How to Budget Money

*This post has been reviewed by an Illinois Registered CPA. However, when making important financial decisions, it's best to speak with your financial advisor.

Last Updated on September 10, 2022

Learn How to Budget Money

Are you often asking yourself: why can’t I save money? People who don’t save money may not track their spending and tend to spend on different things, like maybe online shopping. Is this the reason why money slips through your fingers, too? Tracking your spending is the first step toward building a budget.

There are multiple benefits to creating and sticking to one. In this post, we’ll show you how to budget money successfully. Discover the most popular budgeting strategies and how to put them into practice.

Why Should You Budget?

If you’re not sure how to budget money, you might first want to know the why behind it. Companies typically rely on a budget. It’s a necessity to help them meet their goals. It is also necessary to budget to create them in the first place. A firm budget enables them to put together a realistic financial plan.

But why is budgeting necessary for individuals? Well, in general, the same reasons also apply to individuals. Here are some of the benefits of budgeting:

1. It helps avoid debt. It can even help you fix your credit fast.
2. You’ll learn to live within your limits and avoid frivolous spending.
3. You’ll be able to put money aside each month
4. Budgeting helps you gain more financial literacy and peace of mind.

What Do I Risk If I Don’t Budget?

Having a budget is one of the necessary steps in building sound financial habits. When you budget, you scrutinize your expenses and prioritize. That means you focus on your essential expenses. Then, you start spending on things and activities that are not necessarily a must. This helps you avoid dreadful situations such as:

• Not having money for bills.
• Incurring penalties on past-due payments.
• Getting into more debt.
• Ruining your credit score.

With a budget, you also have a clear overview of your available financial resources. Without a budget, you don’t know how much you can actually spend. You risk wasting money on wants instead of needs. That can be tempting during the first days after you get paid.

With money in your account, you can easily become the victim of impulse buying. Then, as days pass, your budget shrinks. Before you realize it, the month ends and you still have unpaid bills. Does this sound familiar? If you want to avoid such circumstances, you need to budget.

How to Budget for Bills

If you’re concerned about your recurring payments, there are solutions. A clear budget will help you allocate money to these expenses. At the end of the month or even before, you’ll be able to pay them. You can also learn how to use the half-payment method to cover recurring expenses such as bills.

This budgeting strategy directs you to put aside 50% of your bill expenses from each paycheck. You’ll have the money you need before the due dates from two monthly paychecks. You can also apply this strategy to other recurrent expenses. For example, you can also tackle your rent or mortgage this way.

Misconceptions That Might Prevent You from Budgeting

Some people don’t budget simply because they don’t find it helpful. There are different misconceptions behind this idea. For example, some may think budgeting is only for those making a lower income. As mentioned before, companies budget too.

The bigger they are, the more time and resources they dedicate to budgeting. Having a budget is by no means connected to living a frugal life. On the contrary, many wealthy and influential people budget. They promote this as the key to a healthy financial life.

Take T. Harv Eker, for example. He is the famous author of the best-seller “Secrets of The Millionaire Mind.” In this book, he explains why budgeting is essential. He also helps people understand why it is connected to financial freedom.

Warren Buffet is another excellent example. You can find lots of his financial recommendations online. Buffet’s net worth is approximately 100 billion dollars. He is among the ten wealthiest people on the planet and, yes, he believes budgeting is necessary too. His financial tips on how to budget and save money are genuinely inspiring.

How to Start Budgeting

To be able to budget, you first need to open your eyes and mind. You have to understand why budgeting helps. Then, you will be able to create a plan and slowly start applying it. To get there faster, steer clear of budget-related misconceptions. Here are the most common ones you might be having right now

Budget misconception	Reality
Only poor people need to budget.	Lots of rich people acknowledge the merits of budgeting.
I cannot budget if I don’t have a lot of money.	Anyone who has a steady income can budget.
You need financial knowledge to budget successfully.	You only need to create a plan and stick to it.
Budgeting involves many calculations. It’s too complicated for me.	Budgeting is as simple as you want it to be. You can use apps for any needed calculations.

Speaking of the final misconception, don’t panic. The idea of budgeting might sound overwhelming, but you don’t have to be a financial expert to budget. Anyone can budget even with minimum financial knowledge. Also, you don’t need to have good math skills. There are apps and digital tools for all the calculations budgeting requires. You can even use your mobile phone’s calculator.

How to Budget Money Monthly with Financial Apps

These apps connect to your bank account. They can track your spending in real-time and help you implement a budgeting plan. Budgeting apps increase your chances of successfully applying a budgeting strategy. Once you register the budget and the expenses on the app, they will track:

• How much you spend and when.
• How much money you have left.
• What payments are approaching.
• What financial goals you’ve completed.

Where can you find these apps? They are available both on iOS and Android. You can download and install them in minutes. Some of the apps you can explore in detail with our reviews include:

• Mint
• Mvelopes
• YNAB

Apps such as these might also help with your investment plan. They will enable you to set different financial goals and track and achieve them.

How to Budget and Save Money

There are several reasons why people budget. Some have one goal and it is saving money. Others budget for multiple reasons, such as:

• Putting money aside for a home.
• Saving money for kids’ college.
• Covering debts or avoiding them.
• Gathering money for investments.

No matter what urges you to budget, you need to be consistent. That way you’ll enjoy the full benefits of budgeting. If you’re wondering how to budget your money, the answer is:

1. Calculate your monthly income. If you have multiple sources, add everything.
2. Calculate your monthly expenses. Start with necessities (rent, bills, food).
3. Allocate the necessary amounts from your budget to your expenses.

These are the basic steps of budgeting. There are different strategies you can use to budget. We’ll soon look into some of them. Most of these strategies imply setting a savings goal. With this goal in mind, you make the most of your budgeting efforts. On the one hand, you cover all your necessary expenses. On the other, you also set up a savings or emergency fund.

