A good budgeting system can make managing your finances easier and less stressful. But making a budget can seem like a daunting task, especially if you’re already swamped with day-to-day tasks and stressed out about money. Luckily, budgeting isn’t rocket science. In principle, it comes down to keeping track of two things: money coming in and money going out

Getting started

To create your budget, you don’t necessarily need anything more complicated than a piece of paper and a pencil. If you want to get a bit more sophisticated, a spreadsheet will allow you to use embedded formulas to do some of the math for you. Online tools and mobile budgeting apps take this a step further with user-friendly prompts, greater automation, and the ability to track your financial goals over time. The key is to choose the method that works best for you.

While there are many types of budget, one of the most common is called the 50-30-20 budget. That simply means 50% of your income will go toward fixed expenses. Thirty percent will go toward variable expenses, and 20% will go to savings. (You can find out more about that here.)

Calculating your income

Whatever method or tool you choose, your first job is to add up all the money you expect to flow into your accounts over the next month. That means how much you expect to get paid after any withholding for taxes. If you earn a regular salary, look at a recent pay stub to get an exact amount. Also, take a look at next month’s calendar if you get paid every two weeks. Will there be two paydays, or three? 

If your income varies from month to month, write your budget as if next month’s pay will land on the lower end of the spectrum. 

Your paycheck may not be your only source of income, either. Remember to include sources of additional income such as seasonal work, freelance projects, alimony, tax refunds or unemployment benefits as well. Include each source of income while creating a monthly budget under its own category and add the estimates together to come up with a total. Here’s an example:

Monthly Income

IncomeAmount
Full-time job $2,038.28
Investment dividends$53.67
Seasonal lifeguard gig$400
Total$2,491.95

Calculating  your expenses

Your expenses for the month will include everything on which you plan to spend money. It’s worth taking your time on this step, because it’s important not to leave anything out. Start with fixed expenses—all the necessary costs that don’t change from month to month, such as your rent or mortgage, loan payments and fixed fees for utilities. Also include any non-monthly payments that will come due in the next month, such as annual insurance premiums.

Next, figure out  the essential variable expenses—all the necessary costs that change based on how much you use them. For example, your electric bill, the amount you spend on groceries and the cost of ongoing medical treatments probably won’t be the same from month to month, but they should fall into a predictable range. Some expenses may also fluctuate from season to season, such as fuel oil or natural gas for heating. In these cases, you may need to hunt down some old statements or receipts to figure out the correct estimates. Just remember, it’s better to overestimate than underestimate these expenses—you want to be sure you can cover the month’s essentials, even under a worst-case scenario.

Finally, add non-essential, or variable, expenses—optional things you plan to spend money on during the month. Include things like monthly subscriptions, gym memberships, restaurant meals, vacation travel and holiday gifts.

After your expenses are accounted for, you can use what’s left over to build savings and make extra payments on loans and credit card debt, or to invest. You may even want to set up  several savings funds, each with its own purpose. For example, you might include one for retirement, another for emergencies and another for large purchases, such as a home or a car. Even though you aren’t technically spending money on these items at the moment, you should consider treating these categories as expenses for monthly budget purposes. You can use Stash’s Spending Cushions feature to set aside those short-term savings for specific purposes. 

Just like you did with income sources, separate your expenses into distinct categories in your budget and add them up. Here’s a sample budget:

Monthly Budget

IncomeAmountExpensesAmount
Full-time job $2,038.28Fixed Expenses
Investment Dividends$53.67Mortgage$740
Seasonal lifeguarding gig$400Student loan$122.84
Total Income$2,491.95Credit card debt payment$100
Garbage fee$30
Essential Expenses
Household supplies$120
Groceries$650
Electric$50
Gas$150
Phone$80
Non-essential/variable expenses
Online streaming$10.99
Books$25
Movies$30
Dining out$200
Savings
Emergency savings$200
Extra student loan payment$100
Total expenses$2,528.83

Balancing your budget

Once you have your totals for income and expenses, it’s time to compare the two numbers. If you find that you’ve got more money going out than coming in, examine your non-essential variable expenses (sometimes referred to as discretionary spending) to find places to cut back. 

On the other hand, if you end up with money left over, your budget can be a handy tool for deciding where that surplus ought to go—and making sure it actually gets there. For example, instead of increasing your discretionary spending, you could consider boosting your savings or making extra payments towards debt. 

In the example above, total expenses of $2,528.83 exceed total income of $2,491.95 by $116.88. To bring the budget into balance, this household needs to find places to cut back on non-essential variable expenses. Dining might be a good target: Dropping the money set aside for restaurant meals to $83.12 for this month would bring expenses under control without giving up on restaurant meals entirely.

Maintaining your budget

Your budget will likely change from month to month, and reality may not always match your expectations. Once you’ve completed your first  monthly budget, you can update it as the month progresses. If you find you’re spending less on gas or groceries, revise that number downward. If you’re hit with an emergency expense, add it to your budget and decide what needs to give so you can fund it. At the end of each month, you can use your existing budget as the model for next month’s budget, making adjustments as necessary.

Using your budget to reduce financial stress

Making and maintaining a monthly budget is a powerful way to bring order to the potential chaos of personal finances. Sticking to a budget makes it easier to save money and pay down debt. It can save you money on things like overdraft charges and late fees by keeping you informed of upcoming expenses. And it can also help you set aside money to invest in single stocks or ETFs, which you can do with Stash, with just a dollar. 

While it may seem tedious, maintaining a budget can help make managing your finances easier and less anxiety-inducing. So grab an app, open a spreadsheet, or sharpen your pencils and start tracking your monthly income and expenses.

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