How to Budget: Strategies That Actually Work

How to Budget Your Monthly Expenses

Does it ever feel like your money is going in every direction except into your bank or retirement accounts? If so, keep reading for some beginner advice on how to budget and get your finances in order.

I’m going to be honest with you; if you have no idea where your money is going, it is not surprising that it isn’t ending up in your bank account.

To stop living paycheck to paycheck and start saving for the goals important for your life, you need to make a budget. And stick to it!

Both of these things can be hard, but the only way to stick to a budget is to make one first. The rest of this article and my FREE 5 Day Budgeting Email Course will help you get on track with your budget in no time! So be sure to enroll for free today.

This post may contain affiliate links. Please see my full disclosure policy for details.

How to Budget

Now it is time to get to the nitty-gritty of how to budget. This process takes time, but remember the goal you began to think about?

Pull that to the forefront of your mind when you get frustrated or want to quit. Knowing your goals will make it so much easier to push forward!

1) Track your expenses

I recommend beginning by keeping track of all of your expenses (or looking back at them if you can) for 1-2 months to get an idea of what is currently typical for you and your family.

You can use a variety of methods for entering in your spending (keep reading to learn more), but the important thing is that you do it especially if you elect for a more hands-on approach to budgeting.

Making all purchases on a single card can make tracking easier, or you can opt to keep your receipts or utilize an app.

I personally prefer making most purchases on a single card so that I don’t have to hunt down numbers in multiple different locations.

Plus, when I tried keeping receipts it was too easy to lose one, let them pile up to the point of not entering them, etc.

An app like Mint (see below for more details) would definitely come in handy in this regard as it links all of your accounts together for a more seamless approach to budgeting.

2. Categorize your purchases

Think about what categories your spending can fall into.

Food, gas, utilities, rent or mortgage, large purchases or expenses you contribute to every month and then pay all at once (sinking funds), fun, clothing, etc.

The aspect of budgeting that I have struggled the most with is the catch-all “miscellaneous”.

This is a dangerous category, because, at least for me, it seems that it always gets out of control.

I would encourage you to help minimize this by making more categories for your spending rather than clumping everything that doesn’t fall into some major category into “miscellaneous”.

To be honest, this is something I am still working on, which is why I would advise you to start out on the right foot rather than trying to fix the problem after the fact like I am currently stuck doing.

I swear the miscellaneous category with be the death of me. Okay, so maybe not really, but it is pretty annoying.

3) Analyze your spending habits

The next part of learning how to make a budget is to analyze your spending habits. Analyzing your habits isn’t really all that technical. Especially if you have neatly categorized your purchases.

Once you have tracked all your purchases for 1-2 months, you can begin to see patterns of spending. (Be warned though, budgeting is not a 1-2 months of planning and then done. It should be an ongoing process that you revisit often for the best results.)

You can then compare these spending habits to your total monthly income to get a complete picture of your budget. Be sure to include all sources of income so you know exactly where you stand.

4) Determine How To Cut Expenses

Now comes the real work. If you haven’t been able to save as much as you want, your budget needs to cut back on the expenses you logged over these months of tracking.

It is easy to feel overwhelmed, frustrated, or stressed out at this phase of the process. Don’t give up! You can do it! Your bank account, and your life, will thank you for making the sacrifices you need to get ahead.

Sometimes you may find there are areas where you can easily cut back.

Paying $100+ for cable every month just to watch it once a week? Cut the cable bill or consider alternative options if you can’t give it up altogether.

Electric bill seem high? Turn off the lights when you aren’t in the room.

A simple program that finds areas you can cut back for you. What?!

A great way to find ways to cut unnecessary expenses is by using an amazing free program called Trim.

Trim works for you to help you identify spending habits that are costing you money. For example, it works to identify subscriptions you have but never use so they can be canceled.

It also automatically fights fees charged to you by your bank which can easily add up. Plus if you can avoid having to convince someone to remove a fee for you, all the better!

Trim will also send you spending alerts (if you set them up) so you know when you are getting close to overspending. This will also help you realize small areas that add up like spending $5 on lunch every day for a month (which could add up to over $150!).

If staying on track seems to be a struggle every month, this is the perfect program for you. If on the other hand, you are a budget wizard who never overspends on a category, you may not need this program. Also, could you please teach me your ways? Like for real?…

I’m not going to lie, other areas will be harder, especially at first. But things will get easier. With time you will adjust to your new habits of spending and not feel so constrained by them.

