Budgeting for Beginners: Get Control of Your Money

Budgeting is an important financial habit, but it can feel overwhelming if you’ve never done it before. You may not know the best budgeting method or how to budget, but take heart. In this easy-to-follow guide to budgeting for beginners, you’ll learn the ins and outs. In just a few minutes, you’ll know how to make a budget that puts you in the driver’s seat.

Budgeting for Beginners: The Basics

The first step to budget planning for beginners is to get an idea of what a budget is. At its most basic, it’s simply a financial plan. When you first make a budget, you determine where you want your money to go.

The budgeting process starts with finding your net income. After that, you list all of your fixed expenses (regular monthly expenses) and decide how much to spend on flex expenses (any expenses that vary in cost). Next, you estimate your non-monthly expenses (expenses that are not planned or may happen at different times during the year). Finally, you plan how much of your income to put toward financial goals.

Here’s an example of budgeting for beginners:

That’s the basic idea behind managing money for beginners. Let’s dive into more detail on each step.

1. Find Your Net Income

Your net income is the portion of your paycheck that you get to use after deductions for taxes, Social Security, and contributions to employer-sponsored retirement plans.

Net income is less than your gross income, which is your full pay before those deductionst. To make an accurate budget, you need to start with your net income to see how much money you have available.

You can figure your net income by checking the amount that gets deposited to your bank account each pay period. Calculate both your weekly and monthly net income, as both are helpful when you make a budget.

If you have 1099 income (gig work, online selling, etc.), then your gross income will be the amount that gets deposited, not your net. If that kind of work produces enough income that you want to include it in your budgeting, then you need to consult with your CPA to estimate how much you need to set aside for taxes.

Here’s a simplified net income example:

2. Manage Your Expenses

There are three primary types of expenses: Fixed expenses, flex expenses, and non-monthly expenses. Here’s what they are and how to manage them.

Fixed Expenses

Fixed expenses are the costs you pay on a regular schedule. They normally cost the same or about the same each time you pay them. You can put these expenses on autopay, and they usually don’t require any decision-making on your part. Examples of fixed expenses include:

• Mortgage

• Rent

• Utilities

• Minimum debt payments

• Monthly insurance premiums

• Subscription services

• Gym memberships

The best way to manage fixed expenses is the “set it and forget it” approach. Set up autopay for all your fixed expenses. In your budget, add up the cost of these and subtract them from your net income. This effectively takes them out of the equation, which makes setting up a simple budget for beginners much easier.

Pro Tip: Why are utilities fixed expenses, even though your electric bill or water bill might go up or down? It’s because you pay them monthly, can put them on autopay, and are roughly the same each month.

Here’s a simplified fixed expenses budget example for beginners:

Flex Expenses

Flex expenses aren’t paid on a regular schedule, and they vary in cost. They include everyday spending, as well as expenses that come up from time to time. Since fixed expenses go on autopilot, flex expenses are the most important ones to pay attention to. Examples of flex expenses include:

• Food (groceries, dining out)

• Gas

• Entertainment

• Online shopping

To manage flex expenses, decide how much money you need for everyday spending, and then break that down into a weekly number. Let’s say you add up your usual flex expenses, and they come out to $2,000 per month. That means you can spend up to $500 per week and still be on budget.

Pro Tip: Track your spending weekly, not monthly, so you can correct any overspending as it happens.

It may also help to have financial accounts solely for your flex expenses. You could use a separate checking account or rewards credit card for them if you like earning points on your spending.

Here’s a simplified flex expenses budget example for beginners:

Not sure why budgeting matters? See our article: Why Is Budgeting Important to Your Family? 7 Reasons

Non-Monthly Expenses

As you review your expenses, don’t forget about non-monthly figures like property tax payments and other irregular payouts. If you don’t account for them, they can take you by surprise.

For example, quarterly or semiannual insurance payments are a non-monthly expense. Home maintenance is a non-monthly expense, as you normally don’t know exactly when it will occur and the cost can vary.

Make a list of your non-monthly expenses. Reviewing old banking and credit card statements is a good way to ensure you have all your budget categories covered. Then, estimate how much these expenses will cost total per year. Divide that figure by 12 and include it in your monthly budget.

Here’s a simplified non-monthly expenses budget example for beginners:

3. Work Toward Financial Goals

An important part of creating a budget for beginners is allocating money for goals. You’re more likely to follow through on goals when you’ve made them part of your financial plan.

Start by deciding how much you’d like to put towards your goals each month. You can choose either a fixed dollar amount or a percentage of your net income. Using a percentage works well if your income fluctuates.

Next, select the goals you’ll focus on first. If you haven’t already, prioritize paying off high-interest debt (anything with an interest rate of more than 7%) and building an emergency fund. (Start by saving one month of take-home pay. Then progress to between three and 12 months, depending on your needs). Once you’ve done that, here are more goals to consider:

• Save for big upcoming expenses, such as a car, a down payment on a home, or a child.

• Pay off all non-mortgage debt.

• Increase your retirement savings.

Here’s a simplified financial goals budget example:

Building Your Budget

Once you have all that information, it’s time to create your monthly budget for beginners. To do this, take your net income and decide how you want to divide it up among your expenses and goals.

Let’s say that you have a net income of $10,000 per month. Your fixed expenses total $5,000 per month, and you calculate that $2,000 per month ($500 per week) is reasonable for your flex expenses. You decide to commit another $2,000 per month towards financial goals, dividing it evenly among building an emergency fund and paying down debt. The rest of the money you set aside for guilt-free spending.

After some basic budgeting for beginners, you have a plan for how to manage your money. To recap, you’ll be using:

• $5,000 per month for fixed expenses

• $2,000 per month for flex expenses

• $300 per month for non-monthly expenses

• $1,000 per month for paying down debt

• $1,000 per month for emergency fund savings

• $700 per month for guilt-free spending

Here’s our full sample budget for beginners again:

Remember that when it comes to beginner budgeting and beyond, it’s your spending plan, and you can adjust it based on what works best for you.

Budgeting can be time-consuming if you keep track of everything yourself. To make it much simpler and faster, an intuitive software like Monarch Money provides easy budgeting for beginners. You can use it to create a customizable budget, track spending, and track your progress toward financial goals.