Why is a budget important?

Without a budget, it’s easy to overspend and get buried in debt. Budgeting shows you where your money should be going and gets you in the habit of tracking spending to make sure you have enough to cover your needs.

What’s the best way to stick to a budget?

Sticking to a budget is much easier if you keep it realistic and flexible. Start by tracking your spending for a few weeks to get a clear picture of your habits. Then, set achievable goals, watching for trends that signal it’s time to make adjustments.

How can I save more money?

The easiest (and most obvious) way to save more money is to earn more, so consider taking on a side hustle or asking for a raise at work. In the meantime, find areas where you can spend less, like dining out or over-indulging in entertainment. You may also find it helpful to automate your savings by setting up automatic monthly transfers from checking to savings. Your employer might even give you the option to send a portion of each paycheck directly to savings . The type of savings account you’re using matters, too. Check your account’s fee schedule and interest rate, then use a site like Bankrate to see which banks might be able to earn more from your money. You’ll be surprised how much more quickly your money grows when you move it into a high-yield savings account.

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What is a budget?

A budget is a financial plan that outlines your estimated expenses for a given period — usually a month — based on your income. It’s your roadmap to financial health, helping you control your spending, meet your financial goals, and avoid racking up debt.

You might wonder if budgeting and expense tracking are the same thing. They’re related, but one looks at the future and one at the past. Tracking expenses involves recording what you’ve already spent, while budgeting is about planning your future spending to fit your monthly income. In other words, expense tracking helps you see where your money went — budgeting helps you decide where it’s going before it’s gone.

How to build your monthly budget in 4 steps

Organizing your budget by month is a great option because many fixed expenses recur monthly, like insurance payments, rent, and utility bills. When you can count on these expenses, it’s easier to plan for and around them. Follow these steps to start building yours.

Determine your monthly income. Start by calculating your net income — the money you take home after taxes and other deductions. Your income might be limited to a salaried or hourly paycheck from a single job, but if you have any side hustles or other income sources, include those. If you share expenses with a partner, include every income source that goes toward the things you pay for together.
Determine your monthly expenses. Make a list of all of your recurring expense — the costs that happen at the same interval (even if the number varies a little). These are payments things like a mortgage or a Wi-Fi bill. This makes it easier to get a clear picture of what you’ll spend.
Not sure how to calculate your expenses? Here’s a list of the most common personal budget categories, but you can add or delete as needed to fit your situation:
- Housing. This includes rent or mortgage payments, property taxes, insurance, and HOA fees.
- Utilities. Some might consider utilities as housing fees, but others create a separate section in their budget for electricity, gas, water, trash, cable, and internet.
- Debt and loans. Student loans, car loans, car insurance premiums, credit card payments, credit insurance, and any other debts you submit a monthly payment for fall into this category.
- Healthcare. Health insurance premiums, co-pays, prescriptions, and other recurring medical expenses come from this fund.
- Transportation. Lump together car payments, gas, parking, public transit, and vehicle maintenance.
- Food. Groceries, dining out, and takeout often share a category.
Determine your monthly savings Setting aside even a small amount of money each month can help you build an emergency fund and reach other financial goals like saving for retirement or a down payment on a house. How much you should save per paycheck depends on your goals and the amount left over after you’ve paid your monthly expenses, but saving 20% of your net income is a common goal.
Monitor and compare your expenses every month A budget outlines the money you plan to bring in each month and how much you plan to spend. But plans often change. This is where expense tracking fits into the picture. Keep tabs on where exactly your money is going each month and make adjustments to your budget as needed. A budget spreadsheet or app will make it easier to track your income and spending.

Best practices for creating and living by a budget

Notice how we keep saying “each month” and “every month”? That’s because budgeting isn’t a one-and-done exercise. If you really want to learn how to budget, you’ll need to commit to it and stay disciplined. That’s the most important part, but here are a few best practices to help make budgeting more effective.

Live within your means There are two golden rules in budgeting: Don’t spend more than you earn, and put needs before wants. Tracking expenses will make it easier to see where you’re spending on non-essential items.
Don’t rely too much on credit Credit cards are convenient, and they can be a helpful tool if you’re trying to improve your credit score. But if you don’t use them responsibly, you might find yourself in trouble. Even if you make the minimum payment every month, high-interest debt is one of the quickest ways to derail a budget. If you do use credit cards, aim to pay off your balance in full each month to avoid spending on interest charges.
Use a budget planner Use a budget planner like EarnIn’s budgeting template to track spending and stay on top of your finances. Lots of apps and tools even offer personalized insights and helpful tips.
Follow the 50/30/20 rule Remember when we recommended setting aside 20% of your net pay for savings? That advice comes from the 50/30/20 rule, a popular budgeting method that advises spending 50% of your after-tax income on things you need, 30% on things you want, and 20% on savings. But remember that rules like this one are just guidelines — you can adjust the percentages as much as you need.

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