The Definitive Beginners Guide to Budgeting

monthly budget with budgeted and actual amounts of money spent

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Budgeting gives you a picture of where all of your money is coming from and where it’s all going.

With a budget, you can figure out where you spend the most money, identify ways to save money, and determine if you’re living above your means.

To a newcomer, budgeting may feel overwhelming. But, when you sit down and work it all out, you’ll see that budgeting has many benefits.

In this article, we’ll go over how to make a budget for beginners, so even if you’ve never made a budget before, you’ll be good to go.

By the end of this article, you should be on your way to creating a budget for your personal finances.

Let’s jump right in.

What is the Importance of Budgeting?

Budgeting may seem like a way to be restrictive with your money, but budgeting has many benefits that will help you in the long run, making your money less restrictive. So whether you’re a beginner creating a budget or have created budgets for years, budgeting has many benefits.

Here are some key benefits of budgeting and why it’s important:

  • Budgeting helps you stop overspending. When you have a budget, you can see where to allocate your money each month, and you’ll know how much money is available to spend. Overspending makes it harder to save for the future and can make it harder to pay off debt.
  • Budgeting helps you reach your money-saving goals. With a budget, you can set up weekly or monthly savings, which can be placed in an emergency fund or invested in a brokerage account, for example. 
  • Budgeting can help reduce overwhelming feelings about your money. For many, money is a sensitive topic, and it can sometimes feel overwhelming. When you budget, you know where your money is going, which means there are fewer surprises at the end of each month. 
  • Budgeting can help you pay off debt or avoid debt in the first place. Overspending can cause people to go into debt. When you have a budget, you get a clearer picture of your financial situation, which can help stop you from buying things you can’t afford. When you stop buying things you can’t afford, you’re less likely to accumulate debt, which will help you build more wealth long term.
  • Budgeting prepares you for emergencies. You may have had one or more large unexpected expenses come up at some point. This may have been a car that broke down, a trip to the emergency room, or missed days at work that caused you to lose some pay, as some examples. When you budget for unexpected expenses, you’re more likely to have a cushion for when these events occur, which will help prevent you from having to use your credit card and sink into debt.

Get a Free Home Budget Template

Budget your money and track your spending with this fully responsive budget spreadsheet.

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Make Goals for Why You’re Budgeting

There are many reasons why you might want to create a budget for you and your family. It could be that you’re looking to save more money. It might be that you’re trying to get out of debt faster.

Other reasons include long term goals such as:

  • Building an emergency fund
  • Buying your first house
  • Putting your children through college one day
  • Traveling with your partner
  • Planning out retirement well in advance
  • Reduce overall spending

By setting a goal or goals, you give yourself direction when making your budget. Use specific goals that are reasonable and time-oriented. You can read more about creating SMART financial goals here.

Gather Your Financial Statements

Once you’ve determined why you want to budget, you’ll need to gather your financial statements so you can start organizing your income and expenses. Your financial statements include:

  • Bank statements where income and expenses are reported
  • Credit card statements with itemized expenditures

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  • Receipts for items you spent cash on, if you have them

Now that you have this information, you can see where your money is coming from and where your money is going.

Review Your Regular and Irregular Expenses

Using your financial statements, take note of each expense and categorize them. For example, you might decide to categorize your utilities together. In this case, you would put your electric, heat, and water bills in the same bucket, if you have these three expenses.

One way to do this is to write down or use a spreadsheet where you place each utility expense on its own line and then add them up to get your total utilities budget.

Do this with each expense that you find. Some common categories include:

  • Utilities
  • Rent/Mortgage
  • Shopping
  • Entertainment
  • Medical
  • Food
  • Transportation
  • Insurance
  • Charitable Donations

Some of your expenses will occur monthly, and others will occur irregularly. Go back several months' worth of bills to find the expenses that don’t occur often.

When creating a budget for irregular expenses, note how much you expect to spend in a year or quarter on these expenses and budget that money in month-to-month. 

