Budgeting 101

Do you constantly find yourself running out of money before your next paycheck, having absolutely no clue where it went? Living without a budget is incredibly  and makes managing your money even more difficult. Learning how to set up a budget is key to getting your finances in order so you can start living the life you want with financial security.

A budget is a plan for spending and saving the money you earn. Budgets are financial roadmaps that help you live within your means, cut back on unproductive spending and, best of all, build up your wealth.

A budget can help you make sure you always have enough money to make it through the month. A budget will also show you where your money goes all the time because guess what, with a budget, you tell your money where to go. You are in control of your money, not the other way around.

Personal finance is, simply, the practice of handling money. It encompasses all of an individual’s financial decisions and activities which include earning, saving, spending and investing.

The main aspects of personal finance are income, expenses, budget, savings, debt, investing, insurance, credit and taxes.

Personal Finance


Income is money you receive from working or investing. The most common form of income is a wage or salary you earn when you have a job. Other types of income can include profits, interests, payments, rents and other forms of earnings.


An expense is money you spend in order to obtain a good or service. Expenses fall into two categories: fixed and variable. A fixed expense does not change and is paid on a regular basis such as a monthly loan payment and a variable expense changes each time it occurs such as a grocery bill.


A budget is simply a plan for spending and saving the money you earn. Budgets are financial road maps that help you live within your means and cut back on unproductive spending and, best of all, build up your wealth.


Saving is the action of putting a portion of your income away for a large purchase or emergency. When you save your money you build up your wealth, which will allow you to live a more secure, stress-free life. Every time you receive money, whether it is income or a gift, you should save a percentage before spending.


When you borrow money for large purchase that you could not afford you create debt. It can come in the form of loans, mortgages and credit.


Investing is a form of saving that can make your money grow by putting your money into stocks, bonds and mutual funds.


Insurance is a way to provide protection or security against an uncontrollable outcome. Common forms of insurance are health, life, home and auto.


Credit is a way for consumers to purchase goods or services now and pay for them later.


A tax is an involuntary contribution to governmental revenue. Taxes are imposed on income and added to the cost of goods and services.

Before getting into the budget process I suggest you take a few minutes and look back at your spending for the prior month. This will give you the chance to figure out your fixed monthly expenses, give you an idea of how much money you are spending in what areas, and where to make cuts so you can save more money.

Also, you should decide whether you want to use a manual budget or an electronic budget.

A manual budget is one that you fill in on your own, by hand with pencil and paper or by filling in an excel spreadsheet.

An electronic budget is one you use through a third party like Personal Capital or Mint.

Personally, I use pencil and paper. I know this sounds crazy but it works for me and I love it. Setting up a budget in your bullet journal or planner is an excellent idea.

You will also want to decide the time frame you will be budgeting for. Whichever is the easiest for you is what you should use – not what someone else does or says is correct. If its easier for you to budget by month go with that, if it makes more sense to go by paycheck then more power to you.

Personally, I go by paycheck because my job pays me semi-monthly and its just easier for me.

Another really important part of budgeting you need to keep in mind is to always look forward to the next period of your budget. Don’t just spend all of the money you get for one period if you will have expenses in the next period your pay will not cover.



You will need to know how much money you have in order to figure out how much you can save and spend.

Calculate and add up all the income you expect to receive this month. Seriously, all of it. Your wages/salary from work, side hustles, rental income, etc. It all needs to be added to the income line. Feel free to add separate categories for each source of income, this is YOUR budget, rock it how you want to!

If you have an unstable income, such as commission-based wages or irregular hours, then I suggest taking a look back at the past 4 to 6 months, figure out the lowest monthly income and use that. If you end up receiving more or less you can go back later to make any necessary adjustments.


These are the expenses that must be paid such as your rent/mortgage, loans, other debt, transportation/gas, food, and water. Think of these expenses as your needs, while food and water expenses can vary, you still need them to live. You can adjust how much you pay by what you can afford.

This is why I suggest tracking your expenses for the prior month. You will have an easier time seeing which expenses are fixed and about how much you are spending on food, water, transportation and other necessary expenses. Trust me, it will make this step so much easier because you will have a good idea of how much you spend versus guessing.


The savings category is absolutely important. To be honest, it’s more important than your wants. You need to be saving money for emergencies, big purchases and your future i.e. retirement. Your savings fund need to be a financial priority. You may wonder why saving money is so important and logically speaking, by saving money for large purchases [vacations, houses, etc.] it keeps you from having to go into debt with credit cards, loans, or mortgages.

Some may argue that saving money could be lumped in with step 2, but it is important enough to merit its own step.


These are the extra expenses that come after your necessary expenses and your saving. They are non-essential expenses like entertainment, dining out, vacations, clothes, etc. that you can live without. They are your wants. The amount you put into this category is based on what you can afford after subtracting your necessary expenses and saving.


Now, you need to subtract your expenses from your income.

If you have money left over that means you are spending less money than you make. Great! You are living below your means and have options. You can adjust your budget by putting leftover income towards lowering debt or straight to your savings.

If you don’t have any money left over or are going into the red that means you are spending more money than you make. This is bad, without a doubt. You are living above your means and heading towards financial destruction. In order to rectify this, you should adjust your expenses or find a way to increase your income. I realize “just make more money” may sound ridiculous but if you are getting yourself into more debt because you are spending unproductively, then you have no choice.

If you are breaking even, then you have just enough income to cover your lifestyle and you are living within your means. However, you are leaving yourself zero margin to cover any emergencies that could occur. As before, your options are to decrease your expenses or increase your income.


Now that you have a better understanding of your financial situation it is time to put your budget into action! Be sure to monitor your budget closely and make adjustments. A good way to fail at your budget is to not make adjustments. Each month is different and your budget needs to reflect that.


The first few months of living on a budget are going to be rough and tough. However, creating a budget will not do any good if you do not follow it. You need to prioritize your money. It is foolish to spend money on things you don’t need when you will not have enough to cover your basic expenses.

When it comes to following a budget the most important thing you need is DISCIPLINE. This is what people struggle with the most. After a while, it will get easier. Saving more and spending less will become a habit.

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