Your Guide to How to Budget Money - NerdWallet (2024)

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If I have take-home pay of, say, $3,000 a month, how can I pay for housing, food, insurance, health care, debt repayment and fun without running out of money? That’s a lot to cover with a limited amount, and this is a zero-sum game.

The answer is to make a budget.

What is a budget? A budget is a plan for every dollar you have. It’s not magic, but it represents more financial freedom and a life with much less stress. Here’s how to set up and then manage your budget.

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How to budget money

  • Calculate your monthly income, pick a budgeting method and monitor your progress.

  • Try the 50/30/20 rule as a simple budgeting framework.

  • Allow up to 50% of your income for needs, including debt minimums.

  • Leave 30% of your income for wants.

  • Commit 20% of your income to savings and debt repayment beyond minimums.

  • Track and manage your budget through regular check-ins.

Understand the budgeting process

Figure out your after-tax income: If you get a regular paycheck, the amount you receive is probably it, but if you have automatic deductions for a 401(k), savings, and health and life insurance, add those back in to give yourself a true picture of your savings and expenditures. If you have other types of income — perhaps you make money from side gigs — subtract anything that reduces it, such as taxes and business expenses.

Choose a budgeting plan: Any budget must cover all of your needs, some of your wants and — this is key — savings for emergencies and the future. Budgeting plan examples include the envelope system and the zero-based budget.

Track your progress: Record your spending or use online budgeting and savings tools.

Your Guide to How to Budget Money - NerdWallet (2)

Automate your savings: Automate as much as possible so the money you’ve allocated for a specific purpose gets there with minimal effort on your part. An accountability partner or online support group can help, so that you're held accountable for choices that blow the budget.

Practice budget management: Your income, expenses and priorities will change over time, so actively manage your budget by revisiting it regularly, perhaps once a quarter. If you're struggling to stick with your plan, try these budgeting tips.

Want expert help? Ask a Nerd directly

Simply send us your questions, and our dedicated in-house Nerds will provide you with thoughtful responses within 2 business days.

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Your Guide to How to Budget Money - NerdWallet (3)

Frequently asked questions

How do you make a budget spreadsheet?

Start by determining your take-home (net) income, then take a pulse on your current spending. Finally, apply the 50/30/20 budget principles: 50% toward needs, 30% toward wants and 20% toward savings and debt repayment.

How do you keep a budget?

The key to keeping a budget is to track your spending on a regular basis so you can get an accurate picture of where your money is going and where you’d like it to go instead. Here’s how to get started: 1. Check your account statements. 2. Categorize your expenses. 3. Keep your tracking consistent. 4. Explore other options. 5. Identify room for change. Free online spreadsheets and templates can make budgeting easier.

How do you figure out a budget?

Start with a financial self-assessment. Once you know where you stand and what you hope to accomplish, pick a budgeting system that works for you. We recommend the 50/30/20 system, which splits your income across three major categories: 50% goes to necessities, 30% to wants and 20% to savings and debt repayment.

Try a simple budgeting plan

We recommend the popular 50/30/20 budget to maximize your money. In it, you spend roughly 50% of your after-tax dollars on necessities, including debt minimum payments. No more than 30% goes to wants, and at least 20% goes to savings and additional debt payments beyond minimums.

We like the simplicity of this plan. Over the long term, someone who follows these guidelines will have manageable debt, room to indulge occasionally, and savings to pay irregular or unexpected expenses and retire comfortably.

The 50/30/20 budget

Find out how this budgeting approach applies to your money.

Your 50/30/20 numbers:

Necessities

$0

Savings and debt repayment

$0

Do you know your “want” categories?

Become a NerdWallet member to track your monthly spending trends, including how much you're allocating to needs and wants.

Allow up to 50% of your income for needs

Your needs — about 50% of your after-tax income — should include:

  • Groceries.

  • Housing.

  • Basic utilities.

  • Transportation.

  • Insurance.

  • Minimum loan and credit card payments. Anything beyond the minimum goes into the savings and debt repayment category.

  • Child care or other expenses you need so you can work.

If your absolute essentials overshoot the 50% mark, you may need to dip into the “wants” portion of your budget for a while. It’s not the end of the world, but you'll have to adjust your spending.

Even if your necessities fall under the 50% cap, revisiting these fixed expenses occasionally is smart. You may find a better cell phone plan, an opportunity to refinance your mortgage or an opportunity for less expensive car insurance. That leaves you more to work with elsewhere.

