What is a Budget?

What is a Budget?

A budget is a plan for how you spend and save your money. It helps you take control of your finances instead of wondering where your money went at the end of the month. Whether you’re saving for a trip, paying off debt, or just trying to stop living paycheck to paycheck—budgeting is the first step.

Why You Need a Budget

Think of a budget like GPS for your money. Without it, you’re just driving around hoping to reach your destination. With it, you’re making intentional choices.

A budget helps you:

• Avoid overspending
• Pay off debt
• Save for goals (emergency fund, vacation, retirement, etc.)
• Reduce stress by knowing where your money is going

How a Budget Works

At its core, a budget compares your income to your expenses. Here’s a super simple formula:

Income – Expenses = What’s Left (or what needs to be adjusted)

You want that number to be positive—so you’re not spending more than you earn.

The Basic Steps to Make a Budget

Here’s a beginner-friendly 5-step process:

1. Know Your Income

Add up all money you receive in a month. This could include:

• Your job paycheck (after taxes)
• Side gigs
• Any other consistent sources of income

1. List Your Expenses

Break these into two types:

Fixed Expenses (same every month):

• Rent/Mortgage
• Car payment
• Insurance

Variable Expenses (change month to month):

• Groceries
• Dining out
• Entertainment
• Shopping

1. Track Your Spending

Use a budgeting app, spreadsheet, or notebook to write down what you actually spend. This shows you where your money really goes.

1. Adjust Where Needed

If your spending is more than your income, look at where you can cut back. Start with non-essentials like eating out or subscriptions.

1. Set Goals

Decide what you want to do with the money you free up:

• Build an emergency fund
• Pay off debt
• Save for a house, trip, or retirement

The 50/30/20 Rule (Simple Starter Method)

Not sure how to divide your money? Try this classic rule:

• 50% Needs – Rent, groceries, bills
• 30% Wants – Restaurants, hobbies, fun
• 20% Savings & Debt – Emergency fund, extra payments, investments

This is a great rule if you want to keep things simple. However, I personally follow a different percentile for each category. To read more about how I break down my expenses, click on the Inside My Wallet tab of the website.

Tools You Can Use

• Apps: YNAB (You Need A Budget), Mint, EveryDollar
• Spreadsheets: Google Sheets or Excel templates (I attached a good one below)
• Old School: Notebook + pen (not my personal preference)

Final Thoughts

Budgeting isn’t about restriction—it’s about freedom. When you know where your money’s going, you can stop living in stress and start making progress. The first budget might feel clunky, but over time, it gets easier and more empowering.

Start simple. Be consistent. Adjust as you go.

Takeaway Challenge: Build Your First Budget

By the end of today, take the first step toward financial control:

1. Write down your monthly income.
2. List all your fixed and variable expenses.
3. Use the 50/30/20 rule to categorize your spending.
4. Adjust one area where you’re overspending and set a savings goal.
5. Bonus: Try tracking every dollar you spend this week—just once. You might be surprised where your money actually goes.

Remember: Your first budget doesn’t have to be perfect—it just has to be yours.

Quick Budget Check: Practice Questions

1. What is the main purpose of a budget?
   A) To help you make as many purchases as possible
   B) To track the stock market
   C) To plan how you spend and save your money
   D) To figure out how to get a credit card
2. According to the 50/30/20 rule, how much of your income should go toward savings and debt repayment?
   A) 10%
   B) 20%
   C) 30%
   D) 50%

Quick Budget Check: Practice Questions

1. What is the main purpose of a budget?
   A) To help you make as many purchases as possible
   B) To track the stock market
   C) To plan how you spend and save your money
   D) To figure out how to get a credit card

2. According to the 50/30/20 rule, how much of your income should go toward savings and debt repayment?
   A) 10%
   B) 20%
   C) 30%
   D) 50%