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Rebecca Safier, CCC, is a personal finance writer. Her work has been published in U.S. News & World Report, MarketWatch, NextAdvisor, Yahoo Finance, and other publications, and she has contributed expert commentary to Entrepreneur, Money.com, NBC, and more. When she's not covering all things personal finance, Rebecca teaches blogging strategies on her website, Remote Bliss.
Budgeting is all about creating a plan for your money so you can better control your finances.
Start by calculating your monthly take-home pay and tracking all your expenses to see where your money goes.
Choose a budgeting method that fits your lifestyle, like the popular 50/30/20 rule, to guide your spending.
Regularly review your budget and adjust it as needed to stay on track with your financial goals.
Do you ever feel like your paycheck vanishes and you don't know where it went? Learning how to budget is your first step toward taking control of your finances. A simple budget can help you manage your money, reduce stress, and hit your financial goals.
We'll cover everything you need to create a solid budget plan, from calculating your income to tracking your spending to choosing a budgeting method that fits your life. With these simple steps, you'll have a clear roadmap for making your money work for you.
A budget is a plan that tracks your income and expenses so you know exactly where your money goes each month. It's not about restricting yourself – it's a tool that helps you make intentional decisions with your money.
Think of it as a roadmap for your finances. When you have a budget, you tell your money where to go instead of wondering where it went. This gives you the power to cover your expenses, save for what matters, and spend guilt-free on the things you love.
Here's how to get started with your budget in seven simple steps.
Every budget starts with your income – or the amount of money you receive in a month. That includes regular paychecks and any additional income sources, such as a side hustle.
Your net income, often called your take-home pay or net pay, is how much you earn after taxes and deductions. This figure provides a clear starting point, and you can find it by checking your pay stubs or your employer's online payroll platform. You can also review your past direct deposits if applicable.
Chime tip: If you don't receive income on a regular basis, calculate how much you've earned each month for the last three to six months and use the lowest amount for this month's budget. You can update it later if you earn more than expected.
Calculating your monthly expenses gives you a complete picture of your spending. Break your expenses into three categories: essential expenses, nonessential expenses, and savings and debt payments.
Here's what typically falls into each category:
Essential expenses may include:
Housing, such as rent, mortgage, property taxes, or HOA fees
Basic utilities, like electricity, water, heating, phone, and internet
Groceries
Transportation, including car payments, fuel, and public transit
Healthcare, such as medical bills and prescriptions
Insurance, including health, car, home, renters, and pet policies
Minimum loan and credit card payments
Childcare
School tuition and fees
Pet care, like food and vet visits
Non-essential expenses may include:
Restaurants and takeout
Entertainment, such as movies, concerts, and events
Travel and vacations
Clothing and accessories
Streaming services
Gym and club memberships
Hobbies and leisure activities
Beauty and grooming services
Gifts and personal shopping
Savings and debt repayment may include:
Emergency fund savings
Retirement savings, like contributions to a 401(k) or IRA
College savings for kids
Short-term savings for goals like vacations or big purchases
Extra debt payments above the minimum requirements
The list above is just an example – it's your turn to make a list of your nonnegotiable fixed expenses. These are regular monthly expenses, like your rent, mortgage, groceries, utilities, or transportation.
We'll cover the 50/30/20 rule in more detail below, but it suggests that 50% of your income should go toward these necessities.
Next, list your nonessential expenses. These are wants, not needs, and include discretionary spending like eating out, entertainment, travel, or other personal purchases.
Following the 50/30/20 rule, you would put 30% of your income toward your wants.
The last category is savings and debt payments, which should take up 20% of your income based on the 50/30/20 method. Use this portion to build an emergency fund, save for future goals, and make extra debt payments beyond the minimum.
If you want to pay off debt faster, flip the percentages – put 30% toward savings and debt, and 20% toward wants.
Chime tip: Use our loan payoff calculator to calculate how soon you can pay off your loans and how much you'll pay in interest.
The next step is setting your financial goals. Aligning your budget with your goals helps you see it as a means to an exciting end, rather than thinking of it as restrictive. To set your financial objectives, assess where you are now and where you want to be in the future.
You can break this down into short-term and long-term goals:
Short-term goals include building an emergency fund, paying off credit card debt, or saving for a vacation.
Long-term goals include retirement planning, homeownership, or funding your child's education.
Once you have your own list of goals, be specific about the amount of money you need to reach the goal and the timeline you want to achieve it.