How to Budget Money for Basic Needs?

When you start budgeting, it’s normal to think about your basic expenses first. This is also what most budgeting strategies recommend. One of the best and most well-known strategies that focus on basic expenses is the 50-30-20 budget. This popular budget model implies the following steps.

1. Calculate your monthly income.
2. Divide it into three categories (wants, needs, savings).
3. Assign the following percentages to each:
   • Needs: 50%
   • Wants: 30%
   • Savings:20%

This budget strategy emphasizes savings. Managing to put aside 20% of your paychecks is a significant achievement. If you can, go beyond this percentage. Try saving 25-30%. If you’re on a limited budget, try saving at least 10%.

Regarding your needs, this category requires more attention. You have to include all your recurrent and essential monthly expenses here. Budgeting for your necessities can look like this:

Total monthly budget: $5,000	The amount dedicated to needs: $2,500
Expenses:	Necessary amount:
Food	$400
Gas & bills	$600
Mortgage or rent, insurance & subscriptions	$1,500

To make it easier to come to the right amounts, start with your fixed expenses. In this case, your mortgage, subscriptions, and insurance. Then, move on to your predictable expenses – gas and bills. The remaining amount can go towards flexible spending categories such as food. What’s important is to take care of necessities first.

After getting your salary, make the necessary monthly payments (rent, bills, etc.). Then, put aside the percentage of your salary you can afford for your savings goal. Create a separate envelope for other necessities (groceries, clothes, etc). Finally, use the remaining money for your wants. This is the budget you can use on non-essential expenses.

How to Budget Your Money and Still Have Fun

Another common misconception is that budgeting kills the fun. On the contrary, budgeting will help you have enough money for entertainment and leisure time. You just have to pay attention to your spending to make sure you have enough for everything.

The budget method described above can help you out, but there is an even more flexible strategy you can use. It is called the priority or value-based budgeting method. This budgeting strategy allows you to focus on whichever spending category you want. If you want to allocate more money to entertainment, you can do it.

This budgeting model doesn’t require you to save a strict percentage of your income, nor does it say you must start by allocating funds to your necessities. With priority-based budgeting, you manage your finances as you please. However, the goal remains to follow the strict budget plan you set up.

You can also have different main priorities and set equal funds for each. Priority-based budgeting means scrutinizing your expenses. That way, you know how much you can allocate to each spending category. Another option is to set minimum amounts for each expenditure. After you allocate these minimum amounts, start again from the top. What is left of your budget can go toward your priorities.

How Should I Budget My Money for Financial Freedom

We’ve mentioned author T. Harv Eker. According to his budget strategy, anyone can save money for this goal. Financial freedom can translate into different things. For some, it can mean opening a business.

Others see it as a solid savings account with a good interest rate. Many believe that investments are the key. Eker proposes a budget strategy that includes all these categories. He recommends dividing your income into six priorities or jars.

• No. 1: necessities (50% of your budget)
• No. 2: education (10%)
• No. 3: long term savings (10%)
• No. 4: play (leisure – 10%)
• No. 5: charity or donations (10%)
• No. 6: financial freedom (10%)

The last jar is the recipe for financial independence. Eker suggests you use this money for long-term investments. He also recommends never using it for any other purpose. The same approach is also available with a more flexible budgeting method. It is called the digital envelopes system.

FAQs

How can I make a monthly budget and save money?

A monthly budget means three essential steps. Number one is establishing your available income. Number two is calculating your monthly expenses. Number three means assigning a strict budget to each expense. After the plan is ready, follow it. Only use for each expense the precise amount you set aside for that goal.

What is the best budgeting strategy for beginners?

There are different budgeting strategies. All of them imply the same goal, creating a firm spending plan. You divide your money so that you can cover your expenses. One of the most straightforward budgeting strategies for beginners is the 50-30-20 method.

How can I figure out what my budget is?

Some people budget easier because they earn a fixed salary. If this is not your case, you need to put in more effort. Each month, add up the money you get from different income sources.

To budget correctly, it’s essential to first determine your earnings. If you don’t want to do this every month, opt for quarterly budgeting. You’ll spend less time. In this case, you’ll recalculate your income every three months. Then, you adjust your spending according to the new budget.

Sources:

T. Harv Eker’s Fastrack to Freedom. Business Trainings & Secrets of Millionaire Minds. (n.d.). Retrieved July 25, 2022, from https://harvekeronline.com/6-jars-exercise/

Jr., T. H. (2021, March 10). How Warren Buffett spends his billions. CNBC. Retrieved July 25, 2022, from https://www.cnbc.com/2020/08/19/how-warren-buffett-spends-his-billions.html

Bloomberg. (n.d.). Bloomberg.com. Retrieved July 25, 2022, from https://www.bloomberg.com/billionaires/

Editors, A. B. (2014, August 2). Top 10 financial habits of Warren Buffett. All Business. Retrieved July 25, 2022, from https://www.allbusiness.com/top-10-financial-habits-warren-buffett-17118-1.html

Youneedabudget.com. (n.d.). Targets. YNAB Help. Retrieved July 25, 2022, from https://docs.youneedabudget.com/article/128-targets#target-types

Financial Planning Education Savings July 9th 2020. (2021, September 13). Struggling to stick to a budget? try a values-based budget instead. Greenspring Advisors. Retrieved July 25, 2022, from https://greenspringadvisors.com/insight/struggling-to-stick-to-a-budget-try-a-values-based-budget-instead/#:~:text=Values-based%20budgeting%20is%20the%20process%20of%20creating%20a,months%20%28at%20least%29%20and%20determining%20your%20core%20values.