Does looking at your bank account make you want to run and hide? Do you get overwhelmed by even thinking about the numbers? Well I’m here to help! Below is my guide to help you start budgeting, take control of your finances, and get on your debt free and financial independence journey!
- Determine Your Budgeting Method
- Write Down Your Take Home Income
- Pay Yourself First
- Write Down Your Bills and Reoccurring Expenses
- Determine Your Spending Categories
- Put Anything Left Over In Your Savings
There are a bunch of budgeting methods out there but to make it simple I’m going to lump them in to three methods: apps, paper and pencil, and cash envelopes. If you aren’t sure what will work best for you, try out each one for a month and then go with what feels the easiest and most comfortable for you.
No matter what method you use, I always recommend approaching your process by using a Zero-Based Budget approach. Essentially, when you use a zero-based budget you are subtracting your expenses and savings from your income so it reaches zero each month. This method not only helps you not spend more than you earn, it also helps you put away those few extra dollars at the end of month and skyrocket your savings!
So, back to the methods, here is a quick overview of each:
There are tons of apps out there that can help you budget your money. Some are free and some will charge you. I’m not about to recommend the ones that you need to pay for, because for new budgeters, you need to keep every penny you can and don’t need another monthly bill.
- Mint – Mint is probably the most popular budgeting app out there. It is easy to use. You can connect all of your credit cards, bank accounts, set spending limits for all of your budget categories and track all of your expenses. Mint will also alert you when you are about to go over one of your spending limits. So if you need the extra nudge, Mint is great for you. The only downside of mint (and any app for that matter) is if you prefer to spend cash versus using your debt and credit card since apps can’t automatically track cash spent. I started out my budgeting journey using Mint. It was super helpful as I learned about my spending habits. Overall, Mint is a great place to start!
- PocketGuard – PocketGuard has a really great layout is super easy to use like Mint. The interface is sleek, which always makes budgeting more fun. PocketGuard is also great for projecting your expected expenses and income and helping you manage your money more effectively. This app is basically like your own personal budgeting assistant in your pocket!
- Personal Capital – Personal Capital is my new best friend. I started using it a few months back to track my net worth but then I found myself really likely the budget tracking option in the app as well. It is sleek, simple and not covered in product ads which I really appreciate. If you have been budgeting for awhile and want to try something new, then I highly recommend Personal Capital. But, if you are brand new to budgeting then Mint or PocketGuard might be the right partner for you!
I talked about my love of this method in my Middle Class Path to Financial Independence post, so I’m more than happy to gush about how much I love this method! After learning my spending habits through Mint, I still felt a sense of “out of sight, out of mind.” So I decided to start writing down every cent I spent. Doing this made me feel more accountable to my money. I couldn’t just swipe a card or hand over cash without taking the time to reckon with my decision by writing it down. This is a very reflective process and worked the best for me. This method helped me get out of 35k of debt in just under three years. In fact, this is still the main budgeting method I use today.
So if you need an accountability partner like I do, make your notebook your non-judgmental partner in debt freedom and financial independence! Below are some of my favorite notebooks and all are under $20 on Amazon. I don’t know about you by $20 for an accountability partner is a great deal!
- Clever Fox Budget Planner – Love the layout!! This is probably my favorite. It really makes everything so easy to follow.
- Limitless Mindset Budget Planner – Similar to Clever Fox but it is spiral bound (I’m a sucker for spiral bound notebooks) and has cash envelopes to help you manage your budgeted money.
- GoGirl Budget Planner – Similar layout to Clever Fox but with a more feminine feel. Super great budget layout!
I have to preface this method with the fact I am terrible with cash envelopes, but I tried it out and I found the right method for me. And I whole-heartedly believe you need to find the right method for you! If spending on your credit card or debit card makes you more likely to overspend then try out cash envelopes. There are lots of great pre-made cash envelopes on Amazon. You can always DIY your own by using mailing envelopes, which would only cost you pennies per envelope. Plain white envelopes don’t spark joy to me, so I tried out some of the more fun looking cash envelopes.
- Saveyon All-In-One Pretty Penny Budget Organizer – Fantastic all-in-one system! It’s a wallet, budget planner, and cash envelope system that also includes a receipt/coupon pocket! I don’t know about you but I love multi-use items.
- Budget Keeper Cash Envelope System – This is a super easy to use, simple, and affordable cash envelope system. This one is a great system to start with if you want to keep it simple.
- Clever Fox Cash Envelopes – You can probably already tell I love Clever Fox’s products (their notebook is my fav!). Their design is sleek, simple, and easy and in such beautiful colors. Their envelopes are super durable and they include a great quick start guide to help you dive in to cash envelope budgeting!
Whether you are using an app, paper and pencil or cash envelopes, you need to start with how much money you have to work with each month. Even if you are paid weekly or bi-weekly, it is important to calculate or estimate your monthly income since most of your bills only come around once a month. Apps will more than likely calculate that for you, but if you are using paper and pencil or cash envelopes, you may need to check your pay stubs or bank account to figure that out.
If your pay is irregular (most service or commission based jobs’ pay may fluctuate greatly), take a look at the past few months in your bank account and use a lowest month for your income number. Remember, we are building a zero-based budget so you never want to spend more than you earn each month.
Once you have your monthly income, you are ready to move on to my favorite step!
