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Budgeting Tips for Beginners

Budgeting Tips, Ideas, and Advice for Beginners
Emma Diehl
Emma DiehlUpdated February 22, 2023
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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
While budgeting often gets a bad wrap, a budget is really nothing more than a plan for how you will spend your money. It ensures that you will always have enough money for the things you need and the things that are important to you. A basic budget can help you achieve your goals, get out of debt faster, and generally feel less worried about money. Better yet, budgeting doesn't have to be complicated. Whether you’re looking to build your first monthly budget, or want to revise one you already have, read on for some simple tips and tricks that can help you start spending less and saving more.

What Is Budgeting?

A personal budget is a spending plan based on your current income and expenses. It estimates roughly how much money will be coming in and how much will be going out over a certain period of time, such as a month or year. Often, a budget looks at not only how much you'll spend but how you’ll allocate that spending, including how much you’ll siphon off into your savings account each month.You can make a budget using a pad and pen, computer spreadsheet, or budgeting app on your phone. There’s no one way to budget. It can be as simple or complex as you want it to be.

Benefits of Budgeting

Whether you’re struggling to make ends meet or you generally spend well under your means, you can probably benefit from budgeting. Setting up and following a simple budget can help you: 
  • Reach your goals A good budget encourages you to set aside a certain amount of money each month towards your financial goals, whether it's going on vacation, making a down payment on a home, or being able to one day retire comfortably. 
  • Pay off debt faster Once you go through all of your expenses and see exactly where your money is going each month, you may find easy places to cut back. That “found” money can go towards paying off debt.
  • Feel less guilty about spending When you’ve accounted for an expense in your budget, you can spend that money without thinking, “Maybe I shouldn’t.” It’s been factored in — so you can and you should.

15 Budgeting Tips for Beginners

Whether you’re new to budgeting or you’ve tried — and failed — to budget in the past, these tips can help you set up and stick to a plan.

1. Come Up With Your “Why”

Adopting any new habit isn’t easy. To up your odds of success, consider laying out some clear reasons for why you want to start budgeting. Maybe you want to buy a new car or get rid of high-interest credit card debt. Whatever your goals, write them down and keep your list close at hand. This can help keep you on course.

2. Add Up What’s Coming In

There are two basic elements of budgeting — knowing what’s coming in each month and knowing what’s going out. To determine the former, look at your bank statements for the past several months and add up how much you have coming in each month (after taxes). This includes any money you earn from your regular job and any side gigs, as well as any passive income sources.

3. Add Up What’s Going Out

To determine how much is going out each month, look at your bank and credit card statements for the last several months and add up how much you are spending on fixed and discretionary expenses. You can then come with your average monthly spending amount. 

4. Assess Your Financial Situation

How does your average monthly spending compare to your average monthly income? If you find that it’s about the same — meaning you’re spending everything you earn — or that your spending exceeds your earnings, you’ll need to look for places to cut back your spending to free up funds for savings and (if applicable), making debt payments beyond the minimum.

5. Determine Where Your Money Is Going

To understand exactly what you’re spending your money on, look at your bank and credit card statements to come up with your major spending categories, such as rent/mortgage, utilities, groceries, clothing, etc, along with spending amounts. You may also want to put your categories into two main sections — essential and nonessential spending. To find places to cut back, you’ll want to hone in nonessential spending.

6. Track Your Spending

To really understand where your money is going, it can be a great idea to actually track your spending for a month or two. You can do this by writing down everything you spend as you spend, collecting receipts and jotting it all down at the end of the day, or using a budgeting app on your phone (many will automatically track and categorize your spending).

7. Prioritize Your Spending

Once you know where your money is going, you may decide to make some changes. For example, maybe you want to spend less on take-out each month and put more money towards savings or debt repayment. This might simply mean cooking a few more times per week. Or, maybe you’re paying for a streaming service you no longer need or a gym you no longer go to. You may find easy ways to reallocate some of your spending.

8. Choose a Budgeting Plan

There are many different types of budgets. One simple framework is the 50/30/20 budget, which dictates that: 50% of your monthly take-home pay goes to necessities, 30% to wants, and 20% to savings and debt repayment (beyond the minimum). But there are many others — such as the envelope system and the zero-based budget. Explore a few options and try one that sounds like a good fit.

9. Negotiate Some of Your Fixed Expenses

While you may think all of your monthly bills are set in stone, that’s not necessarily the case. You may be able to re-negotiating some of your deals. For example, could you get a better price on your cell phone plan by switching carriers? Can you find a better deal on your auto or home insurance? If you still subscribe to cable, see if they can cut you a better deal to keep you from cutting the cord.

10. Pay Yourself First

Rather than rely on surplus cash at the end of the month to put towards savings goals, consider paying yourself before anyone else. Simply set up a recurring transfer for a set amount from your checking account into your savings account on the day your paycheck clears. Or, you may be able to have your employer split your direct deposit, putting most of it into checking and a small amount into your savings account.Recommended: Checking vs Savings Account Differences 

11. Build an Emergency Fund

An emergency fund gives your budget breathing room. Without a cushion of cash, any unexpected expense or event (such as unforeseen car paint repair costs, medical bills, or a job loss) can derail your finances. And if it leads to credit card debt, it could have a long-lasting negative impact.Consider keeping at least three to six months’ worth of living expenses in a separate savings account to cover the unexpected. If you’re self-employed or work seasonally, you may want to set aside nine to 12 months’ worth of expenses.Recommended: What Are High-Yield Savings Accounts? 

