Budgeting

    If you want to get a hold of your finances, you need to control your spending—and that starts with establishing a budget. Learn how to create a budget, best practices for sticking to it, the latest budgeting software available to you, and more.

    Frequently Asked Questions

    • How should a beginner budget?

      An individual’s budget will vary depending on their lifestyle, spending habits, and net income. To start a budget, you need to take a deep dive into how you spend your money, which includes gathering all of your bills and pay stubs. When you have all of your bills and pay stubs, write down all monthly expenses. Then, write down your monthly income. Subtract the expenses from how much money you make. If the number is less than zero, you are spending more money than you make, and it is time to reevaluate your spending and saving habits. A beginner can use a budgeting spreadsheet, calculator, or various applications to assist in the process.

    • What are personal budgets?

      A personal or household budget is a financial summary that compares and tracks your income and expenses for a defined period, typically one month at a time. Essentially, it is a written plan for how you will spend your money. It allows you to make financial decisions ahead of time, making it easier to cover all your expenses. It also helps you to pay off debt, save for the future, and be able to afford fun expenses. Budgeting consistently can help you turn your finances around and start the process of building wealth.

    • How much spending money should you have a month?

      How much spending money you should have each month depends on the individual. However, to determine this amount, you need to get a sense of how much you are spending per month compared to what you earn. This way, you can set spending limits. The first step is to take a look at mandatory expenses, then add them all up and subtract the total from your income. The amount you have left is what you can budget for discretionary expenses and savings goals. There are many different budgeting strategies you can follow to determine how much you spend each month. Generally, what you budget for expenses should not be more than your income; otherwise, you will end up in debt.

    • What are the three types of expenses?

      Each month, you’ll likely spend in three categories of expenses: fixed, variable, and discretionary. Fixed expenses are necessary ongoing costs that don't change in amount or frequency. Some examples include rent, health insurance, or a phone plan. Variable expenses are still considered necessary costs, but the amount you spend changes every month. The amount you spend on groceries or clothing each month can be considered variable expenses. Lastly, discretionary expenses are those expenses that you desire and would like to have but do not necessarily need, such as a dinner out at a restaurant or concert tickets.

    • What's the 50/30/20 budget rule?

      The 50/30/20 rule of thumb is a way to allocate your budget according to three categories: needs, wants, and financial goals. Through this strategy, 50% of your budget will go toward needs, 30% will go toward wants, and 20% will be put away for financial goals. All of the categories use your after-tax income.

    • How do I make a budget spreadsheet?

      While you can make a budget by hand or by using one of the many applications or software available, a spreadsheet is one of the most effective ways to create a budget. To make a spreadsheet, you must first download a software program, such as Microsoft Excel. Then you’ll need a list of fixed monthly expenses, variable monthly expenses, and income records for everything you earn. Next, decide how you wish to organize your spreadsheet, whether that be by including all information in one sheet or creating several tabs within the sheet. Then, track your income sources, as well as your expenses. Compare the two, and continue to track your spending and saving habits within the sheet. There are also several pre-made sheets available online if you do not wish to start from scratch.

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    Page Sources

    1. Consumer.gov. "Making a Budget."

    2. Consumerfinance.gov. "My Spending Rule To Live By," Pages 1-2.

    3. Cornell Law School Legal Information Institute. "Lien."

    4. The Federal Reserve. "Federal Reserve Bulletin, Changes In U.s. Family Finances From 2016 To 2019: Evidence From The Survey Of Consumer Finances."