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For example, if you spend $2400 per year on property taxes, you’d want to budget $200 per month to be ready for them when your property tax bill arrives.

Add up all of your expenses, category by category, to see how much money you’re spending month-to-month on average. This is how much money you need to make, the bare minimum to cover your expenses. We’ll return to expenses later. 

Determine Your Monthly Income

After you’ve determined your expenses, item by item, and your total expenses, it’s time to figure out your total income. You can do this by adding up all of your paychecks for the month, including any other sources of income you have.

Other sources of income include:

If your income shifts a lot, then one strategy is to give yourself a set paycheck that’s based on your average income, and on months where your income is higher, immediately save that money or apply to it a month for when your income is lower.

Another method is to use last month’s income for next month’s budget, but this will take more time and effort to apply, as you’ll be budgeting each month based on last month. Of course, for some, this is preferred.

Figure Out What Method You’ll Use to Budget

There are three main ways to create a budget. Some people simply prefer one over the other.

Pencil and Paper

With pencil and paper, or a document on a computer, you write down all of your income and expenses manually and add them up yourself. Using pencil and paper is the most straightforward way to budget and doesn’t require anything special besides perhaps a calculator. 

You might even choose to download a budgeting printable from Etsy to make things easier. Alternatively, you could simply list income on one page and expenses on subsequent pages.


Spreadsheets are handy for making home budgets as they can be set up to calculate totals, color code things automatically, and can be easily organized.

There are many home budget spreadsheets on the internet for free, including Clean Cut Finance’s Home Budget Template. Download our template and start budgeting right away.

Get a Free Home Budget Template

Budget your money and track your spending with this fully responsive budget spreadsheet.

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Some choose to use an app as an app may provide budgeting advice and allow you to connect your bank and credit card accounts to it automatically. A drawback of an app is that many apps cost a subscription or one-time fee, so you’ll be paying to budget.

That said, some enjoy the features of an app and don’t mind paying. For example, YNAB (You Need A Budget) is a popular budgeting tool.

Add Up Your Income and Expenses

Now that you’ve selected a way to budget and have noted all of your income and expenses, it’s time to add it all up. First, add up your income, then add up your expenses. Next, subtract your expenses from your income.

If you have income left over after subtracting your expenses, then you are making more money than you are spending. You can use this extra money towards whatever financial goals you have, such as paying down debt, or saving money, for example.

Likewise, if you have a negative balance, that means you’re likely living beyond your means and spending too much money. Your two options are to spend less money or make more money, or both.

Cut Back on Spending Categories

If you find you’re spending too much money, it’s time to go through your budget, line by line, and see where you can cut back. Determine where you’re spending too much money, such as:

  • Online shopping
  • Subscriptions
  • Going out to eat
  • Mobile gaming 
  • Nights out
  • Salon appointments

Aside from these common discretionary expenses, you might be paying too much money for common expenses such as:

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  • Cable
  • Internet
  • Mobile phone
  • Auto insurance

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Check out this article for 40+ ways to reduce your living expenses to help you save money while you budget.

Set a Reminder to Review Your Budget in the Future

It makes sense to review your budget periodically as things change, or you may have missed something in your initial writeup. Some choose to review their budget monthly, others quarterly, and some will do it semi-annually or annually.

Find the interval that’s right for you.

What Items Should Be Included in a Budget?

Here are some common items that should be included in a typical budget.


Listing out each source of income will help you figure out how much money you have coming in each month. If some of your income is variable, then putting in an estimate is fine.


This is the most important part of your budget. This may be your largest expense as well, and it’s what’s keeping a roof over your head, making this item the first item you’ll want to budget money for.

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Groceries come up as another important part of your budget as you need to eat to survive. It is typical to budget $175 to $345 per adult per month, according to

Property Tax

Homeowners will likely pay property taxes each year on their homes. If you have a mortgage, you may have your property taxes escrowed into your mortgage payments.

