How to Budget: A Beginner’s Guide to Monthly Budgeting

I just want to start this by saying that I really think that the word budget should be spelled with a J and not a G. The more I thought about this, the more I thought about that weird spelling and I just think English is weird.

Hey guys, today we are talking about how to make a budget.

This is going to be a beginner’s guide to budgeting, so if you are brand new to budgeting, maybe you’re living in college, maybe you’re living on your own for the first time, maybe you just want to clean up and control your finances a little bit more lately, this is hopefully going to be the for you.

I want to do a really high level basics coverage on how to build a budget, how to track your spending, how to decide where your money should go, all that good stuff I’m hoping to cover in this.

And if you guys want me to go more in depth on budgeting one day, maybe even go into my own personal budget, let me know in the comments below. I really like to hear what you guys say and what topics you want me to cover in the future.

Why You Need a Budget

So I’ve talked about budgeting in my last couple of s and for good reason. Making a budget is such an important step in being able to control your finances.

If you don’t have a budget, it’s easy to not know where your money is going, so you can fall into habits of overspending, spending your money willy-nilly, and then suddenly it’s the end of the month and you don’t have enough money for rent or groceries, which is not a good situation.

We don’t want that, so let’s avoid it.

To make sure that you’re covering all your expenses every month and that you don’t go woof of Wall Street on your wallet, you need a budget.

But you probably knew that already. That’s like why you’re here. Some kind of speaking the obvious, but I gotta, I gotta transition into this somehow, you know?

How to Make Your Budget

So here is how to actually make your budget.

I like to use a spreadsheet online for my budget. I personally use Google Sheets, but you can also use something like Excel.

I actually made a Google Sheets template for you guys to use. The link is in the description below, completely free. When you click on the link, it should make an automatic copy for you guys.

I’m going to walk through that template that I made and hopefully it can be helpful for you guys too.

You don’t have to use it, but it can be a really good starting place so you can start thinking about your budget, and then you don’t have to create a spreadsheet of your own.

Start With Your Yearly Income

The first thing you want to do is put in how much you’re making on a yearly basis.

So I put a little section here in the yellow box. That’s where you’re going to add it. I’m putting in 50,000 here because that’s the average amount of money that a recent college graduate makes coming out of college. That’s redundant, but fifty thousand dollars is the amount we’re going to work on.

So we have fifty thousand dollars.

The green box is below, so the based on your yearly salary piece, those are getting auto populated. I added formulas in there so you don’t have to worry about it. It’ll do all the math for you, so you can look at the numbers but you don’t have to play with the numbers at all.

And let me mention that I make my budget into monthly budgets rather than a yearly budget because yearly budgets are just a little too big picture to really be able to think about where your money’s going in a really thoughtful way.

Being able to do it month to month is a lot easier. You’re able to check in with yourself a lot more and focus on like where you’re exactly spending your money.

That’s why I do monthly. I really encourage you to do monthly as well.

Pre-Tax Income vs. Post-Tax Income

So when we look at the green bubbles there, we have the monthly pre-tax income.

So if we divide 50,000 salary by 12, you get the 41.66 number. That’s a lot of money, but don’t get too excited because that is going to be your pre-tax income.

That’s not the money that we can actually use for our budget because taxes haven’t been taken out of that.

You can’t make a budget off of a pre-tax income because then you’re going to try to be spending money that the government’s going to be getting. You won’t even be seeing that money, so why would you make a budget on it?

So if you see right below the monthly pre-tax income box there is a tax rate box.

If you don’t know your tax rate, you can use this little calculator that I linked out there. Again, this is for Americans, so if you’re not American you might have to go find a different tax calculator, but that calculator should give you a pretty rough and good idea of what your percentage tax rate is.

Whatever that tax rate is, and you’re going to want to focus on the effective tax rate, you’re going to add it into this box here for the 15.

So I guess I lied before. You do have to fill out the 15 piece. It’s not auto calculated.

Maybe I shouldn’t specify that. Okay, I changed that now. You guys are going to see something different if you open up this spreadsheet. You’re seeing changes in real time.

But yeah, so the tax rate is something that you’re going to want to change there because your tax rate might not be 15. It might be more, it might be less.

I’m just putting 15 here. I’m not actually sure if that’s the tax rate for 50,000 salary. Let’s just do it for the example. So 15 tax rate.

Now your post tax income, so the money you have after taxes, is 3,541. So that’s the money that you can use to actually make your budget.

As a recap there, your pre-tax money, that is not the money you’re gonna make your budget on. That’s just your salary divided by 12.

Then after you take out taxes, you have a post-tax money and that’s the money you can make the budget on.

And if you’re employed by a company, you’re most likely having these taxes already taken out without you even having to think about it. So whatever money you have hitting your bank account has usually already been taxed.

If you’re self-employed on the other hand, so you’re doing something like freelancing, then usually you have to pay taxes later on. So you want to make sure that you’re not spending that money accidentally.

