why does my business need a budget?

Budgets are vital in business. Whether you run a multinational organization or the local corner store, budgets are an excellent tool for day-to-day business operations. There are various options for business budget planning software packages and most can be customized to suit any businesses’ needs.

Business budgets can be used for:

  • More effective money management
  • Business performance monitoring
  • Identifying and meeting financial objectives
  • Improving decision making
  • Identifying potential cash flow difficulties or problems
  • Creating informed plans for the future

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