How To Budget: Your Complete Guide

Turbo Takeaways

• Creating a budget helps you determine where to cut expenses to save money and repay debt.
• Consumers who create and maintain a budget are more likely to find financial success.
• Digital tools and apps are effective ways to manage a budget and take advantage of money-saving rewards.

Creating a budget is an important step in managing your finances. Using an app or creating a spreadsheet helps you organize how much you receive and pay out each month. Once you set up a basic budget, it’s easier to make changes to reflect fluctuating costs and track every dollar you spend.

Keep reading to learn practical tips about budgeting and how this routine can improve your financial future.

Why Is Budgeting Important?

Understanding your financial state is essential for managing expenses and debt. Creating a budget puts you in control of your spending and gives you a clearer picture of your income versus costs.

If you’re struggling with debt, budgeting is the first step toward allocating funds to pay down significant balances. Once you get started, you can easily track your spending and find ways to save more money for debt payments.

“Budget is the single most important factor among people who win with money,” says financial expert Dave Ramsey, founder and CEO of Ramsey Solutions.

Keeping a budget also helps you plan for your financial future. Experts recommend setting aside any extra cash for an emergency fund until you accumulate at least three months' salary. Ramsey suggests starting with an initial emergency fund of $1,000, then building it as you free up more money through budgeting.

How To Create a Budget

Follow these practical steps to create a basic budget:

1. Record all of your income

Start by recording your net income, which includes everything you take home after taxes. Include all earnings such as your job, a spouse’s job, bonuses, and extra income from a side hustle.

Gather any pay stubs you need to record the exact amount that comes in every month. You can break it down by weekly, biweekly, or monthly paychecks. If your income fluctuates, try to base it on something in the middle of your low and high points and adjust it after receiving your wages.

2. Make a detailed list of your monthly expenses

Record your essentials, including housing, food, transportation, and utilities. Next, move on to secondary expenses like insurance, subscriptions, and child care. It’s also helpful to include broad categories such as “entertainment” or “miscellaneous purchases” to account for expenses like trips to the movies and purchasing birthday presents.

Some categories will be exact, but others may require you to estimate or change the amount each month depending on your bill. For example, power bills often fluctuate during winter and summer months, while your internet service likely remains the same. Miscellaneous categories need an estimate of your likely spending based on past trends.

3. Subtract your expenses from your income

Once you determine your expenses, you’ll subtract this amount from your total income. This number represents additional funds you can use in multiple ways.

If you come up with a negative number after you complete your calculation, you’ll know it’s time to cut back on nonessential purchases. Review each budget category to find items you can reduce or go without.

4. Determine what to do with extra funds

Assigning a place for your extra cash gives you the freedom to plan for your financial goals. Consider putting the money towards repaying debt, saving for emergencies, or making a big purchase without overspending.

Ramsey suggests assigning all of your funds to a category so you’re left with zero. That way, you can account for each dollar you earn and how it’s spent or saved.

Budgeting Tips To Help You Save Money

Creating a budget document is the first step toward organizing your finances. Next, it’s crucial to use the data you collect to choose money-saving options that free up more of your income. Here are some key ways to reduce spending within your budget:

Find Ways To Cut Back

Most experts will tell you that the first thing you can do to increase your extra cash and improve your budget is to reduce and eliminate nonessential costs. Skip the expensive coffeehouse drinks and brew your own, or reduce your TV subscription services to one. Everyone has that thing they want to splurge on, so find yours and make a change.

Explore lower-cost options by shopping for insurance, internet, and phone services. Once you know the type of coverage you need, comparing plans and providers gives you the freedom to adjust your budget and free up some cash.

Minimize Food Costs

Food costs make up one of the biggest monthly budget items for most consumers. The good news is, you can slim this category down pretty quickly by making some simple changes to your purchasing habits.

Plan to eat out less and pack a lunch. Avoid meal delivery services, which not only come with elevated food costs but also hefty convenience fees. Planning meals ahead of time saves you money and time and can even reduce the stress of busy weeknight dinners.

Maximize Discounts

Saving money may have gotten a little easier thanks to digital tools like apps, cost-comparing sites, and loyalty rewards. Retail companies offer discount codes and special savings directly to consumers through email subscriptions, and many businesses offer promotions directly to app users at the time of their purchase.

Look for apps that offer cash back or savings on essential purchases like gasoline and groceries. Be careful of any fees to ensure you’re not paying more money than you’re saving.

Use Credit Cards To Your Advantage

Maintaining a few credit cards and paying them off each month can work to your advantage to improve your credit utilization ratio and provide monetary benefits. Many credit cards offer cash back on purchases with the option to redeem funds throughout the year. Other cards offer rewards for retail purchases, travel, or entertainment.

Since 82% of consumers already use this form of payment, it’s worth it to find a card that works in your favor and rewards you for what you already buy. Certain credit cards can ease the financial burden of big purchases like airline tickets or hotel stays. However, it’s important to pay off your monthly balance to maximize your rewards and avoid going into debt from heavy interest fees.

Unleash Your Creativity

Sticking to a budget often requires you to get creative and find ways around spending money. That’s why reusing what you have, doing clothing swaps, and crafting handmade gifts are great ways to reduce expenses. You may even discover a new talent that leads to a side hustle.

Budget Your Way Out of Debt

Knowing how much you spend and what you have left over every month makes it easier to plan for debt repayments. Cutting expenses and increasing your income are ways to free up more cash to pay down big balances from credit cards, outstanding bills, or personal loans.

Once you create a little margin in your budget, consider starting a debt relief program. Options like debt settlement can help you pay off debt faster, often for less than you owe. At TurboDebt®, we’ve helped thousands of consumers overcome $10,000 or more in unsecured debts, providing customized solutions that fit nearly any budget.

It only takes a few minutes to start a free consultation to see if you qualify for debt relief. Contact the expert team at TurboDebt today!