How to budget in 4 easy steps

Budgeting, Savings, and Money Management
By Stella Martinez

Most people have never put together a personal budget. However, it is one of the best things you can do for yourself. It will ensure not only your financial success, but also your financial freedom. Here we teach you 4 easy steps to creating your very own budget.

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If you’re reading this, it means you’re ready to take your first step towards reaching your financial goals, big or small. That first step? Setting your budget. If you’re still confused on exactly what budgeting is and how something like planning your spending will save you money, be sure to check out Budgeting 101, and once you’re an expert on the theory, we’ll get you started on the details of how it works.

Budgeting is personal and allows you to prioritize your spending based on what is important to you. While you get the freedom to choose, having a budget guideline helps you to exercise that freedom so that you’re not left lost and wondering if you’re making the right spending choices.

Our guideline starts with a 50/20/30 rule:

  • 50% goes to Necessities.

     Necessities are all those things you must pay to keep your head above water. These include housing, utilities, transportation, and food. The largest relative portion of your budget should be dedicated to those most important factors keeping you going.

  • 20% will go to Financial Goals.

    Because, like any reader, you have some big plans you want to accomplish (hence, why you’re setting this budget in the first place). Setting money aside to achieve your financial goals will help you stay on track and successfully reach your goals. Financial goals can be a broad category that changes with your life stages. In the beginning, right after graduating college one of your financial goals may be paying off student loans. As you get older, you may want to save for the down payment on your first home, saving up for your children’s college, and eventually, if we are lucky, we all will have to think about our income in old age- and this is where saving for retirement becomes very important. In general, Financial Goals will generally include any sort of savings (college, retirement, house), debt repayment (credit cards, pay down your mortgage, etc.) and financial contributions (saving for retirement, etc.)

  • 30% should go to Flexible Choices, aka: the fun stuff.

    Everything left over, after covering what you need to survive and plan for the future, is what you get to live on and enjoy now. This could be making sure you see that favorite musician in concert, going to that newest trendy restaurant and snapping a great photo of your $40 meal for Instagram, or keeping up with your online shopping addiction.

Like we said – your budget is personal. You will have your own goals and habits and income that will determine how much money you can and will spend on each category. If you are realistic about your budget, and keep in mind that this can be flexible, you should be well on your way to smarter spending decisions.

Knowing the general guideline of where your money should go, maybe you’re still and could use more direction. Therefore, we’ve composed a 4 easy steps and worksheet on how to create your budget. You can also go to our Checklists section and download a budget template and a checklist. We are making it as easy as possible for you.

Here are the steps:

Step 1: Know your total spending limit.

Your monthly spending limit should be based on your monthly income with taxes taken away. This ensures that you don’t go over what you can afford, leading to only more trouble.

Step 2: Calculate how much is dedicated to each category.

As we showed you, your budget can be basically divided into three categories of the essentials, money going towards financial goals, and free spending. Figure out the limit into each category based on your monthly income.

Step 3: Personalize!

This is the fun part, in a math-nerd sort of way. It’s like putting together pieces of a puzzle and the puzzle is your life and money! This is when you get to choose how much of each category you will dedicate into the individual costs that fall under it.
We’ve created a budget spreadsheet for you to download serve as a piece-by-piece guide to calculate your budget.

Step 4: Stick to it.

Unlike your New Year’s Resolution, this sort of thing you really must stick to.  The good news is that you have the flexibility to change your budget if it isn’t working out the way you planned…also unlike your New Year’s Resolution. The good news is you don’t have to wait until New Years to start. Just start today. You have everything to win once you have control of your finances. You will feel empowered, knowledgeable and ready! After all, being broke isn’t sexy… being ready is!

As important as it is, having a budget is something most people think about having, but few take the time to think about. However, there are few things in life as important as having a budget and keeping one. Why? Because every single day of your life you will be spending the money that you have- whether you earned it, or someone is just gifting it to you- to pay for your living. Therefore, we have created a special section where you can download for free different budget templates. You will find different types of budgets for different purposes. You will see it on the top right corner of the website. 


The most important part of budgeting is to fill out your budget and keep track of it. Whether you have a column for your projected versus actual expenses, or you fill it out post fact, you really need to make sure this is something you pay attention to everyday. Why? Because spending money it is something we almost do on a daily basis- even when buying that piece of gum or water bottle- money is always part of our lives, whether we like it or not.

It is unfortunate that we are not taught to be in the habit of understanding how to budget since we are little, because it would be way easier for us to incorporate this type of thinking into our daily lives, and make it something so natural that we don’t feel any burdens when we are being conscious about it.

Think of budgeting as something fun to do, that is part of life and that when you do it right, everything in life is better.

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