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Breaking Down Budgets: A Beginner’s Guide to Budgeting

In this article

  1. What is budgeting, really?
  2. Budgeting buzzwords
  3. Popular budgeting techniques
  4. Categorizing your budget without losing sleep over it
  5. The 50/30/20 Rule
  6. Value-based spending
  7. Is budgeting a non-negotiable?
  8. Final thoughts

If the word “budget” immediately gives you hives, you are not alone. Budgeting has a bad reputation, but I’m giving you this quick guide to help you demystify the budgeting process and crush your financial goals.

Tori Dunlap • July 6, 2021

There are two camps in this world –– people who love budgets and people who wouldn’t touch one if it were the last raft on a sinking ship. 

The truth is, budgeting is one of the most important money tools you can use when you’re trying to build a better financial future. Just like the tools in your garage or under your sink, money tools are  only useful when used correctly and as a catalyst for improvement. 

A bad budget is like trying to hang a painting with a nail gun –– it might get you somewhere, but it won’t be particularly pretty.

So how do you turn (let’s be honest) a completely dull activity into a fun, goal-crushing money tool? You make it work for you. 

A constant comment in the Her First $100K office is “personal finance is personal,” and budgeting is no different. So here’s a quick guide to help you build the budget of your dreams.

What is budgeting, really?

A budget is your way of telling your money how it will work for you instead of the other way around. Think of your budget as a set of rules at the community pool –– it keeps you safe and helps you learn how to have fun with your money without hurting yourself or others. 

A budget should include:

  • All of your monthly expenses
  • All of your monthly income
  • A running tab of your debts

A good budget should:

  • Help you feel empowered with money
  • Reduce financial stress
  • Help you achieve your financial goals

Budgeting buzzwords

When you start budgeting for the first time, you’re going to hear a few terms that sound way more intimidating than they actually are. 

Here’s a quick breakdown:

  • Sinking funds: I like calling sinking funds a virtual piggy bank.
    Example: Your monthly clothing budget is $100. In August, you only spend $80 –– $20 of that would go into your clothing sinking funds (or piggy bank), so now, September’s clothing budget is $120.
  • Fixed expenses: These are your expenses that never change.
    Examples: Rent, insurance premiums, car payments, phone bills, cable, or other consistent debt payments.
  • Variable expenses: Yep, you guessed it –– Variable expenses change from month to month.
    Examples: Clothing, groceries, gas, utilities, dining, fun money, etc.
  • Zero-based budgeting: Whatever comes in must go somewhere. At the end of the month, every dollar you spend should have a place, even if you underspend in a category. It’s the “leave no stone unturned” of budgets.
  • Assets: Everything you own. Usually, in budgeting, this refers to the cash you have on hand or in a bank account and doesn’t include “things” like cars or homes or other non-monetary valuables.
  • Liabilities: This is a fancy word for your debts.
  • Net worth: The number you get when you subtract your liabilities from your assets (and yes, this time, you do need to include non-monetary assets like homes or cars).

Popular budgeting techniques


Math wizards, rejoice! After decades of use, the spreadsheet is still alive and well  –– and for a good reason. Setting up a spreadsheet can take a lot of trial and error, but once you’ve built in your formulas, all you have to do is pop in the data and let Excel work her magic.

Thanks to the internet, you can now find pre-made budgeting spreadsheet templates!


Pen & Paper 

If you have a daily planner that you meticulously update and color code, I’m just going to go ahead and tell you to keep that spark and work with a handwritten budget. 

There are so many great ways to do this. Some people love having one big page of their monthly budget to keep track of their spending. Others prefer to budget week to week or in a calendar view. You can build your own printables or buy a budget planner like this one from Amazon!



If you’re on the go and just don’t have time to sit down and decipher your bank statements, an automated budgeting app might be for you. The great thing about budgeting apps is there are occasionally free versions that allow you to enter charges manually –– but this only works if you always remember to enter charges after purchases.

The issue with manually budgeting with only an app (and not comparing it to your statements) is it’s easy to under or overestimate your spending. 

