Managing your money wisely can help you carve out the life you want. Whether you're saving for a down payment on a home, paying down debt or planning a wedding, a budget can keep you centered.
Learning how to budget money for beginners isn't difficult. It may take some practice, but the payoff is worth it when you're feeling on top of your game and progressing smoothly toward your financial goals. Our guide can help you learn how to create a budget — and stick to it.
First, take stock of where you are now. This step is about getting a high-level view of your monthly income, where it's going and what you currently own. To get started:
These figures will give you a sense of what's flowing in and out of your accounts each month. You don't have to get super detailed at this stage but be sure to write everything down. You'll use this information later when you learn exactly how to create a budget.
Keep it simple at first
Consider creating a simple budget at first to help you adjust to using one. If your first budget is complex, you may feel overwhelmed and give up. You can add details or make other changes later.
The next step is to list your monthly expenses in more detail. Look at your list of living expenses and debt payments from Step 1 and group them into categories. These groupings can help you better understand your spending habits.
Some common expense categories include:
You can add more expense categories if needed.
Although you can track your expenses on paper, you may prefer to organize this information in a budget spreadsheet. You could also use a template to help you manage your monthly expenses.
The Citizens mobile app* is another helpful tool when tracking your expenses. Based on your unique account activity, the app gives you personalized tips to help you reach your financial goals. You can also monitor your banking activity to quickly catch double charges, higher-than-usual bill payments and other financial moves.
Next, it's time to dream: What are your financial goals? Think about what you'd like to save for in the short and long term. Also, consider any expenses you want to reduce, like credit card debt or student loans.
Examples of financial goals include:
Write down your financial goals and label each one as either short term (within one year), midterm (one to five years) or long term (more than five years out). Knowing the timeline for each goal will be helpful when you prioritize them later.
Review the list of goals you created. Are some goals more urgent than others? Organize your goals from the most important to the least. You might consider paying off smaller debts first so you can put more money toward other short and long-term goals.
Prioritizing your goals can help you decide if you need to allocate more money to certain categories. You can continue to adjust your budget until you're satisfied.
Now it's time to crunch some numbers. First, list your expense categories. You might also include a "savings" category to help you set aside money to reach your financial goals.
Next, allocate a certain percentage of your monthly income to each category — decide the amount based on your priorities. If you're not sure how to weigh your needs, you could try the 50/30/20 budget rule: 50% of your after-tax income goes to your necessities, 30% goes to your wants and the remaining 20% goes to your savings.
When you finish, add up all of the money you allocated to make sure it matches your monthly income. If the amounts match, all of your monthly income is accounted for in your budget.
To help you better understand the process, consider the following example of a monthly budget for a person who makes $70,000 a year ($5,833 per month) after taxes. Their financial goals are to grow an emergency fund, contribute to a retirement account (savings) and pay off credit cards (debt payments).
Category | Percent of Monthly Income | Monthly Allotment |
---|---|---|
Food | 15.00% | $875.00 |
Savings | 15.00% | $875.00 |
Utilities | 5.00% | $292.00 |
Clothing | 3.00% | $175.00 |
Insurance | 5.00% | $292.00 |
Healthcare | 5.00% | $292.00 |
Entertainment | 5.00% | $292.00 |
Transportation | 8.00% | $466.00 |
Debt payments | 14.00% | $816.00 |
Mortgage or rent | 25.00% | $1,458.00 |
Totals | 100% | $5,833.00 |
Your life circumstances may change over time. Perhaps you get a raise at work, for example, or change careers. Maybe you move to a new city with a higher cost of living, or you need to tap into your emergency fund to pay for an unexpected expense.
For example, perhaps you currently allot $500 for transportation each month, which covers your car insurance, payment, fuel and maintenance. After making your final car payment, however, you realize you can reduce the amount to $250. You can then allocate the other $250 to another category to help you pay off your debts faster, grow your retirement savings or something else.
Because your income, goals and expenses may change, reassess your budget every month. You can then adjust it as needed.
Getting used to a budget may take some time. To help you stick to it, make sure your budget is simple and realistic, and set clear financial goals. You can also reward yourself each month for meeting your budgeting goals. You could use some of your entertainment budget, for example, to do something fun to help you stay motivated.
As a general rule of thumb, most people budget 10% to 15% of their monthly income for groceries. You may be able to allocate less to this category by planning your meals, using coupons and looking for sales.
A fixed expense is a budget item that's the same amount each month, like a mortgage or car payment. A variable expense may be different each month, like groceries, entertainment, and clothing.
The number of categories you include in your budget will vary based on your financial situation and goals. It also depends on the budget method you use. The 50/30/20 budget, for example, only has three categories. You can add more categories to give you more detail.
A budget can help you control overspending, reduce or eliminate debts, increase your financial security or save for retirement. It's a powerful tool you can use to prepare for your financial future.
Review your budget each month to make sure it still meets your needs. A monthly review helps you keep up with any changes in your financial situation and make adjustments as needed.
If you have an unexpected expense, you can use your emergency fund savings account. If you don't have an emergency fund, you may have to cut back on discretionary spending, like entertainment, to help you pay for it.
As you learn how to budget money for beginners, keep in mind that your budget isn't set in stone. You can adjust it as your life circumstances change. Starting a family or losing a job, for example, will impact your budget.
You can also experiment with different budgeting strategies, such as the 50/30/20 budget mentioned earlier. Other methods include the envelope system, pay yourself first and the zero-based budget. You could start with a simple budgeting method and then switch to a more detailed method when you're ready.
Getting eyes on your cash in one place is a good place to start, and a Citizens checking account can help you get there. The sooner you start using a budget, the sooner you can gain control of your finances and start checking off your financial goals.
© Citizens Financial Group, Inc. All rights reserved. Citizens is a brand name of Citizens Bank, N.A. Member FDIC
* Wireless carrier, text and/or data charges may apply
Disclaimer: The information contained herein is for informational purposes only as a service to the public, and is not legal advice or a substitute for legal counsel, nor does it constitute advertising or a solicitation. You should do your own research and/or contact your own legal or tax advisor for assistance with questions you may have on the information contained herein.