If you’re anything like me, you’re perpetually swinging between vowing to cut all unnecessary spending cold turkey and humming “Treat Yo’self” as you order your third UberEats meal in 12 hours.
Which one you’re doing depends on the day — and how long it’s been since your last paycheck.
The result: a pitiful savings account balance, scrimping to pay the minimum on your credit card and feeling like you’re still living paycheck to paycheck even though your income has come a long way since your first job out of college.
You know there is a way to solve this problem. You know that if you just create a budget — and by some miracle, stick to it — you could finally get the financial freedom everyone else seems to have already figured out.
You also know budgeting is a buzzkill.
But if you give it a genuine shot, we promise that we will, too. We’re in this together.
How to Budget in 4 Easy Steps
Creating a budget doesn’t have to be a grueling process. If you take some time to prepare and learn how to budget in a way that makes the most sense for your lifestyle, you can start on the road toward controlling your personal finances in no time.
We’ve laid out exactly what you need to do in four pretty simple steps.
Step 1: Know How Much You Make and Spend
Before you can make a budget that works, you need to know your numbers. We like to focus on a monthly budget, since most bills are due once a month. Log in to your bank account online, and grab your last couple months’ worth of bank statements. While you’re at it, grab your credit card statements, too.
First, write down your monthly income.
This should be your take-home pay for the month. That’s the money you earn minus deductions for taxes, Medicare, Social Security, health insurance contributions and allocations to retirement accounts like your 401(k) or Roth IRA.
If you have irregular income, it’s best to take a look at what you’ve earned over a longer period of time — the past six months, say — and use the monthly average for your budget.
But don’t just stop there. Add any extra money that comes in from your side hustles. Child support payments. Recurring bonuses or stipends. Financial aid payments. Include it all.
Your next step is the painful part: It’s time to log your monthly expenses.
Start with the recurring stuff: Your rent or mortgage, car note, car insurance, cell phone bill, internet, utilities and debt payments. Don’t forget the fun stuff, like your cable TV, Netflix and Spotify Premium accounts.
From here, you’ll want to start adding up your discretionary expenses. Analyze your spending habits. How much are you spending on shopping, eating out and drinks with friends?
To get a full picture, you can put these things in categories. For example, movies, concerts and museum visits can all go under entertainment. Your gym membership, yoga membership and the drop-in rate on that one CrossFit class can all go under fitness.
Look at a few months of statements to get an average for this part, too. That will give you a more accurate picture of your finances.
Step 2: Set Your Financial Goals
If you’re going to succeed at this budgeting game, you need have an idea of what you’re hoping to accomplish.
It can be a simple short-term savings goal like funding a vacation with your college besties. Or a long-term one, like learning to budget so your kid can go to college without student loan debt.
Set a goal, and make it good — your financial plan could be the only thing that stops you from swiping your debit card to buy yet another pair of shoes this weekend.
I take it a step further and mix my financial goals with my personal ones.
For example, I tend to overspend on restaurant meals. But budgeting less for eating out means I cook more healthy meals at home, so I save while staying on track to accomplish my weight loss goals, too. Then, I can use the money I save to build up my emergency fund or pay down debt a bit faster and continue toward my goal of becoming debt-free.
Step 3: Find Your Favorite Budgeting Method
Once you have a complete picture of your finances, it’s time to pick the budgeting method that works best for you. The one you choose will depend on how much time and energy you have to devote to it.
If you feel comfortable creating an old-fashioned budget worksheet in Excel, you can do that. We’ve got a few super simple ideas you can try if charts make your eyes glaze over.
But even after you’ve picked your favorite budgeting method, don’t be afraid to bend it a little to fit your financial situation.
You don’t have to spend several hours each month working on a budget. The easiest way to budget is to grab a pen and paper and simply write down how much you make and how much you need to spend on the essentials — like housing, utilities, food and debt repayment. You save the rest.
That’s it. You’re done.
I’d suggest keeping that sheet of paper somewhere visible to remind you to rein in your spending.
The zero-based budget takes the bare-bones budget one step further. The goal here is to get to zero at the end of each month. It helps you account for each dollar on the way.
Write down how much you make, and divide it to cover all your bills, savings and discretionary spending until you hit $0 at the end of the month.
Although this plan encourages you to get down to nothing, the idea isn’t to spend without regard; it’s to make sure every dollar goes exactly where you intend for it to go every month.
This takes all the guesswork out of deciding which expenses should stay in your budget and which ones need to go.
With the 50/20/30 plan, 50% of your money goes to essential expenses like housing, utilities and your car payment. From there, 20% will go to financial goals like savings and investments. The final 30% is yours to spend on the fun stuff like restaurants, movies and drinks with friends.
Cash Envelope Budget
The cash envelope system is good for those who have problems overspending on variable expenses like groceries or entertainment.
Review your monthly income and average expenses to determine how much you spend in each category. Then take out your envelopes, label them by spending category and fill them up with their cash allocations. (You don’t need to use envelopes for fixed costs like rent or car insurance.)
When you’ve spent all the cash in an envelope, you can no longer spend in that category for the rest of the month.
Step 4: Find the Best Budgeting Tools for You
Remember when I said you’re not alone in this quest to budget your money? Well, there are some apps and books that can help.
While budgeting by hand works great, your smartphone can streamline it.
- Mint: My favorite free app is Mint, which is available on iPhone and Android devices, and is also accessible at Mint.com. You connect your bank account and credit cards, then you set a dollar amount for how much you plan to spend in each category.
Mint will automatically analyze your spending and notify you when you get close to your budget limit or overspend. It’s pretty easy to use and can save you lots of time. The only downside is that the “You’ve exceeded your budget” emails can sometimes feel a little judgmental.
- EveryDollar: If you’re a fan of the zero-based budget, EveryDollar is the free app for you. It’s also perfect for side hustlers whose income can fluctuate from month to month. As you manually track your spending with the app, use it to make sure every dollar you make is accounted for.
- Prism: This isn’t technically a budgeting tool, but it’s still worth mentioning. Prism is a free app that puts all your bills in one place, so you always know exactly how much money you have and how much you owe.
You can connect everything from rent and car insurance to student loan payments and your Tidal music streaming account, and you can pay your bills right from the app.
- You Need a Budget: This started out as an app and then became a book, too. It hinges on four rules:
- Give every dollar a job.
- Embrace your true expenses, not your ideal ones.
- Roll with the punches, and adjust your budget as you spend.
- “Age your money,” meaning hold onto it longer, and start to break the habits that leave you living paycheck to paycheck.
You Need a Budget is more hands-on than other apps. It’s also the only option that’s not free. After the 34-day free trial, you’ll pay $6.99 per month for the service.
These books will get you on the path to becoming a budgeting pro in no time.
- “The One Week Budget”: This book is an Amazon bestseller by Tiffany “The Budgetnista” Aliche. We’ve even got a copy in our library at The Penny Hoarder HQ. Through a series of worksheets, it walks you through how to analyze your income, track your spending and pay down debt fast so you can get back to saving for the life you want.
- “The Total Money Makeover”: This book was written by financial guru Dave Ramsey. A few Penny Hoarders who have paid off heaps of debt swear by his teachings. His book is also an Amazon bestseller and could be the perfect place to start if you want to break some of those not-so-great money habits and start building a budget that works.
Desiree Stennett (@desi_stennett) is a senior writer at The Penny Hoarder.
Senior Writer Nicole Dow contributed to this post.
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