That’s a little in the weeds though. I want to move on so I don’t get like stuck to in the details, you know?

The Three Main Budget Categories

All right, so now what we’ve figured out how much money we have to play around with, it’s that post-tax money of 35 41 that we mentioned earlier.

Now we have to figure out where to actually put the money. What are the buckets of our life that we’re going to put this chunk of change?

A good way to divide your budget is in these three buckets of:

• Essential spending
• Discretionary spending
• Savings

You can see that I’ve color coded the essential, discretionary and saving buckets, and I put down here just examples of each types of those spending.

So you’re welcome to change this in your own budget, but things like housing, utilities, debt payments, so that’s going to be in the essential spending category.

Discretionary spending, you have things that are luxuries, things you don’t necessarily need to be spending money on, but they can make nice, they can make nice a life better is what I was about to say. They can make life a bit nicer.

That’s what I meant.

Yeah, so things like dining out, going to the movies, going to see a Broadway show, traveling, shopping for new clothes. All of these things are things that you don’t need to spend money on but again it can be really fun to spend money on.

So that’s the discretionary spending budget.

Then you have your savings.

And if you guys have watched my past two s, you know that I’m really an advocate for saving money.

I think you need to be saving at least a little bit of money every single month, even just to get into the habit of it.

Maybe you have a very, very tight budget. You’re not making a lot of money. Even if you’re just saving like ten dollars a month, it’s just being able to get into the habit of setting money aside.

Ideally though, you are saving a lot more than that, and you can just keep on increasing your savings as your income gets more, as you lower your expenses, all of that.

So that’s a really important part of the budget as well.

The 50/30/20 Budget Rule

So I’ll be honest, this is the point in budgeting that can get pretty confusing because now you have to decide where you’re going to put your money.

There’s a lot of different options, and the tighter your budget is, the harder these decisions are going to be.

That’s where I want to bring up my 50/30/20 rule that I skipped over earlier.

So let’s talk a little bit about that.

A very popular rule people use when thinking about where to allocate their money for a budget is this 50/30/20 rule.

So the rule says that:

• 50% of your budget should go to essential spending
• 30% of your budget should go to discretionary spending
• 20% of your budget should go to savings

So as you guys can see in this budget template that I made, I created a little section called the 50/30/20 budget guide.

It auto calculates it for you, so based on what this monthly post tax income is, it’ll break that down.

You can see the formulas here. It’ll break it down from 50/30/20.

So that is, if you were going to follow the rules of the 50/30/20 rule, that is the amount that you should be dedicating to each of the buckets.

And then from there you can take that estimated number and you can make sure that you’re dividing it properly in the larger budget with all the little expenses.

Can you guys hear them mowing the lawn? Mowing. I bet you can. They’re just pumped about budgeting.

So yeah, that’s the 50/30/20 budget guide and really it should help you then be able to divvy up where your money is going within those essential discretionary and savings buckets.

And it’ll also really help you in my opinion, just this is what budgets do in general, helps you figure out where you maybe need to trim the fat a little bit.

Having it all written out in a budget is one of the amazing things about a budget. It really helps you think about your spending and be really thoughtful and intentional about how you’re controlling your money.

So I think the 50/30/20 rule is a really good place to start. It’s a really great way for people who have not thought about budgeting to start thinking about budgeting and how they want to allocate their money.

You Don’t Have to Follow the 50/30/20 Rule

But I will be honest, I do not follow the 50/30/20 rule.

I think it’s way too little on the savings percentage. There’s a good chance that you could be saving way more than 20, and I think discretionary spending of 30 is a lot.

Maybe that’s just because I’m a cheapskate and a bit of a, you know, I’m a minimalist. I’m very frugal.

So I’m not out shopping very often. I’m not a huge foodie, so I’m not going out dining out all the time.

I just think 30 of your budget being to discretionary spending is a lot, and I think if you’re spending that much or even more than that possibly, stand back and think about other ways to enjoy yourself that might be a little cheaper.

Maybe that sounds like kind of an old person like don’t eat avocado toast. I just think it’s a lot of money like to be spending a thousand plus dollars in this budget example on just like movie tickets and and traveling every once in a while and eating out. That’s just so much money to me.

And I’ll give you guys a peek into like what my own budget is.

So I did the numbers. Let me look.

So my personal percentage breakdown is closer to:

• 32% essential spending
• 8% discretionary spending
• 60% savings

So as you guys can see, I really focus on my savings rate.

There’s definitely a good chunk going to essential spending, but I just don’t spend a lot discretionary and I don’t have a lot reserved in my budget for discretionary spending.

But I still feel like I have a very enjoyable life right now.

I’m out traveling. I’m in London at the moment for the next couple of months and been enjoying myself and going out to eat and doing fun things with friends.

But still my discretionary spending is only eight percent. That I think just is chalked up to being really frugal, being really thoughtful about where I’m spending my money.

That was a long-winded way of saying start with the 50/30/20 rule, but don’t feel like you have to do that.

