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Budgeting: In-Depth Guide on Managing Your Money

Last updated 04/09/2024 by

Andrew Latham

Fact checked by

Many people believe that staying out of debt should be their ultimate financial goal. While avoiding debt is a good idea, making it your primary financial goal is like heading for a destination without having drawn yourself a map. How do you draw yourself a roadmap for financial success? Simple: through responsible budgeting.
With a thorough budget, you can avoid debt while also building yourself a nest egg for your future. But what should your budget include? And how can you get started?

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Creating your budget

Building a budget sounds daunting. Will you have to do math? Will your newfound limits worsen your lifestyle? In reality, budgeting doesn’t limit your independence — it only lowers your anxiety. Instead of wondering with every purchase if you’re over-spending, you can spend freely within your budget, and know exactly when to stop. A tidy budget is a fast-track to peace of mind.
So how can you get started? Just follow these simple steps!
1. Total your expenses
This is the time to get real and bare all of your financial laundry. Pull out the past year’s bank statements, receipts and bills, including intermittent charges like insurance, auto and home repair and gifts. Also include incidental expenses, many of which you may pay for with cash.
On their own, minor charges seem insignificant, but they add up quickly. Get a true total of your spending by keeping a financial journal for a month and recording what you spend on miscellaneous items like coffee, quick meals, and tips.
When you have all of the necessary data, add your expenses up and divide by 12, which will give you an average of your total monthly expenditures. Tack on a 10% cushion to cover the unexpected. For instance, if you determine that you spend an average of $2,500 per month, bump the total up to $2,750.
2. Determine your income
In addition to your regular net salary, add any additional money you receive. This might include alimony, child support, rental income, interest and dividends, cash gifts, or tax refunds. If you have a regular side business or often sell items online, include a monthly average of that income.
3. Do the math
Discover if you have a monthly windfall or shortfall by subtracting your expenditures from your income. If the figure is negative, you have a budget deficit that is likely eating up your savings or causing you to reach for credit. If the answer is positive, you have a surplus that you may be spending on incidentals, rather than paying down debt or saving.
4. Balance your budget
If you have a positive cash flow each month, you can skip to number 5. On the other hand, if you’re breaking even or in the negative, you must either slash expenses, bring in more income, or both.
To lower expenses, look to your incidental category first. If you’re $50 in the red every month and spending $50 a week on unnecessary items, cutting the incidental spending to $15 a week will eliminate your shortage and give you approximately $90 ($1080 per year) to pay down debt and save. If you can’t cut enough from this category, look to your bigger ticket discretionary spending and consider reducing certain expenses. For instance, if you pay for a premium cable package but don’t actually use it, lower your cable bill or get rid of it entirely.
After making all necessary cuts, if you still have a shortfall or an insufficient amount of excess money, find a way to bring in additional income.
5. Reduce debt
Now that you know how much money remains each month, you can earmark a certain percentage for paying down debt like credit cards and student loans. Don’t try to pay off all your debt at once. This is generally unrealistic and is likely to discourage you. Stay encouraged by focusing on one debt balance at a time. Starting with the balance that has the highest interest rate will save you the most money, but some find paying off the smallest balances first gives them the encouragement they need to stay on track.
6. Set savings goals
Paying off debt is definitely important, but saving is equally so. Having an emergency fund allows you to deal with life’s inevitable unexpected expenses without resorting to credit. While the standard advice is to save 10 to 20% of your income, this isn’t always possible. The key is to take advantage of the excess in your budget and save it, no matter how minimal it is. As your income grows, increase your monthly savings.
7. Record Progress
A surefire way to guarantee that you stay on track with your budgeting is to record your income, expenses, debt reduction, and savings. Try using a tool like Mint to track your financial achievements. Seeing your savings account grow and your debts shrink will keep you motivated and less likely to splurge.
Devise a budget and stick to it most of the time, and you’re bound for financial freedom.