Leave 30% of your income for wants

Separating wants from needs can be difficult. In general, though, needs are essential for you to live and work. Typical wants include dinners out, gifts, travel and entertainment.

It’s not always easy to decide. Are restorative spa visits (including tips for a massage) a want or a need? How about organic groceries? Decisions vary from person to person.

If you're eager to get out of debt as fast as you can, you may decide your wants can wait until you have some savings or your debts are under control. But your budget shouldn't be so austere that you can never buy anything just for fun.

Every budget needs wiggle room — maybe you forgot about an expense or one was bigger than you anticipated — and some money to spend as you wish. If there's no money for fun, you'll be less likely to stick with your budget.

Commit 20% of your income to savings and debt paydown

Use 20% of your after-tax income to put something away for the unexpected, save for the future and pay off debt balances (paying more than minimums). Make sure you think of the bigger financial picture; that may mean two-stepping between savings and debt repayment to accomplish your most pressing goals.

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Simply send us your questions, and our dedicated in-house Nerds will provide you with thoughtful responses within 2 business days.

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Your Guide to How to Budget Money - NerdWallet (4)

Priority No. 1 is a starter emergency fund.

Many experts recommend you try to build up several months of bare-bones living expenses. We suggest you start with an emergency fund of at least $500 — enough to cover small emergencies and repairs — and build from there.

You can’t get out of debt without a way to avoid more debt every time something unexpected happens. And you’ll sleep better knowing you have a financial cushion.

Priority No. 2 is getting the employer match on your 401(k).

Get the easy money first. For most people, that means tax-advantaged accounts such as a 401(k). If your employer offers a match, contribute at least enough to grab the maximum. It's free money.

Why do we make capturing an employer match a higher priority than debts? Because you won’t get another chance this big at free money, tax breaks and compound interest. Ultimately, you have a better shot at building wealth by getting in the habit of regular long-term savings.

You don’t get a second chance at capturing the power of compound interest. Every $1,000 you don’t put away when you’re in your 20s could be $20,000 less you have at retirement.

Priority No. 3 is toxic debt.

Once you’ve snagged a match on a 401(k), if available, go after the toxic debt in your life: high-interest credit card debt, personal and payday loans, title loans and rent-to-own payments. All carry interest rates so high that you end up repaying two or three times what you borrowed.

If either of the following situations applies to you, investigate options for debt relief, which can include bankruptcy or debt management plans:

    • You can't repay your unsecured debt — credit cards, medical bills, personal loans — within five years, even with drastic spending cuts.

    • Your total unsecured debt equals half or more of your gross income.

  • Priority No. 4 is, again, saving for retirement.

    Once you’ve knocked off any toxic debt, the next task is to get yourself on track for retirement. Aim to save 15% of your gross income; that includes your company match, if there is one.

    If you’re young, consider funding a Roth individual retirement account after you capture the company match. Once you hit the contribution limit on the IRA, return to your 401(k) and maximize your contribution there.

    Priority No. 5 is, again, your emergency fund.

    Regular contributions can help you build up three to six months' worth of essential living expenses — not your full budget, just the must-pay basics. You shouldn’t expect steady progress because emergencies happen, and that's when you should pull money from this fund. Just focus on replacing what you use and building higher over time.

    Priority No. 6 is debt repayment.

    These are payments beyond the minimum required to pay off your remaining debt.

    If you’ve already paid off your most toxic debt, what’s left is probably lower-rate, often tax-deductible debt (such as your mortgage). Tackle these when the more-basic goals listed above are covered.

    Any wiggle room you have here comes from the money available for wants or from saving on your necessities, not your emergency fund and retirement savings.

    Priority No. 7 is you.

    Congratulations! You’re in a great position — a really great position — if you’ve built an emergency fund, paid off toxic debt and are socking away 15% toward a retirement nest egg. You’ve built a habit of saving that gives you immense financial flexibility. Don’t give up now.

    Consider saving for irregular expenses that aren’t emergencies, such as a new roof or your next car. Those expenses will come no matter what, and it’s better to save for them than borrow.

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    Your Guide to How to Budget Money - NerdWallet (2024)

    FAQs

    Your Guide to How to Budget Money - NerdWallet? ›

    Start by determining your take-home (net) income, then take a pulse on your current spending. Finally, apply the 50/30/20 budget principles: 50% toward needs, 30% toward wants and 20% toward savings and debt repayment.

