How to get started in 5 steps

  • A budget can help you stay on top of expenses, pay off debt, and reach your financial goals.
  • There are several strategies for budgeting. Each has its own unique pros and cons.
  • Monitoring your budget, adjusting it and analyzing your spending habits regularly is essential.
  • Read more Personal Finance Insider stories.

A budget is, in its simplest form, a plan for how you will spend your earnings. It ensures you have the funds to cover your essential needs, like housing, groceries, utilities, and your monthly debt payments, while you work toward other financial goals.

In short: budgets allow you to get the most out of your paycheck. Without one, there’s a chance you’ll run out of money before your next pay date.

How to budget your money

Budgeting is essential if you want to stay on top of bills, pay off debt, or save for the future, and there are several ways to do it.

“Budgeting doesn’t have to be overly complicated or time-consuming,” says Brittany Castro, an in-house certified financial planner at Mint. “It’s actually the first step in getting in control of your finances because it means you know where your money is going each month.”

Here’s how to get started with your budget:

1. Examine your income

To start budgeting, you first need a good pulse on your monthly income, more specifically, how much you take home after taxes. If you’re not sure what your after-tax income looks like, you can usually use pay stubs or bank statements to get these numbers.

Once you’ve calculated your income, you’ll also need to calculate your monthly expenses, such as rent or mortgage, utility costs, food, insurance, and gas. If you have debt (credit cards, car loans, etc.), add those, too. Then compare the two numbers,

“If your expected expenses are greater than your expected income, you’ll need to earn extra income, cut back on some purchases, go into debt, or do a combination of all three,” says Todd Christensen, a certified financial advisor and education manager at Fitting Money.

However, if your income exceeds your expenses, that means you have extra money to save or for some other financial goal you may have.

2. Choose your budgeting strategy

The next step is to create your budget – a specific plan for how you will use your earnings each month and ultimately achieve your financial goals.

There are several strategies to do this, each with its pros and cons. Here are some of the options you might consider:

50/30/20 rule

According to Christensen, this method has become increasingly popular in the last 20 years. “It suggests you live on 50% of your income: housing, transportation, cell phone, utilities, enjoy the 30%: dining out, recreation, travel, and save and invest the 20%.”

The benefit here is that it’s a simple and easy-to-learn approach, and it doesn’t require you to account for every purchase or expense. The downside is that it doesn’t take your circumstances into account and may not work in all scenarios. (If you live in a high-cost real estate market, for example, meeting the 50% rule may be impossible.)

Zero balance or traditional budget

With a zero balance budget, you are trying to make your income minus your expenses equal to zero. That means you use all of your income each month, first for your essential needs, and then for your financial wants and goals. Under this strategy, if you found yourself with $300 unspent at the end of the month, you would put that money into savings, make an additional loan payment, or make some other use of it.

The advantage of a zero balance budget is that it accounts for every dollar, ensuring you get the most out of your earnings. The main drawback is that it is time consuming. Keeping track of every expense and every dollar you earn can be tedious, and it’s also hard to use on unpredictable income (you never know how much you can spend on each expense).

Pay yourself the first estimate

This strategy starts with your financial goals and works backwards. So suppose you know you want to put $500 toward your mortgage and $500 into savings each month. You would start by subtracting that $1,000 from your monthly take-home pay (say $4,000 – $1,000), and then use that number ($3,000) for your monthly bills and expenses.

The great advantage of this strategy is that it prioritizes your goals and allows flexibility in spending. However, on the downside, it can create stress if you are left with too little to cover your monthly costs.

The envelope budget

The envelope system is a budgeting method created by financial guru Dave Ramsey. Requires putting cash into individual envelopes for each expense or expense category (eg, housing, utilities, food, entertainment, etc.). Then, withdraw cash from the envelope as costs arise during the month.

If you run out of money in an envelope, it’s a sign that you overspent or need to allocate more in that category. If you have too many left over, you can adjust the budget for the next month and put those funds elsewhere.

