What is a budget?
A budget is a financial plan. A budget helps you estimate and track your income and expenses over a specific period, like monthly or yearly. Learning how to budget well is important, regardless of your income and expenses.
Why should I budget?

A budget can help you manage resources, control spending, track your spending patterns and behaviours, and achieve short and long-term financial goals.
Budgeting helps track where money is coming from and going to, which means you’re more in control of your spending. It makes healthy financial habits like saving, paying off debt over time, and building an emergency fund easier. They also provide a clear picture of your financial situation.
How to budget?
- Set financial goals – A budget can help you set and reach your financial goals. Once you decide what you want to achieve, you can modify your budget to serve those goals. Whether you want to build savings, pay off debt, or save for a down payment, a budget can do it all!
- List income and expenses – The first step of budgeting is to list out all your sources of income, like your salary or side gig income. Next, write down your expenses. The two main types are fixed expenses like rent and utilities, and discretionary expenses like groceries and entertainment. If you’re learning how to budget for the first time, start with a simple income and expenses tracker. Over time, you will be able to make a more detailed budget.
- Categorize your expenses – Sort your spending into categories, like housing-related, food, transportation, savings, entertainment, or debt payments. You could also divide them by the needs (essentials) and wants (non-essentials). With this done, you’ll get a clear picture of what categories are getting more of your money. This will help you make informed decisions on whether you’re okay with those numbers or want to change something.
- Budget strategy – There are countless budgeting strategies. No matter which one you use, the rule of thumb is that your income should cover your expenses, payments and goals. You can always change your budget systems or strategies to serve different goals over time. Just remember, it should serve you, not constrain you!
- Track and improve – Monitor how you’re actually spending, compared to your estimated budget. If there’s a noticeable difference, it means your expectation doesn’t accurately reflect your spending. You don’t need to feel guilty if your numbers don’t match up – what’s important is that you track it honestly. After that, it’s time to adjust your plan to stay on track for your goals. You can also modify your budget after any changes in income or expenses.
Popular budgeting methods
There are many different kinds of budgeting strategies. The best one is the one you actually use! Try a few methods and see what feels easy to maintain. You can always switch it up or modify it to suit your needs. These methods should provide a good starting point when you’re learning how to budget:
- Envelope method – With this method, you put cash in different envelopes, each labelled for a spending category like groceries or entertainment. You stop spending in that category when the money in the envelope is gone. This helps control spending and keeps you from going over budget.
- 50/30/20 rule – You divide your income into three parts: 50% for needs like rent and food, 30% for wants like dining out or hobbies, and 20% for savings or paying off debt. This method is easy to calculate and follow. It also helps balance spending and saving.
- Zero-based budget – You plan where every dollar of your income will go before you spend it. Each dollar is assigned to a category or goal, so your income minus your expenses equals zero. This gives you greater control but takes more time to set up.
- Incremental budgeting – You start with your budget from the last month or year and make small changes based on what you expect to spend next. This method is simpler and works well if your expenses don’t change much over time.
Tips on how to budget successfully
- Track your income and expenses for a month or two to see your patterns. After that, you can start modifying to suit your goals.
- You can use budgeting tools or apps to see category-based spending. You can also use it to track progress for your financial goals, like paying off debt or saving for a down payment.
- Set up auto payments for bills or due dates. This way, you won’t miss due dates or have to pay penalties for late or missed payments.
- Use automatic transfers to savings when your paycheck comes in. You can set a particular amount that goes to your savings account each pay cycle. Once that money is out of your checking account, it’s less tempting to spend it. Over time, your savings will slowly but surely build up.
- Modify your budget to suit you and your goals. Don’t let it be something that gets you down. The budget method should work for you, not the other way round.
- Review your budget and overall plan regularly. Update them to reflect your financial situation and goals.
Key takeaways
Budgeting is a useful skill that helps you manage your money better. With a budget, you can see where your money is going each month. This knowledge can help you plan for important expenses like rent, groceries, and bills. It also allows space for discretionary spending and saving for financial goals. When you budget regularly, you spend less than you earn. This can help you get out of debt and greatly reduce money stress.
Budgeting is not about perfection, but progress. Over time, you will naturally start to improve your money habits. When you learn how to budget, you’re building good financial habits. Slowly but surely, you will be setting yourself up for success with a sense of financial security.