Budgeting 101: How To Budget Money


For example, if I have $ 2,000 a month to go, how can I pay for housing, food, insurance, health care, debt settlement, and fun without running out of money? That’s a lot a limited amount can cover, and this is a zero-sum game.

The answer is to set up a budget.

What is a budget? A budget is a plan for every dollar you have. It’s not magic, but it represents more financial freedom and a life with a lot less stress. How to set one up.

How to budget for money

  • Calculate your monthly income, choose a budgeting method, and monitor your progress.

  • Try the 50/30/20 rule as a simple budgeting framework.

  • Allow up to 50% of your income for needs.

  • Leave 30% of your income for needs.

  • Put 20% of your income on savings and debt payments.

Understand the budgeting process

Find out your after-tax income

If you get a regular paycheck you will likely get that amount, but if you have auto-deductions for a 401 (k), savings, and health and life insurance, add those back on for an accurate picture of your savings and expenses. If you have other types of income – maybe you make money doing part time jobs – subtract anything that reduces it, like taxes and business expenses.

Choose a budget plan

Track your progress

Automate your savings

Automate as much as possible so that the money you put up for a purpose arrives with minimal effort on your part. An accountability partner or online support group can help you so that you are held accountable for decisions that are beyond budget.

Check your budget as needed

Your income, expenses, and priorities will change over time. Adjust your budget accordingly, but always have one.

Before you make a budget

Track all of your spending at a glance to understand your trends and identify opportunities to save money.

frequently asked Questions

Start by finding your net income, then measure your current expenses. Finally apply the 50/30/20. at Budgetary principles: 50% for needs, 30% for needs and 20% for savings and debt payments.

The key to staying within a budget is Track your expenses regularly so that you can get an accurate picture of where your money is going and where it should go instead. To get started: 1. Check your bank statements. 2. Categorize your expenses. 3. Keep your tracking consistent. 4. Explore other options. 5. Identify room for change. Free Online tables and templates can make budgeting easier.

Start with a financial self-assessment. If you know where you are and what you want to achieve, choose one Budgeting system that works for you. We recommend the 50/30/20 system, which divides your income into three main categories: 50% for essentials, 30% for needs, and 20% for savings and debt payments.

Try a simple budget plan

We recommend the popular 50/30/20 budget. In it you spend around 50% of your after-tax money on bare essentials, no more than 30% on needs and at least 20% on savings and debt repayment.

We like the simplicity of this plan. In the long run, those who follow these guidelines have manageable debt, the occasional room to indulge, and savings to pay for irregular or unexpected expenses and retire in comfort.

Find out how this budgeting approach is affecting your money.

Saving and debt settlement

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See your money in one place

NerdWallet adds up your expenses and shows you how much you are spending on things like food, bills, travel, and more. We’ll also show you how you can save a lot.

Allow up to 50% of your income for needs

Your needs – around 50% of your after-tax income – should include:

  • Minimum loan payments. Anything beyond the minimum falls into the saving and debt settlement category.

  • Childcare or any other expenses that you may need to get in order to be able to work.

If your absolute essentials hit the 50% mark, you may need to dive into the “will” part of your budget for a while. It’s not the end of the world, but you need to adjust your spending.

Leave 30% of your income for wishes

Separate wants from needs can be difficult. In general, however, needs to live and work are essential. Typical wishes include dinner, gifts, travel, and entertainment.

It is not always easy to choose. Is Gym Membership a Want or a Necessity? How about some organic food? Decisions vary from person to person.

If you are debt free as soon as possible, then you can wait with your desires until you have some savings or your debt is under control. But your budget shouldn’t be so tight that you can never buy something just for fun.

Everyone budget needs both leeway – maybe you forgot an expense or one was bigger than expected – and some money to spend as you wish.

Your budget is a tool to help you, not a straitjacket that keeps you from ever enjoying life. If there isn’t money to have fun, you will be less sticking to your budget – and a good budget is one that you will stick with.

Put 20% of your income into savings and debt payments

Use 20% of your after-tax income to save for the unexpected, save for the future, and pay off debts. Make sure you think about the bigger financial picture; That can mean taking two steps between saving and paying off debt in order to achieve your most pressing goals.

Many experts recommend that you try to build up several months of bare living expenses. We recommend you start with one Emergency fund from at least $ 500 – enough to cover minor emergencies and repairs – and build from there.

You can’t get out of debt without avoiding additional debt every time the unexpected happens. And you will sleep better knowing you have some financial cushion.

Get the easy money first. For most people, that means tax-privileged accounts like a 401 (k). If your employer offers a match, you are contributing at least as much to get the maximum. It’s free money.

Why are we prioritizing collecting employer matchmaking over debt? Because you won’t get such a great chance of free money, tax breaks and compound interest. Ultimately, you have a better chance of building wealth if you get used to saving on a regular, long-term basis.

Once you’ve grabbed a game with a 401 (k), go ahead and pursue the toxic debts in your life, if available: high-interest credit card debt, personal and payday loans, property loans, and rental payments. All of them have interest rates so high that you end up paying back two or three times the amount borrowed.

  • You can’t pay back your unsecured debt – credit cards, medical bills, personal loans – within five years, even with drastic spending cuts.

  • Your unpaid unsecured debt is equal to half or more of your gross income in total.

  • Once you’ve got rid of all of your toxic debt, the next task is to get yourself on track for retirement. Try to save 15% of your gross income; this also includes your company match, if available. When you are young, consider Financing a Roth individual pension account after you have recorded the company match. Once you have reached the IRA contribution limit, return to your 401 (k) and maximize your contribution there.

    Regular contributions can help you build a living for three to six months. You shouldn’t expect steady progress because emergencies happen, but you will at least be able to handle them.

    If you’ve already paid off your most toxic debts, you’re likely left with lower-interest, often tax-deductible debt (e.g., your mortgage). You shouldn’t tackle these until after you’ve gotten your other financial ducks in a row.

    Any leeway you have here comes from the money available for your needs or saving for your necessities, not from your emergency fund and retirement plan.

    Congratulations! You’re in a great position – a really great position – after you’ve built an emergency fund, paid off toxic debts, and are spending 15% on a retirement note money. You have got used to saving, which gives you immense financial flexibility. Don’t give up now.

    When you reach that lucky point, consider saving for non-emergency non-emergency expenses, like a new roof or your next car. These expenses will definitely arise and it is better to save for them than borrow.


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