Health Insurance Premiums

You may have health insurance through the Marketplace or through work. Health insurance premiums can get costly, and having health insurance is vital if you get sick or injured.


Utilities are one of your most important expenses as it generally covers electricity, heat, and water. When making a budget, separate each utility into its own expense.


Having internet has become more vital over the past several years, and some people could argue that it’s tough to live without internet. If you’re living on a tight budget, purchasing a lower internet package to save money each month may make sense.


Mobile phones, and sometimes landlines, are an expense that most people must budget for.

Auto Insurance

If you own a car, you will most likely have auto insurance and include it in your monthly budget.

Auto Loan Payment

If your car is currently financed, you’ll want to have a budget item for your auto loan monthly payment.


Gasoline prices change regularly, so when writing in your fuel budget, it’s recommended to use a slightly higher than average amount of consumed fuel for the month.

So if you normally spend $100 per month on gasoline, you may want to budget $120 for price and usage fluctuations. 


You may take a train, subway, or bus to and from work or various places each week. If you use transportation frequently, add your monthly ride costs in this section of your budget.

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Your clothing budget should include how much you’re spending both on clothes for personal and business use as well as clothing cleaning services, such as dry cleaning.

It makes sense to separate these expenses into two categories if you frequently buy clothing and use clothing cleaning services.


Entertainment refers to anything you do for fun. You can separate entertainment into subitems like books, computer games, drinks, movies, and so on.


Subscriptions include anything you pay the same amount for each month.

This can include a gym membership, beauty boxes, website dues, and anything else you pay a monthly subscription for that doesn’t fall under another category.

Household Maintenance

Things break around the house periodically. It’s always helpful to have some money set aside for household maintenance. You can also include cleaning supplies in this area of your budget.


If you’re into gift-giving around the holidays and birthdays, or any other time for that matter, having a gift budget makes sense.


Any donations you make to charity each year can go into your monthly budget. If you donate $480 per year to charity, for example, you could write in a $40 monthly donation budget.

Doctor Visits

Most people get a physical every year and may also see specialists for various routine care. Keeping track of your average spending at the doctor’s will help you budget for your annual visit expenses. 

Common Daily Spending

Many people spend a little bit of money every day. This could include coffee money, lunch at work, a snack from the gas station, or any other small daily purchase.

Car Registration

You may need to register your car annually, and having a budget for this is helpful so that you’re not surprised each year. If your car is $120 to register, then adding a $10 budget each month to this expense makes sense.

Pet Care

Cats, dogs, and other pets need food and regular checkups. Having pet care in your budget will allow you to put money aside for your furry family members.


Prescription medication can be life-saving, so it’s important to have money set aside each month to pay for any medicine that your doctor prescribes to you.

How to Set Up Bank Accounts for Budgeting

There’s no right or wrong way to set up your bank accounts for budgeting, however, here are some accounts that may help you the most.

  • Primary Checking: Where all of your income comes into, and money is paid out.
  • Reserve Checking (optional): A second checking account where you keep money in case one month’s expenses are much higher than usual. This account could contain 30 days of estimated expenses in case variable expenses are high one month.
  • Emergency Fund: Where you have between three and six months of living expenses saved up in case something goes wrong, like sickness, injury, or a broken-down car.

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  • Retirement Account: Where you have money invested for retirement. This could be a Roth IRA or 401(k), for example.
  • Vacation/Travel account (optional): Money you save for annual travel and vacation expenses. Check out this guide on how to save money on travel.
  • Splurge Fund (optional): For you or your family, this is money that you can spend without thinking twice. 

Wrapping It Up

It can take some time to get into the swing of creating a home budget, but the benefits are entirely worth it. Using a budget can help you curb overspending, get out of debt, save money, and help you reach your financial goals.

Make sure to download Clean Cut Finance’s home budget spreadsheet to get started budgeting today.

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