For example, if you want to save $5,000 over the next year, you can calculate how much to set aside each month using our savings goal calculator. Assuming you have a savings account with a 3.75% annual percentage yield, or APY, you'd have to save $409.55 each month to hit your goal.
There are several budgeting methods you can follow. Choose one that feels manageable and allows you to be consistent. Here are some common methods to make a budget:
50/30/20 budget: The 50/30/20 budget rule divides your income into three categories: 50% goes to necessities, 30% goes to wants, and 20% goes to savings and debt payments. This method is a simple way to get started if you don't know what percentage of your income to spend across different budget categories.
The envelope method: The envelope method is a cash-based approach ideal for anyone who tends to overspend or wants to avoid credit card debt. First, you set a spending limit for each expense category, such as groceries or eating out. Then, you put your cash for each expense category into separate envelopes at the beginning of each month. Once the envelope is empty, you stop spending in that category for the month. Since you're using cash and not credit cards, this method can help you avoid spending past your means.
Zero-based budget: With the zero-based budget model, every dollar has a purpose. For instance, some dollars will be designated for rent, while others will go toward retirement savings. Zero-based budgeting requires careful planning and tracking, but you'll spend each dollar more intentionally.
Finding a sustainable method based on your spending habits, lifestyle, and goals may take trial and error. If one method isn't working out for you, try another to see if it's a better fit. Ultimately, the goal is to find a budgeting strategy that works for you.
Need a jump start? Start by watching our video on how to build a budget. Then, download our budget template, which you can edit on your computer or print out if you prefer a hands-on approach. You can also keep it handy as you work through these budgeting steps.
Once you have a clear view of your income and expenses, you can adjust your budget as you go. The tips below can highlight where you stand and any potential changes you need to make:
Examine each expense: Look for areas to reduce spending in your "wants" category if you need more breathing room.
Revisit your financial goals: Make sure you're putting enough toward your top priorities like emergency savings, retirement, or paying off high-interest debt.
Analyze your spending patterns: If you're overspending on things like food delivery or streaming services, look for ways to cut back.
Give leftover money a job: Assign any extra funds to savings, debt payments, or retirement investments.
Once you've made it this far, congratulations on creating your budget! The key to success is reviewing it regularly throughout the month. Here's how:
Daily or weekly updates: Dedicate some time each day or week to update your budget with your latest transactions – budgeting apps can make this easier. This practice keeps you aware of how much you're spending on needs, wants, and savings.
Stay flexible: Your budget isn't static, so don't be afraid to tweak it. If your energy bill spikes, adjust another part of your budget to balance it out. Being proactive ensures you cover all your essentials and avoid any costly surprises.
Your budget is a tool that evolves with your life. You'll grow an increasing sense of financial control by keeping your budget up to date.
As you continue reviewing and updating your budget, consider the following milestones to work toward.
An emergency fund is your financial safety cushion for unexpected expenses or emergencies. To stay financially secure, aim to save enough to cover three to six months of living expenses.
If your employer offers a 401(k) match, contribute enough to get the full match – it's free money for your retirement. You'll also gain access to valuable tax benefits.
Paying off high-interest debt, such as credit card debt, should also be a priority in your budgeting game plan. Find ways to fit debt payments into your budget and use extra cash to bring down that balance faster.
Once those high-interest debts are under control, you can redirect that money to savings or other financial goals.
Aim to save at least 20% of your income across retirement accounts, emergency savings, and other goals. As your income grows, adjust your budget to hit this target.
Learning how to make a budget is a huge win for your financial journey. Rather than feeling restrictive, a budget can empower you by giving you control over your income and expenses. You're building a stronger financial future one step at a time by giving every dollar a job.
For more insights on why budgeting matters and how it can shape your financial well-being, learn why budgeting is important.
The 50/30/20 rule divides your after-tax income into three categories: 50% for needs, 30% for wants, and 20% for savings and debt payments. It's a simple starting point if you're not sure how to split up your money.
Use a budget calculator to calculate your monthly take-home pay, list all your expenses, and categorize them into needs, wants, and savings. Pick a simple method like the 50/30/20 rule and track your spending for a month to see where adjustments are needed.
Look for areas to cut back on wants like subscriptions, dining out, and entertainment. You can also explore ways to increase your income through a side hustle or negotiating a raise.
Check your budget weekly to track spending and do a full review at month's end. Adjust it whenever your income or expenses change significantly.
The three steps to budgeting with an irregular income are:
Estimate your monthly income and expenses.
Prioritize your expenses from most to least important.
Review your budget every month and make changes if necessary.
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