Trim expenses

Budgeting tips

How creating a budget can help you reach your financial goals

​Let’s be honest — sitting down and creating a budget isn’t on most people’s list of the top 10 fun things they’d like to do right now. And chances are, if you’re reading this, you’re one of those people.

As loathsome as creating a budget may seem, it’s an essential part of getting control of your finances, getting rid of unnecessary expenses and achieving your financial goals. (In fact, this couple got rid of nearly $50,000 in debt and it all started with a budget).

How to create a budget in 3 steps

There are a lot of different ways to create a budget, so before you pick one, it’s a good idea to figure out your financial objectives. Do you want to get rid of your debt? Increase your savings? Stop wasting money on needless things? All of the above? There’s a budget solution that can help you focus on one or all of these. 

Step 1: Track your spending

The first step in establishing a monthly budget is to understand your income and your outgo. While most people have a pretty good handle on how much money they’re bringing in each month, fewer of us are as clear on just how much we’re spending. Putting your monthly bills into a spreadsheet, an app, or writing them down on a piece of paper can help you better understand just where your money is going and where you might be able to cut back.

And don’t just put down your rent or mortgage, utilities, car payment and the like. You’ll want to include your groceries, dry cleaning, morning coffee, lunches, drinks and dinner out — if you spend it, it gets included, so don’t forget things like your property taxes, holiday and birthday presents and vacations.

Step 2: Track your earnings

If you earn a regular paycheck, this is pretty straightforward, but you’ll still want to include things like investment income, alimony or child support and any money you earn on the side.

Step 3: Choose a budget that fits your needs

There are a lot of approaches you can take to creating a monthly budget, but here are three that are pretty simple to implement and don’t require fancy software or even apps to get started:

The simple budget
If your eyes are already starting to glaze over, you may want to consider a budgeting plan that is pretty simple and straightforward, like the 50-30-20 budget. This approach is great for people who have enough income to cover their necessary expenses and want to increase their savings while limiting discretionary spending.

Here’s how it works: Divide your after-tax income into three categories: 50% for monthly needs, 30% on wants and 20% into savings. If you can comfortably cover things like food, rent, insurance and other necessary expenses each month with just half of your income, this is a great starter budget to get you on the path to reaching your financial goals.

The debt-eliminator budget
If you’re already pinching pennies just to pay your bills and you’ve got a big pile of debt staring you in the face that you can barely make minimum payments on, you’re probably going to need a different approach. That’s where the debt snowball and debt avalanche methods come into play. Think of these as budget plug-ins that help you prioritize paying down your debts.

The spendthrift budget
Are you a serious overspender? If so, you may need a really strict system that involves some old-school money management tricks. The envelope system can help even the biggest spenders rein it in. This budgeting method requires that you create an envelope system for your monthly expenses and use cash only. You’ll create an envelope for each of your expenses — rent, utilities, groceries, etc., and you’ll fill these envelopes with the amount of cash you’ve allotted for that expense. When it’s gone, it’s gone. You can’t spend any more money that month for that particular item.

The importance of creating a budget

Budgeting is a lot like planning a road trip. It’s an analogy that has been used many times, but they really are quite similar. After all, you’d never start on a road trip without knowing how to get to your destination. The same is true for your finances. Your budget is the roadmap that helps you achieve your financial and savings goals by giving you the tools you need for better money management.

A budget also helps you eliminate unnecessary spending so that you can create not only long-term savings for things like retirement, but emergency savings as well. By creating and sticking to a budget, you may never be caught off guard by a money emergency again.

Budget tools to consider

If you’d like a little technology to help you get your budget setup — and even help you stay on track — there are lots of apps out there that can do just that.

Trim automates ways to save you money by analyzing your spending habits and canceling subscriptions, finding better deals on insurance and negotiating your cable or internet bill.

Harvest identifies negotiable bank fees and facilitates refunds on your behalf.

If you’re more of a spreadsheet person and love Excel, has a number of different downloadable budget templates to choose from. So, whether you’re single and have pretty simple finances or you’re part of a large family with mortgages and investments, chances are you’ll find a template here that’s helpful.

15 budgeting tips & tricks from debt guru Dave Ramsey

​Whichever budget approach you choose, and whether you put pen to paper or enter all your financial details into an app or a spreadsheet template, there are some budgeting constants that you’ll want to keep in mind.

Personal finance and budget guru Dave Ramsey suggests doing the following if you want to successfully create and stick to your budget:

1. Budget to zero before the month begins.
“This means before the month even starts, you’re making a plan and giving every dollar a name. It’s called a zero-based budget,” Ramsey explains.. “Now that doesn’t mean you have zero dollars in your bank account. It just means your income minus all your expenses (outgo) equals zero.”

2. Do the budget together.
“If you’re married, sit down once a month and have a family budgeting night. Make it fun! Grab some of your favorite snacks and put on a good playlist to help you focus.