Think about where you want to spend your money and if you can change that because if you can get your savings rate up higher it means so much more control and freedom in the future.

Filling Out the Budget

Okay, so that was a lot of information.

I’m going to really quickly just fill out some random things in this personal budget, some fake expenses, so you guys can see what it looks like when it’s all added up and how to use this budget template a little more.

Okay, so I just added some random numbers.

I actually have a lot of money left over even though I based a lot of these numbers on my own expenses, not perfectly my expenses but like very close to what I’ve spent in the past.

Like you’re seeing here, there’s still so much room.

Like I don’t know how you can spend, what is it that we have here, that we could do a thousand and sixty two dollars on discretionary spending.

I guess you could do like another trip to 250, entertain, and maybe entertainment 200.

Even then that’s not reaching 30. I just don’t think that you need 30 discretionary spending.

I’m very against that.

And then savings we have 800 which is already over the 20, so let’s just put the rest of the money honestly in savings because that’s more my style and I’m hoping that’ll be more other people’s style.

So let’s actually put 300 in the emergency fund.

Let’s say we’re saving for a house. Let’s do 300 there as well.

And then how much money do we have left over?

We have 61.67 cents left over, so let’s just do boom.

We now have a total budget that fits our post tax income. There’s no money left over.

And now you can see the total essential, total discretionary, and total savings amount.

How to Track Your Spending

With that, let’s move on to our next section: how to track your spending.

Tracking your spending can be really helpful when building a budget because it can give you a sense of what you’re normally spending already.

It can also help you make sure that you’re following through with your budget and meeting the spending goals that you’ve set for yourself.

My recommendation is to actually get a spending tracker app put on your phone.

There’s tons out there for free, so you don’t have to spend any money on it.

I’ve used Mint in the past. That one gets automatically connected to your credit cards and your bank accounts, so it’ll automatically do it all for you when you’re spending money.

And then it’ll divide it into different sections kind of like you see in the budget here.

But the one that I’ve used the most in the past is just a manual tracker. I use the app Spendy.

I think it also can automatically do things with your bank account and your credit cards, but I really liked the manual function of it because it forced me to actually kind of come to terms with the fact that I was spending money every time I used my credit card or withdrew money from my bank account.

Basically I was that annoying person after lunch out with a friend. I would like grab my phone and take whatever the cost of the lunch was and the tip that I had and I would manually input it in and then I would say it was for dining out.

I put a little note on there that way I could look back at it later and it just forced me to, yeah, come to terms with the fact that I was spending that money.

Kind of feels like it helped me be a little more frugal and just get into the habit of thinking about my budget when I was spending money.

That was my personal method. It does not have to be your method.

Honestly, it’s probably not the most efficient way to track your spendings.

Probably the best recommendation would just be to go with something like Mint or even the Spendy thing. Just do the automatic version of it where it does it all for you in the background and then at a later point you can go and check your spending.

Almost all the options when it comes to apps will break it down to like essential spending, housing, dining, all these different categories or buckets, which makes it really easy when you want to go think back to what your budget is and what your goal areas of spending is.

Monthly Financial Check-In

Once you’ve gotten into the habit of tracking your spending all the time, you’re going to want to set aside time to actually check over those finances and see how you’re doing.

It’s kind of like a little financial health check.

I would recommend doing it at least once a month, maybe at the end of the month.

Done all your spending, you can look back at what you’ve been spending, compare it against your ideal budget that you’ve made previously, and then figure out where you are doing good things and where you’re doing bad things.

Maybe you notice you’ve been spending so much money on dining out and you realize it’s because every lunch break you go to the restaurant next door.

By having that information you can make a decision a little bit easier.

Like maybe you need to be packing your lunch every time instead of eating out.

But yeah, these little financial health check-ins every month are a really helpful way to make sure you’re on track, you’re meeting your financial goals.

You can figure out if you’re doing a good job or not and then you can also do some adjustments.

I mean, a budget is a fluid thing. It doesn’t have to stay the same.

That’s why I like a monthly budget rather than a yearly budget because your life changes within the span of a year.

Final Thoughts

All right, so I’m going to end it there because at the beginning of this I mentioned how I wanted this to be basics, beginner’s guide to budgeting.

I feel like a few times I went a little into the weeds there, into the details, but hopefully it was still really understandable and helpful and clear to anyone who’s new to budgeting.

If you guys have questions about anything that I mentioned in this or if you have any ideas for future topics that you want me to cover in another, let me know in the comments below.

I’m really interested to hear what you guys have to say and I’m curious to see where you guys are with your budgeting journey.

Thank you guys so much for watching. I really do hope this was a helpful.

I think I’ve mentioned this in so many s already, but I just think it’s such an important part of personal finance and good money management.

So I really hope this is a helpful way to get started with budgeting so that you start feeling comfortable managing your own money.

All right, thanks again for watching. If you like this, please give it a big thumbs up and feel free to subscribe for new every single week.

Have a great day. Bye.