Learning how to budget so you can achieve your goals in the fastest and easiest way possible.

Budgeting often gets a bad rap for being tremendous hassle. But maintaining a household budget is the best way to avoid debt problems, save money consistently and achieve your goals. What’s more, budgeting doesn’t need to be tedious! With the right strategy, you can maintain an accurate household budget without a lot of work. These twenty budgeting tips can help you get started.

Note: The tips in this section support building a budget using the method we describe on How to Create a Budget and Stick to It. If you have not built a formal budget, we recommend starting there first. Then you can come back and use these tips to refine your budgeting strategy.

#1: Budget for the income you receive, not what you’re supposed to get

This budgeting tip is important, especially if you receive income from things like alimony or child support. If your ex doesn’t pay what they’re supposed to, it can throw off your budget. You can’t depend on that money to cover expenses if it isn’t consistent. So, you need to budget for what you actually receive.

#2: Savings should be a fixed expense in your budget

One of the biggest mistakes that most people make in saving money is not including it in their budget. You decide to save whatever you have left at the end of the month. But this is a good way to ensure you never save anything at all.

Instead, savings should be a line item in your budget. You determine how much you can afford to save each month. Ideally, you should save about 5-10% of your take-home income or more. Then you set that amount as a fixed expense in your budget. It’s basically a bill you pay yourself each month. This is how you make saving money a consistent habit that you can keep up.

#3: Split up Direct Deposits to match your budget goals

Once you decide how much you want to save, there’s another step you can take. You can ask your HR department to split your Direct Deposit between two accounts. You can ask for a percentage of your paycheck to go to a savings account with the rest going to checking.

This is another way to help ensure you save money consistently. As you begin to grow your savings, you may decide to get more than one savings account. For example, Money Market Accounts (MMA) offer tiered savings rates, so the more you save the faster you earn. MMA savings rates are typically notably higher than traditional savings accounts. So, they can be a good place to keep long-term savings for major goals, such as buying your first home.

#4: Include expenses for cash transactions and small incidentals

If you spend $2.50 at the vending machine each day at work, that totals up to at least $625 per year!Small cash purchases often get left out of people’s budgets. You stop every workday at the vending machine and spend $2.50 for a soda and an afternoon snack. It seems small, so you don’t include it in your budget. But long-term, these small incidentals can add up to a big expense. For instance, $2.50 multiplied by 5 days per week for 50 weeks per year comes out to $625.

So, if you have small incidentals that you purchase regularly, make sure they make it into your budget. These types of purchases are usually discretionary because they tend to be wants instead of needs. Putting them in your budget gives you an easy line item to cut if you need to increase cash flow.

#5: Divide food costs into two categories

The more you can break up expenses into specific categories, the better off you usually are. One of the most common expenses that benefits from being broken up is food. According to the Bureau of Labor Statistics, the average household spends about 12.5% of their budget on food.

But food costs can vary widely depending on how much you cook at home versus eating out. Buying groceries tends to result in a much lower food budget than eating out every day. And while food is a necessity, eating out is a luxury. So, it makes sense to break your food budget up – have one expense for groceries and another discretionary expense for dining out.

Then, if you need to cut back spending for any reason, you know which part of your food budget to cut.

58% of people split dining out from groceries when they budget. Source: Debt.com 2018 Budgeting Survey

#6: Set practical targets on flexible expenses

One of the most difficult decisions you make as you build a budget is how to account for expenses that change. By definition, the cost of flexible expenses varies from month to month. You can’t possibly spend exactly the same dollar amount on groceries or even gas for your car.

So, how do you account for expenses that change?  There are two options:

  1. Take an average of three months of spending to set a target
  2. Find your highest spend in that category and set that as your target

You may choose to do the former for some flexible expenses and the latter for others. For example, taking an average spend works for things like groceries, pet care and clothing. But it may not work as well for things like your electric bill and gas for your car. In these cases, the yearly high may be the better way to go. This also leads into our next tip…

#7: Making seasonal adjustments keeps a budget balanced

Many flexible expenses change seasonally. Gas is almost always more expensive in the summer. Water bills also tend to be higher in the summer if you live in a single-family home (especially one with a pool). Your electric bill will vary seasonally, too; it may be higher or lower in the summer, depending on where you live.

If you set these types of flexible expenses around the most expensive month in the year, you may not need to make seasonal adjustments. You’ll just have more cash flow in the months where you don’t hit that high.

But another school of thought that can help you save and achieve goals is to make seasonal adjustments. You set targets for each season and when the targets are lower, you allocate more money to other things. For example, you can focus on faster debt repayment in winter when some of these expenses are lower. This can be especially helpful given that the winter holidays are the most expensive time of year. Speaking of…

#8: Use your budget to plan ahead for expensive times of year

There are two times of year that are notably more expensive for most households:

  1. The winter holiday shopping season (end of October through New Year) tends to be the most expensive for everyone.
  2. If you have kids, the back to school shopping season in August is the second most expensive.