This is my favorite step. I like to think of it like I work for myself and I’m giving myself money. I’m paid on a monthly basis and the first thing I do is move a little bit of money from my checking account in to my savings account. I recommend 10-20% to start out, but do more if you can.
If you are interested in super-charging your savings, then I recommend taking a read through of my tips on saving and investing half of your income. But if you aren’t there yet, don’t stress. Once you have mastered your budget, the ability to save that much money will come in time! It took me four years after I became debt free before I took the leap in to saving over 40% of my income, so no judgement here!
Calculate your remaining income after paying yourself then move on to the next step!
For example: $2500 monthly income – $250 (10%) moved to savings = $2250 for bills and spending categories!
Your monthly bills and reoccurring expenses are predictable and we need to factor those out of your income so you know how much you have to work with for your non-predictable budget categories. Here is what I include in my monthly bills to help you get started:
- Mortgage (or Rent) Payment
- Electric Bill
- Internet Bill
- Garbage Bill
- Phone Bill
- Security Monitoring
- Insurance (Renter’s, Car, etc.)
- Annual Payments*
You can see above that I included Netflix and Hulu in my monthly bills. I do this because it is predicable and almost always the same amount. By planning for it each monthly in my “predicable bill” section, I can save my own time by not having to calculate it in another category every month.
I added in an “Annual Payments” expense in this section for a reason. Some expenses are only paid annually and they are usually larger chunks of money. Some examples are, insurance payments, vet appointments, and property tax. Also, the annual payments expense is my catch all to save up money for predicable annual expenses like birthdays, Christmas and anniversaries.
What I do is, write down all of the people I buy stuff for and set a budget for these celebratory purchases. I total up that number and add in the annual bills (insurance, property tax) and divide that by 12. Then, each month I move that amount in to my savings account (some banks have a third “tracking” account which is great for this type of budgeting). By doing this, my budget doesn’t get hit really hard one month simply because I didn’t plan for something that is predicable.
- 5 Birthdays: $50 each, $250 total
- 3 Annual Vet Check Ups (with Vaccines): $75 each, $225 total
- Annual Car Inspection and Vehicle Property tax: $125
- Mother’s Day and Father’s Day Gifts: $50 each, $100 total
- Christmas Gifts for 5 People and Pets: $500 (yes I budget for Christmas gifts for my pets haha)
Annual expense total: $1200 divided by 12 months = $100 budgeted a month moved to my savings account for these predicable annual expenses.
How much you spend on the people in your life is up to you. You can be as frugal or as expensive as you want, no judgement; just plan for these expenses! Before going to the next step, check back in on how much you have to work with for your spending categories.
Example continued (from above): $2,250 (income after Step 3) – $1150 (total monthly bills and payments) = $1100 for monthly spending categories
Spending categories are the less predicable expenses that you have each month. What I recommend is making a few spending “buckets” to keep it easy on yourself. I don’t get extremely specific here because I would get way too lost in the weeds. Here is what I use:
- Restaurants/Going Out/Entertainment
I determine the amounts of each by looking at what we have planned for the month ahead then I estimate based on what I think I might need. If I’ll be doing a lot of driving or on the road a lot, then I will increase my Gas and Restaurant category and decrease my Grocery category. Zero-based budgeting means being real with your expenses and planning for your month ahead.
- Gas: $150
- Grocery: $300 (this isn’t total for our household, this is my half and I include paper products and cleaning supplies in this category)
- Pets: $150 (for their food and medicine)
- Restaurants/Going Out/Entertainment: $100 (typically a concert, a few dinners out or doing something fun with friends)
- Miscellaneous: $300
Total for All Monthly Spending Categories: $1000
You can always adjust these numbers mid-way through the month, just make sure the adjustments still equal up to your total. Now, subtract your spending categories from how much you had left from Step 4 and head on over to the last step!
Example continued (from above): $1100 available for monthly spending categories – $1000 budgeted for monthly spending categories = $100 left for Step 6!
You should visit this step twice a month. Once after you’ve made your budget and once at the end of the month after all of your spending has happened. This method really helps push your savings goals forward! The pro-tip in this step is to take chunks of that money you have been saving (or as I like to put it – Paying to Yourself!) and invest it in low-cost index funds.
If you have $100 left after Step 5, go ahead and move that money in to your savings so you are not tempted to spend it! Then, after tracking your expenses throughout the month, you may have a little left over from the amount you budgeted for in your spending categories. Even if it is $5.24, move that money over to your savings at the end of the month! Again, zero-based budgeting is all about not spending more than you earn and you should budget based on your income and projected expenses each month.
Example continued (from above): $100 from Step 5 to savings. $1000 budgeted for spending categories – $994.76 actual spend= $5.24 left over to add to savings
Pat yourself on the back! Mastering the steps above may take some time. It took me four years to really feel secure in budgeting methods before I was confident enough to start my path towards financial freedom and pursuing retiring early. When you feel ready to level up, head over to my Middle Class Path to Financial Independence: 5 Steps to FIRE post to join me on my journey to FIRE!
Disclosure: Advice given in this post are for education and entertainment purposes only. Please consult a financial professional for further advice. Bear in mind that some of the links in this post are affiliate links and if you go through them to make a purchase I will earn a commission. Keep in mind that I link these companies and their products because of their quality and not because of the commission I receive from your purchases. The decision is yours, and whether or not you decide to buy something is completely up to you.