“You need to get on the same page with money, so set goals together and dream about what the future will look like. Remember: If the two of you are one, your bank accounts should be one, too! It’s no longer your money or my money—it’s our money.“And if you’re single, find someone who can act as your accountability partner and help you stick to your goals!”

If you’re planning to get married, there’s no time like the present to sit down and talk about finances. It’s important to know where your future partner stands financially.

3. Every month is different.
“Some months you’ll have to budget for things like back-to-school supplies or routine car maintenance. Other months you’ll be saving for things like vacations, birthdays and holidays. Regardless of the occasion, make sure you prepare for those expenses in the budget. Don’t let these special occasions sneak up on you. (Hint: Christmas is in December again this year, guys!)

“Be sure to adjust your budget each month as things change. Make a savings fund you can stash cash in throughout the year. When you don’t have a plan, you’re going to be stressed. And that takes all the fun out of giving and celebrating. No one wants that!”

4. Start with the most important categories first.
“Giving and saving are at the top of the list, and then comes the Four Walls — food, shelter and utilities, basic clothing and transportation. Once your true necessities are taken care of, you can fill in the rest of the categories in your budget.”

5. Pay off your debt.
“If you have debt, paying it off needs to be a top priority. Use the debt snowball method and the Baby Steps to get rid of debt as fast as you can. Attack it! Get mad at it! Stop letting debt rob you of the very thing that helps you win with money—your income.”

6. Don’t be afraid to trim the budget.
“Brace yourself! It might be time for some budget cuts in your life. If things are tight right now, you can save money quickly by canceling your cable, dining out less, and shopping at discount clothing and grocery stores. Remember, your budget cuts are only temporary. You can always make adjustments later down the road.”

7. Make a schedule (and stick to it).
“While you’re making a budget part of your monthly routine, why not pick specific dates for other expenses? Set up auto drafts out of your checking account to pay bills, and buy your groceries on a set day every week or twice a month. When you know what to expect and when to expect it, you take a lot of stress and potential pitfalls out of the picture.”

8. Track your progress.
“It’s important to check your progress from time to time. If you’re married, track your spending and purchases together so you both keep your goals in sight. Look back at your earlier budgets to see how far you’ve come. And don’t forget to celebrate the small wins. (Pro tip: One key category to keep a close eye on is your grocery budget. I bet you are spending significantly less on groceries on a budget.)”

9. Create a buffer in your budget.
“Put a small amount of money aside for unexpected expenses throughout the month. Label this as your miscellaneous category in your budget. That way when something comes up, you can cover it without taking away money you’ve already put somewhere else. Keep track of expenses that frequently end up in this category. Eventually, you might even want to promote them to a permanent spot on the budget roster.”

10. Cut up your credit cards.
“If you’re really committed to sticking to a budget and getting out of debt, you need to ditch those credit cards for good. Stop using them! Cut them up, shred them, or even make a craft project out of them! Whatever you do — get them out of your life.

“Having no credit card debt will mean no more minimum payments to add to the budget, zero hassle with fees or high interest rates, and much less stress and worry! Stick to using your debit card (and even cash!), and dump those credit cards like your ninth-grade fling. You know what the great thing about a debit card is? The money comes straight out of your bank account! There’s no middleman charging you 15% interest.”

11. Use cash for certain budget categories that trip you up.
“If you’re constantly overspending on your grocery budget or fun money, cash out those categories and use the envelope system to hold you accountable. Just go to the bank and pull out the cash amount you’ve budgeted for that category. Once the cash runs out, stop spending! It’s the ultimate accountability partner.”

12. Try an online budget tool.
“If pen and paper (or spreadsheets) aren’t your thing, it’s time to join the 21st century and use a budgeting tool like EveryDollar. You can focus on planning a budget and tracking your spending from the comfort of your smartphone! Plus, you can sync up your budget with your spouse, which is great for keeping that communication open.”

13. Be content and quit the comparisons.
“You have much more than you realize. Don’t compare your situation to anyone else’s. Comparison will not only rob you of your joy but also your paycheck. Keep moving forward and doing what’s right for your family.”

14. Have goals.
“Whether you’re paying off student loans, building up your emergency fund, or paying off your mortgage, you need to focus on your why. What’s the reason you’re making these sacrifices?”

15. Give yourself lots of grace.
“It usually takes three to four months to get a handle on this whole budgeting thing. It won’t be perfect the first time, or the second. But you’ll get there!”

Most importantly, be good to yourself

Budgets are important and useful tools, but they don’t fix every financial problem. Unexpected things happen — unemployment, divorce, health crises and even the death of a spouse can have significant and long-lasting effects on your finances. Knowing when to seek guidance in these times can be tough.

Helpful tools

Assess your debt – Helps you answer the question, “Do I have too much debt?”

Debt settlement agreement – Build the contract for your settlement documenting the criteria you negotiate with your creditor.

Debt consolidation calculator – Assess if debt consolidation is a viable option for you.

Credit card payment calculator – Discover how long it will take to pay off your current credit card balance.

Resolve your debt with our partner SoloSettle