Budgeting 101: Budgeting Tips for All Income Levels

Everyone should have a budget, and that includes you. Here’s what you need to know to get started.
Last updated Nov. 30, 2021 | By Lindsay Frankel
Couple building a budget

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More Americans are realizing that budgeting 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 actively learn how to manage your 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 we’re here to tell you that 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’s how to save money without the headache.

In this article

3 steps for creating your budget

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 loans 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. You can do this manually with pen and paper, set up a spreadsheet, or use a budgeting app (we’ll discuss these in greater detail later on).

5 best budgeting styles to consider

There are a variety of ways to go about building a budget, and some are more stringent or complex than others. You should decide how much time you can devote to budgeting each month, and select a plan you know you can be successful with.

  • The zero-based budget
  • The 50/30/20 budget
  • The 80/20 budget
  • The envelope budget
  • The bare-bones budget

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/mortgage, and utilities.

Next, move onto 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 some money to each of these goals.

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 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 leftover. 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. 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
  • Fitness expenses
  • 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 leftover 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, someone who has lost a job and needs to temporarily adopt a frugal lifestyle, or someone who is drowning in debt.

It’s very simple: you only buy absolute necessities. You pay your rent/mortgage, utility bills, car payment, health insurance, and other expenses you can’t avoid. You buy only the groceries, household items, and personal care items you can’t live without. And anything leftover goes to savings and paying off debt. 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 best 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:

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

1. Mint

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. It 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.

2. 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 $11.99 per month or $84 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.

3. 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. It’s 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 $7 per month or $60 per year.

4. 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 $3.33 per month or $39.99 per year. It’s available on the web and for Apple and Android.

5. PocketGuard

PocketGuard is a free budgeting app that works similarly to Mint. 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 is available for iPhone and Android.


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, Truebill 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, Digit may be the better option.

No matter your budgeting goals, 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.

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. These accounts typically offer higher interest rates than traditional savings accounts. If you hoard all your money in your checking account or a traditional savings account, you’ll miss out on the opportunity to accrue interest.

Truebill Benefits

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

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.