1. Introduction
  2. What Is Budgeting?
  3. Setting Up a Budget
  4. Budget Boot Camp
  5. Budgeting Tips
  6. Establishing Budget Goals
  7. Budgeting Mistakes to Avoid
  8. Maintaining Your Budget
  9. 10 Things to Remember About Budgeting

Now you know why having a budget is so important. It can help you:

  • Make long- and short-term projections about your financial situation
  • Avert a financial crisis
  • Get the most from your money
  • Plan for major life changes
  • Achieve peace of mind
  • Live the life you want

If you've never had a budget, you may be feeling daunted by the prospect of setting one up. In this section, we'll show you how to do it. We'll provide a sample budget that you can copy to create your own budget with pen and paper, a spreadsheet or a budgeting app. We’ll also recommend some popular personal finance apps for tracking your spending and saving.

Money-Tracking Systems

First, let's discuss the various systems you could use to track your money:

  • Paper and Pen: This option is within anyone's means. It doesn't require a computer or smartphone. You can easily carry it with you and access it at any time, and electronic failure won't cause you to lose your data. However, notebooks can be misplaced, and meticulous record-keeping can be ruined by the swift tip of a nearby glass of water (so use a ballpoint pen or permanent ink). Perhaps the biggest drawback of this method is that it's easier to make mistakes by hand and there are no shortcuts since you can’t create formulas or link entries or pages to each other.
  • Spreadsheet: If you have a computer, chances are it came with a spreadsheet program. If it didn't, you can download Open Office to get a free spreadsheet program. If you use a spreadsheet to track your income and expenses, you're less likely to make mistakes, and you can easily do calculations, such as how much you spent on groceries for the entire year. In addition, a spreadsheet can keep a running total of how much money you have left to spend in a particular month or category that adjusts every time you enter a new expense or income source into your spreadsheet.
  • Desktop Software: Programs such as Quicken Personal Finance and You Need a Budget (YNAB) let you manage your money from your desktop or laptop computer. These programs cost money ($29.99 for Quicken Starter; $5 a month or $50 a year for YNAB) and may have to be upgraded, particularly if you get a new computer with a new operating system. However, desktop budgeting programs can do much more than a spreadsheet, such as importing your bank and investment account details, categorizing your expenses automatically, tracking your bills and creating reports such as spending by category, spending by payee and income vs. expenses.
  • Online Software: Online budgeting software does many of the same things as desktop software, but some of these programs are free and have as many features as paid programs. Also, since they're Internet-based, you can access them from anywhere – you don't have to be on your home computer (though you wouldn’t want to log in to a sensitive account unless you were using a secure Internet connection and a trusted device). Some people may not feel comfortable giving all their information to an online service – you’ll need to import data from your bank, credit card and other financial accounts by using your login and password from each account – and no matter how well-designed it is, any online system could have weaknesses that hackers can exploit. However, programs like Mint and Personal Capital have strict security measures and are great for tracking monthly spending, tracking spending by category, seeing your spending patterns over time and more.
  • Smartphone Apps: There are smartphone apps for many of the same programs that have desktop and online versions, including Quicken, Mint, YNAB and Personal Capital. (For more, see 4 Best Personal Finance Apps for 2017 and Is Level Money the Perfect Budgeting Tool?) Other popular smartphone apps for managing your money include:
    • Wally+: Tracks what you spend, where you spend it and whom you’re with when you spend it, using location services to give you extra insight into your spending habits. Shows your spending by category, how your finances compare to people like you and how much money you have left to spend daily and monthly.
    • Acorns: Automatically invests your spare change by rounding up each purchase and putting that money into a diversified investment account.
    • Toshl Finance: Track your spending and bill due dates. See how much money you have left to spend throughout the month. Tag expenses with optional data, including receipt photos to help remind you what you bought.
    • Pocket Expense: See all your financial accounts in one place, track bills, categorize spending, manage your budget and work toward savings goals.

These are just a few of the many personal finance apps available. New ones are coming out all the time. Others worth looking into include Goodbudget, Prosper Daily, Qapital, Mvelopes, Penny, Fudget and Dollarbird.

Simple Steps to Using Your Budget

Once you've chosen the system that's best for you, how do you start using it?

