Budgeting for Beginners: Your Savvy Guide to Creating a Budget

Setting up a solid budget and staying on top of it is the key to taking control of your finances. We know this task can feel daunting. That’s why we’ve created a guide with easy to follow steps you can take to start managing your cash flow, even if you’re new to budgeting. The guide below is based on a recent Budgeting Basics and Family Finances webinar led by our very own Savvy Volunteer Valerie Malter. You can watch the recording here and also download our FREE budgeting spreadsheet here!

What is a budget?

Let’s start from the basics. Budgeting is managing your personal cash flow: understanding where your money is coming from and where it’s going. As Savvy volunteer Valerie Malter explains, “a budget is your personal profit and loss (P&L) statement. You can think of your income as revenue and your expenses as loss just like any business does.” And like any healthy company, your yearly income minus your yearly expenses and savings should equal zero, to make sure you’re not overspending.

Annual Income – Annual Expenses = Cash Available for Savings and Investing

Income – (Expenses + Savings) = 0

When setting up your budget, you must take into account not only monthly expenses, but also yearly ones. Some expenses are fixed and happen monthly, but some, like taxes or car and homeowners insurance, are charged only once or twice a year.

How to budget your money

1. Calculate Your Income

Get a clear picture of what your spendable income is. Include all your sources of income you may have, such as:

  • Salary
  • Bonus
  • Commissions
  • Alimony/Child Support
  • Social Security
  • Interest/Dividends

Make sure to subtract taxes from your income to make sure you’re only budgeting your disposable income, meaning the amount you can actually spend or save.

2. Understand Your Spending

How are you spending your money monthly and yearly? List your expenses and group them in broad categories. There are many opinions on how much money from your budget you should allocate to each one of these groups. The ranges below vary depending on many factors like income level, place of residence, cost of living, household composition, etc. But they can offer you a general guideline to get started.

Approximate expenses distribution:

Housing 25-35%
Transportation 10-15%
Food 10-15%
Personal Spending 5-10%
Utilities 5-10%
Insurance 10-25%
Medical & Healthcare 5-10%
Saving, Investing & Debt Payment 10-20%
Total 100%


Once you’ve listed these broad categories, go into detail and create subcategories. As you drill down, be as detailed and thorough as possible and don’t leave any category out. See examples below:

Category Examples of Subcategories
Housing Mortgage payment

Property taxes

HOA dues

Home maintenance


Transportation Car payments



Car maintenance

Public transportation


3. Allocate Income to Your Spending Categories

Now that you have a clear idea of what your expenses categories are, it’s time to prioritize them and allocate a budget for each one of them. Start by identifying those expenses that you can’t live without or have no choice about, like rent, groceries or health insurance. These are things you need but have less control on.

Once you’ve allocated money for your needs, you can move on to your wants, based on the available income. It’s essential to reconcile your own personal situation and prioritize what is really important for you. Make choices and be realistic in terms of what you can afford. 

This distinction can be made within each one of the spending subcategories. Every one of these categories contains both non discretionary expenses (those you need in order to live) and discretionary expenses (those you want to have). It’s up to you how to allocate your income for all discretionary expenses, how often to make these purchases, or whether you should swap a high cost discretionary expense for a lower cost one. Always keep in mind: every decision has financial implications.

Understand Fixed vs. Variable Expenses

Every budget has both fixed and variable expenses. Fixed expenses are recurring expenses, which largely remain constant, like rent, mortgage payments, school tuition, health insurance, etc. They usually take up most of our budget, and it’s essential to keep them as low as possible to allow flexibility for variable costs–which are harder to control–and savings.

Variable expenses, on the other hand, fluctuate month over month, and are often unpredictable. This type of expenses includes those that happen every month, but vary in amounts, like groceries, gas, and personal care expenses, as well as those that happen sporadically throughout the year, such as a vacation. This group also includes unpredictable, unanticipated expenses, like an unexpected car repair, that can wreak havoc in your budget unless you’ve left a little bit of wiggle room for them.

Read more about fixed and variable expenses.