Automated apps can cost anywhere from $75-$100 a year in a subscription, so roughly $6-$8 per month. For some, this added expense is well worth the convenience of having your account connected and always knowing exactly how much you’re spending month to month.

Chime has a great article on some of the most popular budgeting apps here!

Categorizing your budget without losing sleep over it

The most common budgeting hiccup I see is trying to make budgets more complicated than they should be.

I remember working with a client once who was practically in tears because when she went to the grocery store, she’d sometimes buy self-care essentials like make-up or hair care. She was exhausting herself trying to split her purchases into overly detailed categories.

I simply asked her, “what if instead of creating a separate budgeting category for self-care, you just put it under your groceries since you already purchase them at the same store?”

Lightbulb moment.

Often, in an attempt to #doallthethings we sometimes #overdoallthethings and make our budgets more complicated than they need to be.

Here’s a quick sample budget category breakdown to help:

  • Mortgage/Rent
  • Utilities: Gas, electric, water, heat, etc.
  • Groceries: Anything you buy at the grocery store (Self-care stuff included!)
  • Transportation: Gas, insurance, oil changes, and other car maintenance
  • Debt: Student loans, car loans, credit cards
  • Fun Money: Dining out, clothing, experiences, nesting, etc.
  • Savings: Retirement, vacation, down payments, moving, big purchases, college funds, etc.

The 50/30/20 Rule

The 50/30/20 rule is one of the most popular budgeting “hacks,” and a simple solution for those struggling to figure out how much take-home pay should be put in different categories.

The 50/30/20 rule says this:

  • 50% of your take-home pay goes to necessities
  • 30% of your take-home pay goes to non-essentials
  • 20% of your take-home pay goes to savings or debt

So let’s take Sally. Sally brings home roughly $3,000 a month. Based on the 50/30/20 rule and the budget categories above, Sally’s budget might look like this:

Fun Money$900

In the above example, Sally spends $1,500 on necessities, $900 a month on non-essentials, and $600 a month on debt and savings –– making it a perfect 50/30/20 budget.

Value-based spending

My last budgeting tip is this: Spend based on your values.

AKA stop spending money on crap you don’t actually care about.

I recommend taking a look at your budget and spending and asking yourself, “At the end of the day, what three categories do I really love spending money on?”

Mine are travel, food, and nesting. So, I reserve space in my budget each month for these things instead of other categories like clothing, skincare, expensive gym memberships, etc.

If you love coffee and it gives you joy to run through Starbucks every morning, budget for it! If you constantly buy clothing but don’t really like it or use it, cut back on it.

“Most of the overspending I see with clients is based less on being out of control and more on not recognizing their own value system or buying unconsciously.”

Here are a few quick questions to help you figure out your top three values:

  • What do I feel good about every time I buy it?
  • What experiences or things truly bring me joy?
  • What purchases leave me feeling uninspired?
  • What things do I buy that end up sitting in a closet or unused?
  • Where am I spending money to “keep up with the Joneses?”

Is budgeting a non-negotiable?

Here’s where I come clean with you –– I, Tori Dunlap, internationally recognized money and career coach, do not use a traditional budget

I talk about this a little more in my Back to Basics course (including what I do instead), but here’s why I bring it up –– if you aren’t a budget person, it’s OK. 

It doesn’t make you bad with money or irresponsible. As mentioned above, budgeting is just one tool in a vast toolkit on your money journey. If your current system is working for you, don’t feel pressured to change it –– even if that system is not having a system.

Final thoughts

A last piece of advice –– update your budget regularly. If you’ve been rocking the exact same budget for three months or longer, it’s time to check-in and make sure your budget still aligns with your values and goals.

I recommend a once-a-month re-evaluation as a part of your financial self-care practice. Evaluate what’s working, what feels challenging, areas you feel like you’re over or underspending, and adjust accordingly.

Budgeting is one of the most personal choices in finance, and there are so many systems and thoughts on building the best one. What matters at the end of the day is that whatever system you use is the best for YOU and your specific financial goals.

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