Budget Your Money

A budget could help you crush your outstanding debt, take charge of your financial future and even become a happier, more relaxed person. Depending on your circumstances, a proper budget may not require that you spend less. Instead, you may simply have to make more effective financial decisions.


Budgeting Help

Doc:List of Expenses,Low Income Budget,High Income Budget

Tracking Your Income and Expenses

  1. Gather what you need to start tracking your spending history. Collect past bills, bank and credit card statements, and receipts that can allow you to put together an accurate estimate of how much money you spend every month.
  2. Consider using software to help you budget. Personal finance software is quickly becoming the new trend in finance. These programs have built-in budget making tools that can help customize your budget, along with analytics that help you project cash-flow into the future and better understand your spending habits. Some popular personal finance software include:
    • Mint
    • Quicken
    • Microsoft Money
    • AceMoney
    • BudgetPulse
  3. Create a spreadsheet. If you choose not to use a budgeting software, you can determine your own budget by using a simple spreadsheet. Your goal is the chart all your expenses and income during the course of a year, so make a spreadsheet that shows all your information clearly, allowing you to quickly identify any areas where you can spend smarter.[1]
    • Label the row of cells across the top (starting with cell B1) with the 12 months of the year.
    • Create a column of expenses and revenues in column A. You can list either revenues or expenses first, but try to group expenses together and revenues together to avoid confusion.
    • You may want to group expense together with category headings. For example, you might have a category of “utilities” that includes your electric, gas, water, and telephone bills.
    • Decide whether you want to include items that are deducted directly from your paycheck such as insurance, retirement savings, or taxes. If you do not include them on your spreadsheet, be sure that you list your net (post-deduction) income rather than your gross (total, pre-deduction) income under the “revenue” section.
  4. Document your historical budget data for the last 12 months. Add all of your expenses and revenues for the past 12 months, using data from your bank and credit card statements to provide an accurate representation of all of your revenues and expenses.
  5. Determine your overall monthly revenue history. Are you on a fixed salary where you know for certain how much you're taking home each week? Are you a freelancer whose salary varies each month? Documenting a year’s history can help you get an accurate view of your average monthly revenue. [1]
    • If you are an independent contractor or freelancer, keep in mind what you bring home is not the same thing as what you earn. For example, you may bring home $2,500 every month, but that's pre-tax. Figure out how much you're likely to need to pay in taxes and subtract that from your monthly income to arrive at a more accurate number.
    • If you are a salaried employee, don't factor in a possible tax refund into your overall income. Your monthly income should reflect only what you bring home after taxes. If you do get a tax refund, you'll get to do with it as you please; if you don't, you won't need to worry about it.
  6. List all of your monthly expenses on the spreadsheet. What are the bills that you have to pay every month? How much do you spend every week on groceries and gasoline? Do you go out to dinner with friends every Friday night or to the movies once a week? How much money do you spend on shopping? Tracking a year of actual spending will help you develop an accurate view of your spending habits, since most people underestimate the amount they believe they spend every month.[1]
  7. Analyze your revenue and expenses. If your expenses are greater than your revenue, you are living way beyond your means. Your budget should be divided into two groups:
    • Fixed Expenses. These include regular monthly expenses such as bills, insurance, loan debts, food, and necessary shopping items like clothing and household products.
    • Discretionary Expenses. Discretionary expenses are unfixed expenses that may be “optional.” Items that fall into this category include savings, entertainment, vacation funds, and other luxuries.