Why Make A Budget

So I just told you how hard it can be to stick to a budget and that it may require sacrifice. Why on earth would you want to do that to yourself?

Stick with me here. One of the best ways to save money for debt pay off, save for major life events, or put away money for retirement is by learning how to budget.

A budget allows you to determine where your money should and does go each month. It is a way of keeping you accountable for your spending and shifts your focus to the long term.

Making a budget is one of the best ways to jumpstart your future, pay off debt, and begin saving.

Chances are if you are reading this post it is because you are unhappy with some aspect of your finances. You are also probably looking to make a change which is amazing!

So take a minute to think about the reasons why you should make a budget.

Are you living paycheck to paycheck and looking to break the cycle? Do you want to be a stay at home mom but are wondering how on earth you could ever afford it?

Maybe you want to crush that student loan debt to stop it from hanging over your head for YEARS!

Whatever your reasoning, keep that in your mind as a driving force to keep you going when times get tough. Because they will get tough. But, they won’t be tougher than you and your resolve!

Different Ways of Budgeting

So if you aren’t sure about all the different way to actually plan an manage your budget, you’re in luck, because I am about to go over all of them!

There are a number of different ways to budget. What works for me may not work for you. What works for you may not work for someone else.

The important part is that you find something that does work and you stick to it. I’m going to give you a run through of various different ways you can budget so you can make a more informed decision about what will work best for you.

If you try one of these methods and it just isn’t cutting it, don’t be afraid to switch your plan of attack! Having to make changes doesn’t mean you failed at budgeting.

In fact, it means you are awesome at it because you realize that something needs to change and take steps to actually improve your finances.

Electronic Budgeting

The most popular forms of electronic budgeting involve using a template/spreadsheet or an app. Keep reading for an overview of these two options for the tech-savvy among you.

Using a Spreadsheet to Budget

There are several ways to make a budget electronically. If you are tech savvy, this can be a great way to easily track your finances.

One way to budget electronically (and my personal go to) is by using a good old fashioned excel spreadsheet (you can grab our ready to go template for FREE by subscribing to our email list).

Below are some details regarding the budgeting spreadsheet we used while striving to pay off our student loans.

The best part? It worked! Entering the data really helped keep Joel and me accountable and made saving more money to put towards our loans so much easier!

Our spreadsheet has a place to enter in our income for the month as well as a place for us to track spending based on a particular category. We have a “goal” line at the bottom underneath the summary chart which we generally want to be close to.

But because there is some variability from month to month we also fill in the line below that at the beginning of the month based on what we are expecting and shooting for in a given month.

The pie chart shows us a break down of monthly spending so we can get an idea of how we are doing over the course of the year and identify any particular times that are giving us more budgeting trouble.

Here’s an example of what our spreadsheet looks like. Don’t forget to sign up for our email list to get access to this amazing tool!

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Using an App to Budget

There are many different apps that can be used to create an effective budget. I’m going to go over the basics of just a few with the disclaimer that I personally have not used any of these apps extensively to date.

I have poked around a bit, but the spreadsheet seemed like the best option for me.

While I am a big fan of the budget template we use, I know some people love apps, so I at least want you to know what your options are. (I don’t receive any kind of commission if you sign up for any of the apps below).

Every Dollar

This app is developed by Ramsey Solutions, the company of popular financial guru Dave Ramsey.

It focuses on zero-based budgeting which means that every single dollar you make must be assigned to some category (including savings).

There is a free version as well as a paid version. This would be a good option if you are looking for an app that requires a lot of involvement as you still have to enter all your data each month.

It more closely resembles a budget template than some of the other available app budgets.

Mint

Mint provides a great financial snapshot as it involves linking all of your financial accounts to the app.

Because all your accounts are linked, the app tracks your spending for you. This makes your budgeting much more hands-off than with Every Dollar.

You can set a target amount for each category that you determine in your budget. Then Mint will log your spending for each category as you go along throughout the month.

Using Mint, you can also link investment accounts and bills, and it also gives you a free credit score which is important to know.

Mint is run by Intuit, the same company who runs TurboTax, meaning they know what they are doing with regards to finances.

A quick overview I did of my spending in the app reveals some budgeting inconveniences.

For example, I classify my “fun” money as including a variety of different uses (movies, dinner dates, events, etc) whereas Mint would separate them out. potentially making it harder to determine how much I have really spent on fun activities.

