Saving & Spending Budgeting & Expenses

Budgeting 101: How to Budget for All Income Levels

Everyone should have a budget, and that includes you. Here’s what you need to know to get started.

Working mother taking notes while calculating budget
Updated July 7, 2024
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More Americans are realizing that knowing how to budget is an essential tool to reach any financial goal. Eighty percent of Americans now keep a budget, and 97% of Americans think everyone needs a budget, according to a recent CFP Board survey.

For those who don’t budget, the top-cited reason is not having enough income. But if you're a low-income earner, it’s even more important to learn about managing money because you have less discretionary income to put toward a financial emergency.

About 25% of survey respondents also said budgeting was too time-consuming, and 21% said that budgeting brought on anxiety. But budgeting and money management don’t have to be a headache.

And the financial benefits are universal: More control, greater resiliency, better spending habits — and most likely, a boost to your credit score.

Here are some budgeting tips to help you save money without the headache.

In this article

What is a budget?

A budget is a financial plan that spans over a month, a quarter, or a year that details your income and expenses.

Most or all of your spending categories should be included in your budget, including housing, transportation, food, utilities, entertainment, debt repayment, and savings. By including all these categories in one place, it becomes easy for you to see how much money you have coming in and going out.

Benefits of having a budget

By establishing a budget, you can have a simple method for ensuring that your expenses don't exceed your income by choosing spending restrictions for certain categories.

Having this bird's-eye view of your finances can have a powerful and positive impact on how you manage your money. It can help you avoid living paycheck-to-paycheck by visualizing your income limitations, finding areas where you can reduce discretionary spending, and figuring out methods to lower fixed costs.

Budgets are also crucial for financial planning and can help you achieve your financial goals, such as retirement savings, debt repayment, or an emergency fund. Learning budgeting basics and having more control over your money can also help reduce your worry and anxiety.

How to budget: 6 steps for getting started

1. Review your monthly income

Before you even start establishing a budget, you’ll need to collect some basic information. That includes adding up your family’s monthly income from various sources, including employment, side hustles, passive income, investment income, and gifts.

Your total take-home pay will be the starting point from which you subtract your various expenses.

2. List your monthly expenses

You probably have a variety of bills you can expect monthly. These include living expenses like utility bills, rent or a mortgage, phone bills, and cable/streaming services. You should also list any monthly debt payments you’ll need to make, including student loan payments and personal loans.

If you’re carrying a credit card balance, you should decide on a monthly amount to put toward paying down your credit card debt, in addition to the minimum payment owed.

3. Track your spending

Down the road, you’ll want to set spending limits for expenses that can vary. A good place to start is to track what you’re already spending and make adjustments from there.

Get into the practice of logging your expenses in each category. While you can do this manually with a calculator and a budget worksheet or Excel spreadsheet on your computer, you may prefer using a budgeting app to simplify and automate the process.

For example, Rocket Money is an app that allows you to connect your banking services, such as a bank account or a credit card, to automatically import and categorize your spending.

Rocket Money Benefits

  • Helps to find and cancel subscriptions
  • Slash your monthly phone, cable, and internet bills
  • Save an average of up to $720 a year

4. Set goals

Once you have a picture of your income and expenses and are tracking your spending, it's a good idea to set some financial goals. A good way to start is to make a list of both short- and long-term goals.

Short-term goals could include paying off credit cards or starting an emergency fund and should have a time frame of about one to three years. Long-term goals, on the other hand, can take decades to achieve and could include saving for retirement or your child's college fund.

Remember that these goals are just a starting point. You can adjust them as needed, but writing them down ahead of time can help create a plan to work towards your goals.

5. Make a budgeting plan

Now that you know where your money is going and have identified your goals, you can create a budgeting plan to make sure you have enough money to make everything happen.

Start by looking at both your fixed expenses and variable expenditures and compare those to your income. Then consider where you can make adjustments to achieve your financial goals.

This is where you will have to get honest with your priorities. If you're subscribing to multiple streaming services, you may have to cut back on one or two to free up money to pay toward your credit card debt.

Similarly, if you're struggling to find money to put aside for retirement, you may want to consider more drastic measures, like moving to a place with a lower rent.

6. Track and review your budget regularly

Having a budget and sticking to it are two very different things. Part of your budgeting process involves regularly reviewing it to make sure you're keeping your spending within the limits you set for yourself.

Expenditures have a way of creeping up when you're not looking. Groceries get more expensive, the price of utilities rises, and you think adding one more subscription won't matter that much.

On the flip side, your income may change as well. Maybe you've gotten a raise (more money) or have to pay a lot of money for your company's health insurance plan (less money).

Bonus tip: Park your money in the right place

Saving is key to any budgeting plan, and the best savings accounts can help you grow your nest egg effortlessly. Keep your emergency fund and other savings in a high-yield savings account that offers a higher interest rate than traditional savings accounts.