1. Keep Track of Every Expense, Including the Small Ones

It's easy to remember how much you spent on rent or your mortgage payment. For other expenses, you'll want to save your receipts, put all your purchases on the same debit or credit card to make record-keeping easy, or use one of the programs mentioned above that automatically aggregates your transactions. The transaction descriptions on your credit card statement or in budgeting programs aren't always crystal clear, so receipts are a useful backup, as is writing down each purchase as you make it on paper or in a spreadsheet – include the date, vendor, item and amount.

If tracking every little expense is too tedious, another option is to use cash for the small expenses, but only withdraw a certain amount each week or month and enter this in your budget as "miscellaneous." This method may prevent you from overspending, but it will not give you the clearest picture of where your money is going.

2. Update Your Budget Daily

Tracking your money this way will take minimal time, and you'll be less likely to forget something than if you wait until the end of the month to categorize everything.

3. Use Accurate Descriptions

Write down your expenses by what they are as well as where you purchased them so you'll be able to figure out later how much you spent in particular categories. For example, if you shop at a big box store like Walmart or Target, you might make a purchase that includes groceries, clothing and household cleaning supplies all on the same receipt. If you list the purchase under Walmart, you won't really know where that $150 went. You’ll have to break it down within your budget.

4. Budget by the Month, Not by the Paycheck

Budgeting monthly forces you to think slightly longer-term than your bimonthly paycheck, but not so long-term that you're likely to get derailed. Also, you'll get a fresh start every month. If you have a bad month, it's in the past after 30 days. If you have high expenses one month, you can look forward to the following month when, for example, your car insurance isn't due. That being said, if you find that a weekly or biweekly budget works for you, do that. The most important thing is that you’re tracking your income and expenses accurately, not that you’re using a particular method or program to do it. The options discussed here are just suggestions that many people find helpful.

5. Plan for Both Fixed and Variable Expenses

Fixed expenses are items like rent and health insurance, and variable expenses are things like utilities and gas. Some costs, like groceries, can fall into either category depending on how much self-control you have. By looking back over past months’ bills and budgets (once you’ve been budgeting for several months), you’ll know what range your variable expenses tend to fall into and how they vary seasonally. For example, you’ll know that your electric bill always falls somewhere between $50 and $100 but that it tends to be closer to $100 in the winter and summer and closer to $50 in the spring and fall. Then, you can plan accordingly even for expenses that aren’t set in stone each month.

6. Plan for Occasional Expenses

Budget for expenses that only happen a few times a year, such as gifts, car insurance (if you pay every six months or once a year) and doctor visits. If you have enough room in your budget, you can pay for these as they occur. If you're on a tighter budget, set aside additional savings ahead of time. There is no excuse for going into debt because you didn't realize that Christmas happens every year or that you would need a bridesmaid dress or a tuxedo rental when your best friend gets married a year from now.

Your budget can be more or less detailed depending on your level of self-control. Can entertainment be grouped under miscellaneous, or do you tend to spend so much on movies, restaurants and concerts that each item needs its category to help you understand exactly where your money is going?

In addition, budgeting is a little different if you have a steady income versus an irregular one. If you're paid hourly or on commission, are self-employed, work seasonally or are a student, you probably won't know how much you're going to make until the month is over. Irregular pay makes budgeting a little trickier, but it's still feasible. You will still have to cover certain expenses no matter what, and if you've been in the same line of work for a while, you probably have a good idea of the minimum amount of money you're likely to make each month. Budget around that minimum and you might be pleasantly surprised at the end of the month if you make more. It’s important to save extra in the months when you make more to account for the months when you make less and/or have higher expenses.

Budget Example

A budget spreadsheet is easily adjustable to accommodate different budgeting needs and styles. This spreadsheet is so simple that you can also model a paper-and-pen budget after it. Here's an example:

Sample Monthly Budget


Fixed Expenses

Variable Expenses

Work (after tax)




Car maintenance






Doctor visit


Gas for car




Health insurance




Gas bill




Electric bill








Cable TV


Household items


Cell phone




Retirement savings




Emergency savings


Vacation savings




Total Income


Total Expenses




In this budget, there is an extra $1,020 left over at the end of this particular month, even after planned retirement, emergency and vacation savings. This is a great opportunity to sock away that extra money for variable expenses in future months, for an emergency fund, or – if both those categories are well funded – for retirement savings.

You can make your own simple budget by changing the income and spending categories to reflect your personal situation. Then copy the sheet 11 times so you have a worksheet or notebook page for each month of the year. This makes it easy to plan in advance as well as look back on past months and see how you did.

In the next section, we’ll talk about some of the finer points of budgeting.

Budget Boot Camp
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