In the lead up to these times of increased spending, it’s a good idea to cut back on a few expenses so you can save more. In addition to the regular savings that you’re putting away every month, you divert a little extra cash into savings to cover you during these key shopping seasons.

This allows you to avoid credit card debt, because you have savings and extra cash flow available. You can either make purchases in cash or with your debit card, or you can use credit but pay off the bills in-full. This allows you to earn rewards that many credit cards offer during these peak shopping times, without generating debt.

#9: Leave breathing room in your budget with free cash flow

Another big mistake that people make when they budget is budgeting down to the last penny. Some “experts” even recommend that you should allocate every dollar. Don’t do it! It’s a mistake that will invariably lead to credit card debt.

Unexpected expenses inevitably pop up – usually every month. If you’re always dipping into emergency savings for these costs, you’ll never get the financial safety net that you need. A much better strategy is to leave breathing room in your budget known as free cash flow. This money is separate from what you put in savings. It’s basically extra cash in your checking account that you can use as needed.

A good rule of thumb is that the expenses in your budget should only use up 75% of your income or less. That 75% includes the money you pay yourself (savings). That leaves 25% of your cash to cover anything from the dog getting into some chocolate to an unexpected school trip.

#10: If you have high credit card balances, make debt repayment a fixed expense

72% of people say budgeting has helped them get out of debtCredit cards are revolving debt. That means the minimum payment requirement changes based on how much you charge. Paying off bills is a necessity, so this would seem to make credit card debt repayment a flexible expense. And, if you pay your bills off in-full every month, it probably is a flexible expense.

However, there are some cases where it makes sense to make credit card debt repayment a fixed expense. This happens when you’re carrying balances over from month to month or you just made a big purchase. If there’s a big balance to repay, then you want to make a plan to pay it off as fast as possible.

In this case, figure out how much money you can allocate for credit card debt elimination. Then make that a temporarily fixed expense in your budget. You spend that much to pay off your balances each month. Then you implement a credit card debt reduction plan to minimize interest charges and reach zero faster.

#11: Analyze your budget semi-annually to make sure you’re on track

It’s a good idea to check back on your budget at least once every six months to make sure you are on track. This is a good way to ensure that you’re hitting the targets you set on flexible expenses. You can also see if there are any new expenses to add in, or you may need to adjust your savings to meet a new goal.

When you do the check, look at 2-3 months from the period since the last time you checked in. Total up your spending for each month and compare it to the targets you set. If you are consistently overspending on a particular type of expense, you have a spending leak. A spending leak is a place in your budget where you’re losing income that you didn’t intend.

As you find spending leaks, you have two options:

  1. Find a way to close the leak
  2. Adjust the spending target for that expense to match your real spending

If you can’t close the leak and need to adjust, make sure to rerun your expense total to ensure all your target spending still fits into using 75% of your income. If it doesn’t, then you need to cut back elsewhere.

#12: Make budgeting a household affair

48% of families that budget say the whole family gets involvedA Budgeting Survey from Debt.com found that almost half of people who budget say it’s a group-effort. That means that over half of people who budget go it alone. That can make budgeting more difficult, because everyone in the house is not working towards the same goal.

If one person in your house is trying to budget and save while the other partner is spending, you’ll never get anywhere. So, you need to make budgeting a group-effort in your household. Everyone – including any kids – should know that the household is on a budget. Everyone should do what they can to help save money and achieve the household goals. You’ll make it where you want to be a lot faster if you move forward as a group.

#13: Find a tool that fits the way you like to budget

Budgeting is notorious for being a hassle, but it’s essential if you want to reach your goals. That means you need to find the fastest and easiest way to budget so you can keep it up. Whether that involves pen and paper, online spreadsheets or smartphone budgeting apps, choose resources that fit your lifestyle. And keep in mind that the easiest way for your neighbor to budget may not work for you.

Budgeting tools like Personal Financial Management tools and budgeting software may make budgeting easier for some. However, Debt.com’s 2019 Budgeting Survey found that most people prefer “old school” methods of budgeting. Almost two-thirds use pen and paper, while one-third prefer spreadsheets.

66% of people prefer pen and paper budgeting. Source: Debt.com 2018 Budgeting Survey

The right budgeting tool is the one that:

  1. Easily captures all the numbers you want to measure
  2. Minimizes the amount of time it takes you to budget effectively
  3. Helps you reach your goals

So, if you use a budgeting tool that doesn’t categorize things the way you want them, it’s not the tool you should use. In this case, you may be better off with a pen and paper or spreadsheets.

In the spirit of making things easy, Debt.com has several resources that can help people that prefer “old-school” budgeting methods. First, you can download our budgeting worksheets. Or we’ve partnered with Tiller to offer easy-to-use budgeting spreadsheets.