For example, saving your money at CloudBank 24/7 Savings can provide an annual percentage yield (APY) of 4.571. This compares to a national average rate of 0.45% (as of 10/21/24). A higher APY, which is a type of interest rate, helps your money grow faster.


5 budgeting strategies for every income level

There are a variety of ways to go about building a budget, and some are more stringent or complex than others.

Decide how much time you can devote to budgeting each month, and select a budgeting method you know you can be successful with.

1. The zero-based budget

Zero-based budgeting involves finding a purpose for every dollar you earn. You start by subtracting your necessary expenses from your income. That includes budgeted amounts for things like groceries as well as your car payment, rent or mortgage payment, and utility bills.

Next, move on to your financial goals. These might include saving for retirement, getting out of debt, or funding a major purchase. With zero-based budgeting, you’ll allocate money to each goal.

Everything left can be used for the things you enjoy but don’t necessarily need. Essentially, this is your budget for dining out, entertainment, and shopping.

Zero-based budgeting ensures you never overspend, but it also requires frequent maintenance. If you need to overspend in one category because of an unexpected expense one month, the rest of your budget needs to be adjusted unless you can use the leftover income to cover it.

2. The 50/30/20 budget

The 50/30/20 budget requires you to allocate money to just three separate categories, like so:

  • 50% of your income for necessities
  • 30% of your income for discretionary spending
  • 20% of your income for saving

Although this is super simple, it will only work if 50% of your income will cover your essential bills. If it doesn’t, you may have to make your own version of the 50/30/20 budget.

For example, you might decide that only 15% of your income should be reserved for nonessentials, like dining out. You may also want to consider adding a category for charitable giving.

You’ll want to keep the 20% savings goal relatively fixed, however. This may mean you’ll have to find some ways to trim your budget.

3. The 80/20 budget

The 80/20 budget is an even simpler version of the 50/30/20 budget. It involves putting 20% of your income into savings (emergency fund, retirement account, future purchase goals, etc.) and spending the other 80% on everything else.

This budget works well with the pay-yourself-first rule of budgeting that many financial planners recommend. Every time you receive a paycheck, put 20% of it into savings. You’ll be able to spend only what’s left over.

It can also help to automate your savings through automatic contributions to your retirement account and automatic deposits into a high-yield savings account.

4. The envelope budget

Envelope budgeting requires the most effort but gives you the greatest level of control over where your money goes. If you tend to live paycheck to paycheck or spend more than you earn, you could benefit from this type of money management.

Envelope budgeting is traditionally a cash-based system. It’s similar to the zero-based budget but involves setting spending caps for every category, even discretionary spending categories. It can be great for beginners since it teaches the basics of budgeting.

You start by adding up your income and subtracting any fixed monthly bills. If you have quarterly or annual bills, don’t forget to include the monthly amount for these. You’ll also choose an amount to save each month and subtract that.

All the cash that’s leftover should be divided into envelopes labeled with various spending categories, such as:

  • Groceries
  • Clothing
  • Household items
  • Personal care items
  • Dining out
  • Entertainment
  • Gas
  • Pets
  • Gym membership
  • Child care
  • Giving to charity
  • Miscellaneous

You should track your spending and keep a record inside the envelope. When the money's gone, you can no longer spend in that category. If you have money left over in any of your envelopes at the end of the month, deposit it into savings or add it to one of next month’s envelopes.

If this sounds like a great way to stay on track, but you don’t want to use cash, you can use a budgeting app that works similarly. That way, you can still take advantage of credit card rewards. You’ll just need to hold yourself accountable for sticking to your spending caps in each category.

5. The bare-bones budget

This monthly budget is ideal for someone who wants to join the FIRE movement and retire early. It can also work for someone who needs a low-income budget after losing a job and needing to adopt a frugal lifestyle or who is drowning in debt or on a tight budget.

It’s very simple: You only buy absolute necessities. You pay your rent or mortgage, utility bills, car insurance, health coverage, and other fixed or variable expenses you can’t avoid. You buy only the groceries, household items, and personal care items you can’t live without. And anything left over goes to savings and paying off debt, such as credit card payments, medical bills, and more.

This is also sometimes called a spending freeze, and it can be helpful during times of financial hardship or while trying to achieve a lofty financial goal.

5 budgeting apps to help you stay on track

Depending on your financial situation, a budgeting app could be worth considering. When used wisely, budget apps can help you avoid overspending. And the best part? You can track spending right from your smartphone, which makes these solutions more convenient than traditional budgeting software.

Here are five great options for your personal budget. You can also check out more options in our guide to the best budgeting apps.

  • YNAB (You Need a Budget)
  • Goodbudget
  • Dollarbird
  • PocketGuard
  • Mint

1. YNAB (You Need a Budget)

YNAB combines the concepts of zero-based budgeting and envelope budgeting with a digital budgeting platform that’s available for web, iPhone, Android, iPad, Apple Watch, and Alexa.