Creating Your Budget

  1. Create a preliminary budget. The history established in Part 1 will help you create an accurate preliminary budget. You should calculate your fixed expenses and revenue, then decide how you want to spend your discretionary money.
    • To calculate fixed expenses, take an average for each month over the past year, then add about 5%. For example, if your power bill varies seasonally but averages to $210 per month, you should estimate the bill at $220 per month.
    • Be sure to account for changes to fixed expenses, such as paying off a student loan or adding a payment for a new car.
  2. Set goals for the bulk of your discretionary spending. Now that you have determined how much discretionary money you should have leftover every month, decide how you want to spend that money. Your goal should be clear, explicit, and actionable. Some short-term goals may be:
    • Save $8,000 in an emergency savings fund
    • Put 5% of each paycheck in a savings account
    • Pay off credit card balances in 12 months
    • Save $6,000 for an anniversary vacation
  3. Maximize tax advantages. There are ways of saving money that can offer tax benefits. If you put money directly from your paycheck into a 401(K) or personal IRA, the money can be deducted prior to being subject to taxes. Some companies even offer partial matching for retirement contributions, which can make your savings go even further.
  4. Budget out the rest of your discretionary spending. This part of your budget is all about identifying values. What values do you have and how do you want to spend your money to realize them? Money, after all, is a means to an end, not an end in itself.
    • What sort of a person are you, and what do you like to do? Many people end up spending money on hobbies, interests, or charities. Think of this as investing in an experience or feeling of satisfaction.
    • Think about what makes you really happy. A popular theory is people who spend money on experiences are actually happier than people who spend money on possessions.[2]
    • Consider setting aside more money for travel and vacation.

Becoming a Budget Pro

  1. Stick to your budget and don’t overspend. This is the first rule of budgeting, and pretty much the only one. It sounds fairly obvious, but it's easy to go over budget, even when you have one in place. Be mindful of your spending habits and what your money is going towards.[3]
  2. Try to reduce your expenses. Larger expenses can be the most unpleasant but most effective ways to stay within a budget. If you take an annual vacation, consider staying home this year. Smaller expenses can also add up.
    • Try to identify and cut back on any expensive luxuries you enjoy. If you enjoy a weekly massage or have a preference for expensive wine, cut down on the frequency of these treats so you’re spending money on them only once a month or once every second month.
    • Save money on smaller expenses by switching to generic brands and eating home more often. Try not to go out to eat more than one or two times every week.[1]
    • See if you can reduce any of your fixed expenses by switching to a less expensive cell phone plan, reducing your television package, or improving your home’s energy efficiency.
  3. Treat yourself periodically, but within reason. Your money has to work for you, not the other way around. You don’t want to feel like a slave to your budget, or to money in general, so it’s important to allow yourself a small treat every month that won’t break your budget.
    • Don't abuse your own rewards system to the point where it gets counterproductive and ends up affecting your budget. The idea is to treat yourself to smaller, cheaper items like a latte or a new shirt and to avoid splurging on more expensive items like a vacation or a pricey pair of shoes.
  4. Pay off credit card balances every month. If you use credit cards, you should try to keep them at a zero balance every month to avoid costly fees. If you cannot pay off the current balances, prioritize paying them off within a reasonable time period so that you can get to zero balances.
    • Try switching to cash payments for most weekly purchases—particularly “extras” like eating out or coffee shop lattes. This can help you control your spending, as people are more aware of the money they’re spending when using cash than when swiping a card.
  5. Cut your taxes. Take better advantage of itemized deductions when you file your taxes every year.
    • Start keeping your receipts, especially if you're an independent contractor and work from home or remotely. There are many amenities you can expense as part of your contract work when doing your taxes.[4]
    • It’s a good idea to research ways to get a better tax refund as a contractor or ask your accountant how you can get a better refund.
  6. Appeal your home assessment. If you're a homeowner and have sufficient evidence, you might be able to cut your real estate taxes by challenging the value that a home assessor puts on your property.
  7. Don't count on windfalls. Don't factor in potential (unsure) sources of revenue, such as year-end bonuses, inheritances, or tax refunds. You only want to include guaranteed money in your budget.


  • Save your loose change in a jar and then take it into the bank to be rolled. You’ll be surprised how your small change can add up.[5]
  • Avoid debt in the form of high-interest credit cards and payday loans, as they will incur high interest and end up costing you quite a bit of money, especially if you will struggle to pay off your bill on time, every month.[5]

Related Articles

Sources and Citations