The 50/30/20 rule

Following the 50/30/20 rule can help you make sure you leave room for savings in your budget:

  • Fixed costs that stay the same month after month, such as your rent or mortgage, car payment, and cable bill, should take up 50% of your income.
  • Variable costs that can change from month to month, such as entertainment, groceries, and clothing, should take up 30% of your income.
  • Savings should take up 20% of your income.

By setting a fixed amount to your variable costs, you are in a way turning them into fixed costs and making sure they don’t bump your total expenses over your income.

4. Set a Savings Goal

AKA, pay yourself first: you need to save some of your money before you spend it. Every budget must include a plan for saving and/or investing. In order to set your savings goal, you need to decide what you’re saving for, and how much you need to save for that. Saving for a rainy day fund is essential, to be prepared for the unexpected. Think of other goals you want to save for, like children’s education or a home down payment, and allocate specific amounts for them.

There are many different ways to make sure saving and investing is contemplated in your budget:

  • Contribute to your company’s 401K plan to the maximum. Most companies will only match your contribution if you contribute the maximum amount.
  • Set up an automatic savings plan to transfer a fixed percentage of your paycheck in a bank or brokerage account every pay period. 
  • Save your entire bonus, if you receive one, and only spend money you earn from your salary.
  • Open a 529 plan to save for your children’s education. These types of savings accounts offer tax benefits when the funds are used for education purposes.

For more tips on how to save more money every month, watch the Savvy Ladies webinar Pay Yourself First: The Power of Saving and Budgeting, by Allyson F. Skinner.

5. Track and Update Your Budget

What is the best tool to implement, track and update your budget? The answer is simple: whichever works for you. Like Valerie says: “Budgets are like diets: the best one is the one you’ll stick with.” Below are different tools you can try:

  • Online Budgeting Apps: There are many online tools you can use to help manage your money. While these are very practical, especially if they integrate with your bank, all of these cost money and they offer little that you can’t do yourself on a spreadsheet. Some examples of budgeting apps to review are listed below. Make sure to review each of the monthly costs they charge and add that cost to your monthly budget spend.  Some options are:
    • YNAB (You Need a Budget)
    • Simplifi by Quicken
    • Mvelopes
    • Goodbudget
  • Budgeting Worksheet: You can very easily map and track spending using a spreadsheet. Download the Savvy Ladies FREE budgeting worksheet here. The spreadsheet calculates total amounts automatically and is easily customizable. Instructions and a printable PDF version (in case you prefer to fill it by hand) are included as well. Be sure to try this method before you purchase any app membership!
  • Envelope System: In this cash-based approach, you can allocate funds for each spending category by placing actual cash in separate envelopes. This method helps avoiding overspending, however, it does require a lot of effort.

Whether you prefer the envelope system, a spreadsheet or a budgeting app, just make sure to check in regularly with your budget and keep it updated.

Tips for Budgeting Beginners

  • What you don’t save, you can spend. When outlining your budget, always have this motto in mind: “what you don’t save, you can spend”, and never the other way around. Saving should be prioritized over spending: you should first establish how much you need to save in order to determine how much you have available to spend.
  • “Find practical ways to make necessary cuts. Small cuts to your budget can save you a tangible amount of money while not impacting your lifestyle too severely.” More tips from ​​Carly Lance on how to be realistic when budgeting here
  • Use the same credit or debit card for all your expenses for a few months, suggests Valerie Malter. That way you can get an overview of your expenses by downloading a spreadsheet of your monthly credit card bill. Just make sure the card you choose has good cash back or points benefits.
  • “Just go one paycheck at a time. Create your budget and then focus on sticking to it for one pay period only.  If you accomplish this, then reward yourself on your next Pay Day with something that makes you feel really good,” says Jillian Beirne Davi. Read more about her budgeting approach here.


Have questions on budgeting? Get matched with one of our expert volunteers for free financial mentoring. Contact our helpline today!

Watch the Budgeting Basics Session by Savvy Volunteer Valerie Malter:

Get your financial questions answered.

Visit the Savvy Ladies Free Financial Helpline. 

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