The benefit of this method is that it is visual and tangible, making it easy to understand your budget and how you can improve it. As Simon Zhen, director of research at, puts it, “It hurts more to see cash slipping out of your hands.” Unfortunately, it is also time consuming and cash is not always accepted, especially in today’s digital economy.

3. Cut spending

As you create your budget, it’s important to really look at your spending. You need to ask yourself if those expenses are necessary, and if so, are there ways to reduce them or make them more affordable? This could mean renegotiating your prices, changing service providers, or looking for coupons or special offers.

Here are other options to reduce what you spend:

  • Increase friction: Friction is when something like spending money becomes a little more difficult. An example of adding friction to spending money would be removing your saved credit card information from your favorite site so you have to manually re-add it each time. This is a great way to make it harder for you to easily spend in person or online.
  • Wait before you buy something: Set a 48-hour wait rule for your purchases. If there is something you would like to buy, sleep, and if it still seems like a good idea in two days, then make the purchase. This helps you avoid unnecessary impulse purchases.
  • Audit your monthly subscription services: There are so many subscription services these days that it’s easy to lose track of how much you’re spending. Take a close look at your subscriptions and consider deleting the ones you’re not actively using. Look at streaming services, apps, subscription boxes, and even Subscribe and Save subscriptions on Amazon.
  • Refinance any loan to get lower rates: You will be surprised at the amount of interest that accumulates on the loans you have. Refinancing your mortgage, student loans, or car loans could lower your interest rate, monthly payment, or both, freeing up cash flow that you can put into your budget for other more important expenses. Be sure to shop around with multiple lenders if you’re considering this option.
  • Meal plan: Planning your meals ahead of time helps you stay on top of the grocery store and avoid eating out in a rush. You’ll want a plan for each day of the week, including breakfast, lunch, dinner, and snacks.

Cutting back even a little could free up more cash to pay down debt, meet your financial goals, or just reduce overall financial stress.

4. Automate savings and investments

No matter which budgeting method you choose, it’s important to make saving part of your plan. An automatic deposit into your savings account is often the best option, as it reduces hassle and keeps your goals on track. To maximize your savings, you might consider a high-yield savings account, which earns money at a higher rate than other options.

Once you’ve automated your savings, you can also think about investing any leftover income. If this is something that interests you, consider speaking with a certified financial planner before you dive in. They can help you choose the best investments for your goals.

5. Track your progress

Budgets are constantly evolving tools, and you’ll need to track your progress, adjust, and recalibrate often, especially early on. You’ll also need to adjust your spending habits as you go.

“The key is to identify your spending trends and make sure they match your spending priorities,” says Christensen. “If you spend $50 a week on soda, but prefer to prioritize buying a new game console, then it’s time to change your soda-buying behavior.”

While you can certainly manually check your budget, Christensen recommends using a budgeting app that connects to your bank account, as it can streamline the process. He can also create an expense-tracking spreadsheet in Excel, request receipts for each purchase, and add them up at the end of each week or month.

How to budget on a low income

If you are having financial difficulties, budgeting is particularly important. As Lisa Fischer, Mission Lane’s director of growth and lending, explains, “Keeping a close eye on spending is crucial for all consumers, but especially for those who may be living paycheck to paycheck.”

Budgeting can not only help you control your spending habits and stay on top of bills and expenses, but it can also ensure that you prioritize saving, which should improve your financial outlook in the future.

In addition to budgeting, you can consider applying for housing or rent assistance, food pantries, and shared health care plans to lower your costs. Financial, debt, or credit counseling may also be helpful. If this is something that interests you, the nonprofit National Foundation for Credit Counseling is a good place to start.

The financial takeaway

If you want to make the most of your income while achieving your long-term financial goals, having a budget is essential. As Castro explains, “You need a solid budget and financial plan to set yourself up for long-term financial well-being, avoid problems like accumulating credit card debt, and build your

net worth


There are many ways to budget, and you may need to try a few before you find the right one. You can also talk to a financial advisor to help you choose the best budget route for your household.

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