Budgeting doesn’t have to be complicated or intimidating. In fact, creating a budget is one of the most powerful steps you can take toward financial freedom. A good budget helps you understand where your money is going, keeps you on track with your goals, and ensures you’re prepared for the future. The best part? Anyone can do it, even if you’ve never made a budget before.
In this guide, we’ll break down budgeting into seven simple steps that take the mystery out of the process. Plus, we’ll show you why including savings in your budget is essential and how choosing the right savings account can make your money grow faster.
Step 1: Know Your Income
Start by figuring out how much money you bring in each month. This includes your paycheck, side hustle income, and any other regular sources of cash. Be sure to use your net income when you’re adding up your income streams. This is your income after taxes and voluntary deductions such as retirement and health insurance contributions. It’s important to use net income, since it’s what you actually have to spend. If your income varies, take an average of the last three months to get a realistic number. Knowing your income is the foundation of your budget. It tells you what you have to work with.
Step 2: List Your Expenses
Before you can create a budget, you need to know where your money is going. Write down everything you spend in a typical month—rent, groceries, coffee runs, streaming subscriptions, and even small purchases. Understanding your monthly expenses helps you spot patterns, like overspending on dining out or subscriptions you no longer use. This step is eye-opening and often reveals easy ways to save.
Step 3: Separate Needs from Wants
Once you know your monthly expenses, divide them into two categories:
Bucketing your expenses into “needs” and “wants” helps you prioritize what matters most and gives you flexibility to adjust your spending. If you find that “wants” are taking up too much of your income, consider cutting back. Remember, budgeting isn’t about saying no to fun, it’s about making sure your money supports your goals.
Step 4: Set Spending Limits
Once you know your income and expenses, decide how much you should allocate to each category every month. You should also set a threshold for your monthly savings.
A popular method is the 50/30/20 rule:
You can adjust these percentages based on your lifestyle, but make sure saving is always part of your budget. Setting specific limits for each category keeps you from overspending and ensures you’re moving toward your goals. If you’re paying off debt or saving for a time-sensitive goal, you might want to temporarily devote more funds to that bucket.
Step 5: Treat Savings Like a Bill
Here’s the secret to successful budgeting: make monthly savings non-negotiable. Think of the amount you save each month as a monthly bill you have to pay, just like your rent or phone bill. Automating your savings can make this even easier. When you pay yourself first, you’re building a safety net and working toward your financial goals. Even small amounts add up over time, so start with what you can and increase it as your income grows. To make your savings grow faster, look for a savings account with a high interest rate. Bank5 Connect offers savings accounts with rates that are significantly higher than most traditional banks, allowing your money to grow while you focus on your goals.
Step 6: Put Your Budget into Action
Once you’ve outlined your income and expenses, and set your spending limits and savings goals, it’s time to make your budget real. A plan only works if you can track it and stick to it, so choose a method that fits your lifestyle:
Tip: Start simple. Don’t overcomplicate your first budget. Pick one method and stick with it for a few months. Once you’re comfortable, you can explore more advanced tools or features.
Step 7: Review and Adjust Regularly
Your budget isn’t set in stone. Things like switching jobs, moving, or facing unplanned expenses can all have a huge impact on your budget. That’s why it’s important to review your budget every few months and make adjustments as needed. Staying flexible helps you remain on track without feeling restricted. A budget should work for you, not against you. If your budget is too tight or unrealistic, tweak it until it fits your life.
Final Verdict: Budgeting Matters
Budgeting isn’t about limiting yourself—it’s about giving your money a purpose. When you create a plan, you reduce stress, avoid debt, and build confidence in your financial future. Plus, by prioritizing a savings plan and choosing a high-interest saving account, you can set yourself up for long-term success. Imagine the peace of mind that comes from knowing you have an emergency fund and a plan for your financial goals. Creating a budget doesn’t have to be overwhelming. By following these seven simple steps, you’ll have a clear roadmap for managing your money and reaching your goals. If you’re interested in opening a high-interest savings account to support your budgeting goals, check out Bank5 Connect’s options today.
In this guide, we’ll break down budgeting into seven simple steps that take the mystery out of the process. Plus, we’ll show you why including savings in your budget is essential and how choosing the right savings account can make your money grow faster.