You can re-categorize these purchases within the program, but it could be easy to forget to do leading to some confusion on where your money is going each month.

However, I have left my account connected for a few months now, and there have been a couple of times Mint has helpfully notified me of something strange happening with my account.

I was then able to check into it and resolve the problem. Definitely a nice perk!

YNAB (You Need a Budget)

YNAB, like Every Dollar, involves 0 based budgeting, and like Mint involves connecting your accounts to the app.

This app has some helpful functions for planning for large expenses that may occur only occasionally (such as Christmas, car insurance payments, etc) and helps you plan ahead for them.

The primary focus of YNAB is how to make a budget, unlike Mint which is more of an overall financial picture.

It is important to note that while Every Dollar and Mint are free (or have a free option), YNAB is a paid program that costs $6.99 per month. Although they do offer a money back guarantee and 34-day free-trial.

Here are some links for a comprehensive comparison between Every Dollar and Mint and Mint and YNAB.

Paper and Pen

This one is pretty self-explanatory and involves much of the same work as you would do with electronic budgeting. The main difference is that it is up to you to complete all the calculations whereas a spreadsheet or app will do those for you.

This type of budgeting might be right for you if you aren’t as tech savvy or if you want to really get hands on.

Personally, it is not my preferred choice as I would rather spend my time doing other things rather than calculating everything out.

A paper and pen budget is important to stay on top of frequently to make sure you know where you are at any given point in the month.

Electronic options, including the spreadsheet freebie we offer, on the other hand, make it a bit easier to stay up to date with your spending. But if you prefer a printable, I have one of those as part of my free 5-day budgeting email course too!

Cash Envelope System

Dave Ramsey is a big proponent of the envelope system. This system involves determining how much money you will alot to a given category in a particular month and paying cash for everything.

So you would have an envelope for gas, another for food, and so on. Then, when the money for that category is gone, it’s gone.

This system can be beneficial because you visually see the money in a particular envelope “disappearing”. Additionally, paying in cash for something can make you reconsider a purchase before committing which can help save money.

On the other hand, with how many bills are paid electronically, it may be hard to use an envelope system 100% of the time.

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The 50/30/20 Budget

Popular budgeting advice states that you should alot 50% of your monthly budget to needs (food, shelter, clothing, etc). The next 30% should go to wants, and 20% should go to debt repayment or savings.

When you analyze your spending habits, consider how closely you come to the 50/30/20 recommendations. Are you spending more than 50% of your money on needs? Try to find ways to cut back on groceries, utilities, or rent.

You will also want to make sure that your wants are under control. This can often be one of the easiest areas to cut from for added savings or increased debt pay off.

If you are trying to live a debt-free life, however, you will likely need to shoot to have your wants to be more like 10% or less.

Try to get your needs to be as low as you can to live comfortably, and your savings and debt repayment should be more like 40% or greater.

I know this isn’t possible for everyone, but try to maximize your savings to the extent possible for your particular situation.

If you don’t think you can manage to spend such a small percent of your income on things you want to do or have, check out all the awesome activities that are free or cheap.

Stick with it

Remember, there is a reason you are reading this post!

It is likely because you aren’t happy with your current financial state and have decided to do something about it.

That is an AMAZING first step, and you should feel proud of yourself. Seriously though, so many people don’t even know how bad off they are financially.

Yes, budgeting can (and usually does) mean cutting back on things. But rather than thinking about what you are losing in the short term, think about what you are gaining in the long term.

Buying your first home?

Having a baby?

Paying for college?

Getting out of debt?

Saving up for that dream vacation?

What are your goals? Why are you here in the first place? And are those goals worth sacrificing for? I’m guessing the answer is yes.

Now that you know how to budget, move forward as if your life depends on it, because it does.

And don’t be a stranger, feel free to reach out with any questions you may have about getting started with your budget by dropping a comment below. I’d love to hear from you!

Still Feeling Overwhelmed in Your Finances?

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Before You Go!

Did you forget to sign up for the FREE 5- Day Budgeting Email Course? No worries, click below to enroll now and get access to amazing budgeting advice and a free budgeting spreadsheet or printable! Take your pick!

Need more Inspiration? Don’t miss these articles! Learn how to pay off your student loans and get tips to save money to boost your budget.

Learning How To Budget That Actually Works Shouldn’t Be Rocket Science. You’ve Got This!