You manage cash flow by assigning every dollar you get to a spending category, and it’s easy to make adjustments as you go. It also makes it easy to share your budget with your family.

YNAB costs $14.99 per month or $99 per year, but you can try it free for 34 days, and the average user that is new to budgeting saves $200 in the first month.

Learn more in our full YNAB review.

2. Goodbudget

Goodbudget is a spending tracker based on the envelope system. You digitally allocate your income to different spending categories, and you can share your budget with your partner as well, which makes it simple to track your cash flow as a family.

Goodbudget is available on the web and for Apple and Android. There’s a free plan that comes with a limited number of envelopes and only one account on two devices, and there’s a premium version that costs $10 per month or $80 per year.

3. Dollarbird

Dollarbird is a calendar-based budget app that’s perfect for tracking your spending prior to creating a budget or for keeping track of a 50/30/20 or 80/20 budget. Because you enter every expense manually, it forces you to always have an eye on your finances.

You can add past, future, and recurring transactions and categorize them. You also add your income as you receive it. Dollarbird keeps a running total of how much available cash you have, so you won’t be tempted to overspend.

There’s a free version for individuals, but if you want to collaborate with multiple accounts, you’ll need to purchase Pro. It’s $4.99 per month or $39.99 per year. It’s available on the web and for Apple and Android.

4. PocketGuard

PocketGuard is a free budgeting app. It keeps track of your upcoming bills, automatically categorizes your spending, and connects all your accounts in one place.

It’s an easy way to keep track of your net worth, and there’s even an autosave feature to help you grow your savings. PocketGuard Plus provides more features for $12.99 per month or $74.99 when billed annually. PocketGuard is available for iPhone and Android.

5. Mint

Editor's note
In October 2023, Mint, the popular budgeting app, announced it'll shut down in January 2024. The parent company, Intuit, which acquired Mint in 2009, announced that its other service, Credit Karma, will integrate the functionalities of Mint. Stay tuned for further updates as the revamped tool becomes available to the public.

Mint is a personal finance app that securely connects to your credit card and debit card accounts so you can get a comprehensive, real-time overview of your spending. You can even track your investments and outstanding loans, so you can tell at a glance if you’re above or below water.

Mint also automatically tracks your spending by category to help you identify where your money is going. There’s a web version, and it’s also available for iOS and Android. Mint is free to use.

FAQs about budgeting

How do you start budgeting?

One of the best ways to start budgeting is by reviewing your monthly income and expenses, which may include looking over bank accounts and credit card payments. This will give you exact numbers on the amount of money you have coming in and how much money is going out.

In addition, you’ll know what your money is being spent on. Once you have everything tracked, you’ll know where you can cut expenses and what adjustments need to be made to your spending plan.

What’s the 50/30/20 budgeting rule?

The 50/30/20 budgeting rule is an important budgeting tool that separates your budget into three categories: necessities, discretionary spending, and savings. According to the 50/30/20 rule, these are the percentages of your income that should be allocated to each category:

  • Necessities: 50%
  • Discretionary spending: 30%
  • Savings: 20%

Separating your income into these three budget categories can help increase your overall financial health as you work toward building your savings without going overboard on unnecessary spending.

What's the best budgeting app?

The best budgeting app is the one that most aligns with your financial goals and lifestyle. Each budgeting app has different features, so it makes sense to find one that works for your unique situation.

For example, Rocket Money can help you set savings goals, find and cancel unwanted subscriptions, and negotiate expensive bills for you. But if you want automated savings dictated by your spending habits, Oportun may be the better option.

Whether it’s to save for a down payment on a house or work on a debt repayment plan, comparing budgeting apps can help you find the best one for your needs.

Budgeting 101: bottom line

Creating and sticking to a budget is essential for achieving financial stability and long-term goals. It can help you avoid living month to month and take better control of your finances. 

By following these six steps — reviewing your monthly income, listing your monthly expenses, tracking your spending, setting goals, making a budgeting plan, and tracking and reviewing your budget regularly — you can gain a clear understanding of where your money is going and where you can make adjustments to improve your financial picture. Remember to budget money without making your process complicated.

Additionally, putting extra money in a high-yield savings account can help you grow your savings effortlessly. 

You can also use free and paid apps to simplify the whole budget creation process. Find out more in our list of the best budgeting apps.

Author Details

Lindsay Frankel

Lindsay Frankel is a Denver-based freelance writer who specializes in credit cards, travel, budgeting/saving, and shopping. She has been featured in several finance publications, including LendingTree. When she's not writing, you can find her enjoying the great outdoors, playing music, or cuddling with her rescue pup.

Author Details

Yahia Barakah, CEPF

Yahia Barakah, CEPF, has created finance-focused content since 2011. As a Certified Educator of Personal Finance, he has a background in institutional investment and asset management, as well as a deep passion for financial literacy.