Saving tips

A big part of managing your finances is making sure a portion of your income goes to savings. As we’ve established, your budgeting should include a monthly savings goal — an amount that you strive to put away each month to make your future more secure. These savings strategies can help you manage your money and stay out of debt.
Allocate an emergency fund
One of the biggest mistakes that people make is to forgo emergency savings to have more now. If you don’t already have a plan in place for saving money for unexpected major expenses, start a savings plan now.
Automate your savings
Say you want to start an emergency fund, but you find it difficult to squirrel money away instead of blowing it on your wish list. Even if you don’t have the discipline to stick to your budget, you can still save. How? By taking the matter out of your hands.
Automation is the key to low-effort savings. One great way to automate your monthly savings is to set up a separate bank account — one which you’re not allowed to tap into for day-to-day spending. Once you’ve made your account, decide on an amount that you could lose from your paycheck without hurting your quality of life. Ideally, this figure should be about 20% of your after-tax income. However, any savings is better than nothing — even if it’s just $10 or $20 per pay period.
When you’ve decided on how much to save, it’s time to set up a recurring transfer. If possible, you should set this up within your employer’s direct deposit. This added hurdle will make it harder for you to change your mind and undo the transfers in a moment of weakness. But if that’s unfeasible, you can set up a recurring transfer from your regular bank account to your off-limits savings account, and time the transfers to coincide with your payroll. Without any additional effort, you’re successfully saving your desired amount every month!
Avoid credit debt
When you use a credit card to make a purchase, you create a monthly payment. A better option is to set aside the amount you would pay on the credit card each month until you have enough money to pay cash for your purchase. In the end you’ll be paying less, because you won’t have to deal with interest.
Prepare for your future
Anyone who works for an employer that offers a 401(k) plan should take full advantage of this great savings tool. This employer-sponsored retirement plan offers you the opportunity to set aside a portion of your wages before taxes. Additionally, many employers contribute a portion to your account. Yes, you can’t touch it before the age of 59 ½ without paying a penalty along with the deferred taxes. But if your goal is to stay out of debt now and in the future, you will need money for retirement.
Be frugal
An arguably obvious but undeniable way to stay out of debt: look for the most economical ways to save money. Buy cheaper groceries, and set limits for your monthly frivolous (non-crucial) spending. Cut out lattes for a week. Learn to fix your own plumbing, or to service your own car to avoid service costs. Cut coupons and shop for discounts. When you see a cheaper option that won’t excessively compromise your quality of life, choose it! There are plenty of direct actions you can take to stay out of debt.

What to do when budgeting isn’t enough

For some people, creating a budget isn’t enough. Many develop a budget they never use. Others commit to their budget for a few months, until their discipline falters or an unexpected expense uproots their habits.
If you are someone who finds it difficult to track your income and expenses on a regular basis, budgeting alone may not be the solution. Instead, you need to understand your financial strengths and limitations.
Perhaps your strength is making money. You have a regular full-time job along with one or two extra side jobs. That’s great. However, your limitation may be you like to spend your extra income on luxury items. In fact, that might be why you first picked up a side job.
As long as you pay cash for things, you’re less likely to run into debt trouble. Lots of people run into trouble when they find themselves spending more as they make more. From there it’s an easy step to buying everything on credit.
We’re not talking about using cash to buy large ticket items like a car or home (though if you can, you should). It’s when you begin using credit for everyday things, like clothes and electronic toys that can cause problems.
Another great hack for both the disciplined and the budget-averse is automatic saving. Regardless of your own day-to-day spending habits, if you automate your savings, you’ll always have a nest egg to turn to in a pinch.
And remember to be forgiving with yourself! If you break your budget one month, don’t throw up your hands and give up on responsible finances. It’s okay to slip up now and again, as long as you are able to pick up the pieces and get yourself back on track.


Responsible budgeting doesn’t just keep you out of debt. It also lays a nest egg for your future and provides peace of mind in your present. Ready to get started? Click here to check out a slew of side-by-side reviews of money management tools to help you whip your budgeting into shape.

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Andrew Latham

Andrew is the Content Director for SuperMoney, a Certified Financial Planner®, and a Certified Personal Finance Counselor. He loves to geek out on financial data and translate it into actionable insights everyone can understand. His work is often cited by major publications and institutions, such as Forbes, U.S. News, Fox Business, SFGate, Realtor, Deloitte, and Business Insider.

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