Budgeting tips: A guide for beginners

Creating a budget can be a little intimidating, especially if you’ve never done it before. This guide includes tips that could help you set yourself up for success. As you get used to things, you may find budgeting helps empower you to take more control of your financial future.

What you’ll learn:

• A budget is a tool for detailing income and expenses, typically on a monthly basis.

• Budgeting could help you save money, pay down debt and reach your financial goals. 

• A basic budget might include income, monthly spending, recurring bills and due dates.

• Popular budgeting methods include zero-based budgeting and 50-20-30 budgeting.

A budget is a tool to track income and expenses. More than that, it can serve as a foundation for making informed financial decisions and gaining control over your money. When done consistently, budgeting might help you avoid overspending, stay current with bills and build savings. Looking at the big picture, it could also help you set clear financial goals that feel achievable.

Budgets are typically done on a monthly basis to align with the payment cycles on most bills. But they can also cover other time periods and be done quarterly or annually, for example.

According to the Consumer Financial Protection Bureau (CFPB), building your budget can be simple and manageable when broken into four steps to track income, track spending, compile bills and then build the actual budget. Here’s a closer look at each step.

The first step to creating a budget is understanding how much money you have coming in. Start by gathering all your income sources and adding up the total monthly amount. Income might come from places beyond a day-to-day job. You should also count consistent sources of payments, such as government benefits or child support.

Recording every dollar you spend in a month could give you a realistic snapshot of what you’re spending it on. According to the CFPB, this is the step that’s the most work, but it’s also one of the most valuable. The agency recommends that you label your expenses, grouping them into spending categories like rent or mortgage, utilities, takeout and entertainment.

Having an accurate understanding of how much you’re spending—and on what—can help when you need to make adjustments.

Bills can come due at different dates throughout the month, and they don’t necessarily line up with when you get paid. Start by creating a list of your recurring bills along with their due dates. This can help you see whether you have enough to cover your monthly expenses.

Now that you have all the pieces, you can use the information to create a working budget. Set realistic spending limits for each expense category. Then, align them with your income schedule. Knowing when money comes in and when bills are due can help you track everything you need to cover.

Setting a working budget is a terrific start. But to help you achieve your financial goals, it can be helpful to focus on what you can stick to. Here are some tips designed to help you stick to a budget.

While you’re thinking about how your expense types may vary, consider that your budget may vary from month to month, too. It may need to change based on what’s happening in your life.

You may want to set aside separate savings for events like these:

• Vacation planning: Depending on where you’re going, a vacation could cost even more than a month’s rent or mortgage payment. That’s why you might want to start saving for a big trip well in advance. In the meantime, you may also want to consider tips for traveling on a budget.  

• Holiday spending: Buying gifts and attending special events during seasonal celebrations can cause a shift in your cash outlay. When you’re thinking about holiday spending, you may want to consider ways to enjoy yourself without breaking your budget.  

• Birthday parties: Planning a party can be a great way to celebrate a special person in your life. Still, it can eat into your budget. To keep expenses in check, check out these ideas for an economical kid’s birthday party.

To make the budgeting process a little easier, you might try a budgeting app designed for creating modern budgeting spreadsheets. Spreadsheet programs can save you time by doing basic math for you. Some can also connect directly to your financial accounts to collect your transactions.

When it comes to digital tools, Capital One credit cards come with great ones to help make spending and managing your money easier.

When you’re exploring approaches to budgeting, you may want to consider several popular options. They include:

• Zero-based budgeting. With zero-based budgeting, you typically start with a new budget each month. Then you assign every dollar of your income to a category, from purchases to savings. You might find that breaking down your finances into monthly increments makes budgeting feel more manageable. Plus, allocating every dollar could help you avoid unintended spending. 

• 50-20-30 budgeting. For some people, the appeal of 50-20-30 budgeting is the simple formula it’s based on. As the name implies, it involves allocating your money in different buckets, specifically 50% for needs, 20% for savings and 30% for wants. 

• Pay yourself first. With the pay-yourself-first method, your first task is to direct money toward your savings. Then you figure out where to allocate your remaining income. With this method, it’s common to automatically route income to a personal savings or investment account. But keep in mind that it’s important to make payments on your other debts and monthly bills. Falling behind on those could potentially damage your credit and add extra expenses like interest charges and fees.

As you build your budget, consider thinking beyond your immediate expenses and making room for future financial goals and priorities. If these aren’t already part of your monthly expenses, this could be a great time to begin making room for them.

It’s hard to predict when unexpected expenses may come along. That’s what makes them unexpected, right? So it might help to establish an emergency fund to provide a financial cushion for things like: 

• Home repairs
• Car repairs
• Medical expenses
• Pet emergencies
• Loss of income from a job

Financial experts recommend having an emergency fund with enough money to keep you afloat for 3 to 6 months.

Budgeting typically involves planning for both today and tomorrow. So while you’re setting aside money for your utilities, internet and cellphone, don’t forget retirement. Remember, the earlier you start, the more time your money has to grow.

Your retirement account options may include 401(k) plans, 403(b) plans, individual retirement accounts (IRAs) and more. Having a plan in place could help you live more comfortably in your retirement years—and could even help you retire early.

After you create your budget, it might help to think of it as a flexible, living document that you feel empowered to update as your finances change. That could apply when life events happen, like getting a pay raise or buying or renting a home with a higher monthly payment.

In addition to the tips you’ve just read about, you could also consider budgeting with a credit card, especially if it comes with helpful tools for managing your money or rewards you with cash back or miles for using it.