Enjoy hassle-free budgeting worksheets that you can customize to fit your needs. Sign up today for a free 30-day trial.

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#14: Use your budget to pay off debt faster

One of the best things about having a budget in place is being able to use it to achieve key financial goals. Once you set up a budget with built-in savings, you can allocate extra funds to paying off debt faster. Here are a few tips you can use:

  • Set up a credit card debt reduction plan so you pay off your balances and minimize interest charges
  • Use your budget to make extra payments on loans that don’t have early repayment penalty fees
  • Consider the value of making an extra mortgage or car payment once per quarter to pay off those debts faster
  • Get your finances organized, so you can use faster student loan repayment options, such as private consolidation or a graduated repayment plan for federal loans.

#15: Use credit cards strategically for recurring expenses to earn rewards

Another nice thing about having an organized budget is that you can find strategic uses for credit cards. Many rewards cards offer incentives for certain types of purchases. So, you can use a gas credit card to earn miles as you fill up. Then you have a card that gives you cash-back on grocery store purchases. There are even cards that offer rewards for using it to pay bills, like your utilities.

Find these cards and assign them a specific purpose. Then, take the cash you would have spent on that expense to pay off the credit card bill in-full. This way, you earn rewards and still keep your net credit utilization near zero. It’s good for your credit score and good for your budget.

#16: Know when fixed expenses may adjust

Fixed expenses are not set in stone. Most of them may adjust annually – and most of them usually go up. If you know when fixed expenses adjust, you can plan ahead to easily absorb any increases. That gives you breathing room to readjust your budget for the higher cost.

For example, let’s say your condo rental agreement renews every year in June. In April and May, you may want to increase savings to ensure you can easily cover any potential rental increase. Then, once you see how much your rent goes up, you go back to your budget and adjust it accordingly. As always, make sure that your expenses only take up about 75% of your income with savings built in.

#17: Right size your emergency savings fund

If you don’t have anything in savings, then your first goal should be to save $1,000. This is a good starting emergency savings fund amount, since it will cover most unexpected expenses. However, it’s not nearly big enough to be the full emergency savings fund you need. For that, you need to do some calculations to determine how big your emergency savings fund really should be.

Most experts recommend that you should save 3-6 months of budgeted expenses in your emergency savings fund. So, if you have $1,500 of expenses every month, your ideal emergency savings fund would be $4,500 to $9,000. This fund is large enough that you could live on it if you lose your job or are unable to work for a few months. The idea is that you could survive a period of no income without taking on massive credit card debt.

Once you get an emergency savings fund that’s big enough, consider moving it to something like a Money Market Account. That way, your emergency savings serves a purpose, even if you don’t dip into it.

#18: Avoid getting too stuck on minute details

Unless you use a budgeting app that does the work automatically, getting stuck in checking spending totals every day or even every month can get exhausting. It’s the fastest way to ensure that you don’t keep up with your budget. It’s too much of a hassle. And it’s also not necessary.

A better strategy is to work for a few months to get a budget set up and then make sure it’s working. Once you do, you can leave it be unless there’s a change in your financial situation. Then you just check in once or twice a year to make sure you’re on track. This will help minimize the hassle of budgeting, so you’re more likely to maintain a budget long-term.

#19: Revisit your budget anytime there’s a change

While you don’t need to pay attention to your budget day-in and day-out, you should always go revisit your budget when there’s a change in your financial situation. Anytime your income increases or decreases, you need to adjust your budget accordingly. You should also revisit it anytime you take on a new recurring expense, such as a new streaming account or a magazine subscription.

What you don’t want to do is run the numbers in your head and assume everything will be okay. Just take an hour to write it all out and determine whether your budget is still balanced. It will give you peace of mind and help you avoid debt.

#20: Always set a budget for winter holiday spending

The winter holidays are the most expensive time of year for almost every family. Most households spend over $1,000 to make the holiday season merry and bright. But most households don’t have $1,000 in free cash flow just lying around! This is why the last quarter of the year always has the biggest increases in consumer credit card debt.

Each year, you should get organized for the holidays in advance. Set a holiday budget that includes gifts, meals, travel, postage, decorations and everything else. Then figure out how much extra you need to save leading up to the holidays. Ideally, being able to budget, save and shop for the holidays throughout the year is the way to go. According to Debt.com’s 2019 Budgeting Survey, about a third of people budget for the holidays throughout the year.

34% of people budget for the holidays throughout the year. Source: Debt.com 2018 Budgeting Survey

In any case, at the very least, set up a holiday budget in September or October to give yourself time to plan and time to save. This will help you avoid a holiday debt hangover!

Article last modified on January 12, 2023. Published by Debt.com, LLC

Reviewed By

Donna Freedman

Expert contributor