    What is the 50 30 20 rule of money? ›

    The 50-30-20 rule is a common way to allocate the spending categories in your personal or household budget. The rule targets 50% of your after-tax income toward necessities, 30% toward things you don't need—but make life a little nicer—and the final 20% toward paying down debt and/or adding to your savings.

    What is the 70/20/10 rule money? ›

    The 70-20-10 budget formula divides your after-tax income into three buckets: 70% for living expenses, 20% for savings and debt, and 10% for additional savings and donations. By allocating your available income into these three distinct categories, you can better manage your money on a daily basis.

    What is the 60 20 20 budget? ›

    Put 60% of your income towards your needs (including debts), 20% towards your wants, and 20% towards your savings.

    Is the 50/30/20 rule realistic? ›

    The 50/30/20 rule can be a good budgeting method for some, but it may not work for your unique monthly expenses. Depending on your income and where you live, earmarking 50% of your income for your needs may not be enough.

    How much should a 30 year old have saved? ›

    If you're 30 and wondering how much you should have saved, experts say this is the age where you should have the equivalent of one year's worth of your salary in the bank. So if you're making $50,000, that's the amount of money you should have saved by 30.

    How to budget $4000 a month? ›

    making $4,000 a month using the 75 10 15 method. 75% goes towards your needs, so use $3,000 towards housing bills, transport, and groceries. 10% goes towards want. So $400 to spend on dining out, entertainment, and hobbies.

    Can I live on $4,000 a month? ›

    Bottom Line. With $800,000 in savings, you can probably cover $4,000 in monthly living costs. However, retirement accounts alone cannot safely sustain that spending for a 25- or 30-year retirement.

    What is the best savings breakdown? ›

    We recommend the 50/30/20 system, which splits your income across three major categories: 50% goes to necessities, 30% to wants and 20% to savings and debt repayment.

    Is the 30% rule outdated? ›

    The 30% Rule Is Outdated

    To start, averages, by definition, do not take into account the huge variations in what individuals do. Second, the financial obligations of today are vastly different than they were when the 30% rule was created.

    What is the 80 20 plan money? ›

    YOUR BUDGET

    The 80/20 budget is a simpler version of it. Using the 80/20 budgeting method, 80% of your income goes toward monthly expenses and spending, while the other 20% goes toward savings and investments.

    What is the 80-10-10 rule? ›

    When following the 10-10-80 rule, you take your income and divide it into three parts: 10% goes into your savings, and the other 10% is given away, either as charitable donations or to help others. The remaining 80% is yours to live on, and you can spend it on bills, groceries, Netflix subscriptions, etc.

    What is the 50 30 20 budget plan to maximize your money? ›

    Those will become part of your budget. The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals.

    Can you live off $1000 a month after bills? ›

    Living on $1,000 per month is a challenge. From the high costs of housing, transportation and food, plus trying to keep your bills to a minimum, it would be difficult for anyone living alone to make this work. But with some creativity, roommates and strategy, you might be able to pull it off.

    Is $4000 a good savings? ›

    Ready to talk to an expert? Are you approaching 30? How much money do you have saved? According to CNN Money, someone between the ages of 25 and 30, who makes around $40,000 a year, should have at least $4,000 saved.

    What is Dave Ramsey's budget percentage? ›

    Food -10-15% Charity – 10-15% Savings – 10-15% Personal -10-15%

    What is the 40 40 20 budget rule? ›

    The 40/40/20 rule comes in during the saving phase of his wealth creation formula. Cardone says that from your gross income, 40% should be set aside for taxes, 40% should be saved, and you should live off of the remaining 20%.

    What is the 50 30 20 rule for high income? ›

    Our 50/30/20 calculator divides your take-home income into suggested spending in three categories: 50% of net pay for needs, 30% for wants and 20% for savings and debt repayment. Find out how this budgeting approach applies to your money.

    How do you stick to a 50 30 20 budget? ›

    Here's what a budget that adheres to the 50/30/20 rule looks like:
    1. Spend 50% of your money on needs. ...
    2. Spend 30% of your money on wants. ...
    3. Stash 20% of your money for savings. ...
    4. Calculate your after-tax income. ...
    5. Categorize your spending for the past month. ...
    6. Evaluate and adjust your spending to match the 50/30/20 rule.
    Aug 12, 2022

    What is one negative thing about the 50 30 20 rule of budgeting? ›

    Hopefully, you wouldn't do this, but the way the 50/30/20 budget is set up, it can cause high-income individuals to spend a lot of money on things that they don't need and not save enough for important financial goals.

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