12. Consider a Savings Challenge

To reach your savings goals faster, consider throwing in a savings challenge — such as “No Spend Wednesdays” or a “No-Dining-Out Month” — from time to time.  There are tons of ideas out there that can help make saving feel a little more like fun, and less like sacrifice.Recommended: What Is Cash Stuffing?

13. Prioritize Debt

If you already have some emergency savings in the bank and you’re carrying high-interest credit card debt, you may want to make paying off debt a higher priority than saving right now. The reason is that interest rates on credit cards are generally higher than what you could earn in a typical savings account or even an investment account like your 401(k). Once you knock out expensive debt, you can redirect the money you were paying on interest into savings.

14. Automate Where You Can

Budgeting and personal money management can be time-consuming, so take advantage of automation whenever you can. Consider setting up autopay for all of your regular bills. This way, you won't have to keep track of due dates and remember to pay your bills on time (or get hit with late fees if you forget).

15. Reassess Your Budget Regularly

Over time, your income and expenses may change. You may get a raise, for example, or your rent might go up. You may also have infrequent expenses (like holiday gifts) you never factored into your budget. That’s why it can be smart to periodically look at your income versus your spending and, if necessary, make some adjustments in your spending plan. Recommended: Save Money on the High Cost of Youth Sports

Budgeting With Low or Inconsistent Income

Even if your income is low, you can still come up with and follow a budget. The principles of budgeting — looking closely at what’s coming in and what’s going out each month — are the same no matter what your income.If your income fluctuates from month to month, one workaround is to add up all of your earnings for the last six months then divide that number by six. This will give you an average monthly income to work with when coming up with a budget. If you tend to work seasonally, then you may want to add up your earnings for the last 12 months and divide by 12 for an average monthly income.

Planning a Monthly Budget

To come up with a monthly budget, you’ll want to tally up your average monthly income and average monthly spending and see how they line up.Next, you’ll want to see exactly where your money is going each month, and come up with a game plan for how you’d like to allocate your spending from now on. For example, you may want to cut out an expense you don’t care that much about (like a pricey cable subscription) and put that money towards something you do — like saving for a vacation or a new car. 

How Much Should I Save Daily vs Monthly?

One rule of thumb is to try to put around 20% of your monthly take-home pay into savings — including your retirement plan. That may be a high number if you’re just starting out. You may need to start with putting just 5% into savings and gradually build up that number over time.Once you determine how much to set aside in savings per month, you may want to break it down into a daily saving goal to make it feel more doable. For example, if you’re trying to save $100 a month, that’s a little more than $3 per day.

Common Budgeting Mistakes 

For the best chance at success with budgeting, try to avoid these common pitfalls. 

Spreading Yourself Thin

If you set your saving goals too high, or your spending limits too low, you may find budgeting too difficult and simply give up. It’s generally better to start with small, doable changes in your spending habits at the beginning. You can always adjust your budget to save more later. 

Not Leaving Room for the Unexpected

If you don’t have an emergency fund, any unexpected expenses could immediately derail your budget. To avoid this problem, you might want to make building an emergency sayings fund a top priority in your budget — over paying down debt or saving for other goals.

Not Budgeting Based on Net Income

Net income is a person’s take-home pay. Gross income is someone’s total pay without taxes taken out. When developing a budget, you’ll want to use net income, since that’s the amount of money that actually hits your account come payday.

The Takeaway

Creating a budget isn’t one size fits all. But the right budgeting advice can set you on a path toward less stress and more financial freedom. While budgeting requires some upfront work and determination, following a budget can give you the tools to make better money decisions in the long run. 

3 Money Tips

1. Checking accounts are ideal for everyday transactions but earn little or no interest. Savings accounts are better for storing and growing your money — they earn higher interest but often restrict how many withdrawals you can make per month.2. Because online banks don’t have the overhead costs that brick-and-mortar banks have, they may offer a higher savings account interest rate. Just keep an eye out for minimum balance requirements and monthly fees.3. To get into the savings habit, consider having 10% of your paycheck directly deposited into your savings account. Or, set up a small automatic recurring transfer from your checking account into your savings account on the same day each month.Lantern can help you compare online savings accounts and find today’s best rate.

Frequently Asked Questions

How do you plan a monthly budget?
How much should you save a month?
What are the qualities of a good budget?
Photo credit: iStock/Ridofranz
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About the Author

Emma Diehl

Emma Diehl

Emma Diehl is a nationally-published journalist with expertise in finance, real estate, and technology. Her work has appeared on NPR, The Huffington Post, Technical.ly, and numerous local publications. When she's not covering the world of personal finance with SoFi, she's probably rollerblading or planning her next meal.
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