Step 1: Know Your Income
Start by figuring out how much money you bring in each month. This includes your paycheck, side hustle income, and any other regular sources of cash. Be sure to use your net income when you’re adding up your income streams. This is your income after taxes and voluntary deductions such as retirement and health insurance contributions. It’s important to use net income, since it’s what you actually have to spend. If your income varies, take an average of the last three months to get a realistic number. Knowing your income is the foundation of your budget. It tells you what you have to work with.
Step 2: List Your Expenses
Before you can create a budget, you need to know where your money is going. Write down everything you spend in a typical month—rent, groceries, coffee runs, streaming subscriptions, and even small purchases. Understanding your monthly expenses helps you spot patterns, like overspending on dining out or subscriptions you no longer use. This step is eye-opening and often reveals easy ways to save.
Step 3: Separate Needs from Wants
Once you know your monthly expenses, divide them into two categories:
- Needs: Essentials like housing, utilities, groceries, and transportation.
- Wants: Non-essentials like dining out, entertainment, and shopping.
Bucketing your expenses into “needs” and “wants” helps you prioritize what matters most and gives you flexibility to adjust your spending. If you find that “wants” are taking up too much of your income, consider cutting back. Remember, budgeting isn’t about saying no to fun, it’s about making sure your money supports your goals.
Step 4: Set Spending Limits
Once you know your income and expenses, decide how much you should allocate to each category every month. You should also set a threshold for your monthly savings.
A popular method is the 50/30/20 rule:
- 50% for needs
- 30% for wants
- 20% for savings and debt repayment
You can adjust these percentages based on your lifestyle, but make sure saving is always part of your budget. Setting specific limits for each category keeps you from overspending and ensures you’re moving toward your goals. If you’re paying off debt or saving for a time-sensitive goal, you might want to temporarily devote more funds to that bucket.
Step 5: Treat Savings Like a Bill
Here’s the secret to successful budgeting: make monthly savings non-negotiable. Think of the amount you save each month as a monthly bill you have to pay, just like your rent or phone bill. Automating your savings can make this even easier. When you pay yourself first, you’re building a safety net and working toward your financial goals. Even small amounts add up over time, so start with what you can and increase it as your income grows. To make your savings grow faster, look for a savings account with a high interest rate. Bank5 Connect offers savings accounts with rates that are significantly higher than most traditional banks, allowing your money to grow while you focus on your goals.
Step 6: Put Your Budget into Action
Once you’ve outlined your income and expenses, and set your spending limits and savings goals, it’s time to make your budget real. A plan only works if you can track it and stick to it, so choose a method that fits your lifestyle:
- Budgeting Apps. Free apps like EveryDollar, PocketGuard, and Goodbudget can make budgeting easy. For more features and functionality—including syncing with your bank accounts and categorizing your spending automatically—you might consider upgrading to a paid version of these apps, or trying a subscription like YNAB or Monarch Money.
- Spreadsheets. If you prefer a hands-on, cost-free approach, try a spreadsheet template in Excel or Google Sheets. You can even create your own budget template. Spreadsheets give you full control and are perfect for those who like customizing their budget.
- Printable Worksheets. If you enjoy writing things down, printable budgeting worksheets are a simple option. They help you stay organized and are ideal if you want to disconnect from screens. You can also create your own worksheet with a simple pen and paper.
Tip: Start simple. Don’t overcomplicate your first budget. Pick one method and stick with it for a few months. Once you’re comfortable, you can explore more advanced tools or features.
Step 7: Review and Adjust Regularly
Your budget isn’t set in stone. Things like switching jobs, moving, or facing unplanned expenses can all have a huge impact on your budget. That’s why it’s important to review your budget every few months and make adjustments as needed. Staying flexible helps you remain on track without feeling restricted. A budget should work for you, not against you. If your budget is too tight or unrealistic, tweak it until it fits your life.
Final Verdict: Budgeting Matters
Budgeting isn’t about limiting yourself—it’s about giving your money a purpose. When you create a plan, you reduce stress, avoid debt, and build confidence in your financial future. Plus, by prioritizing a savings plan and choosing a high-interest saving account, you can set yourself up for long-term success. Imagine the peace of mind that comes from knowing you have an emergency fund and a plan for your financial goals. Creating a budget doesn’t have to be overwhelming. By following these seven simple steps, you’ll have a clear roadmap for managing your money and reaching your goals. If you’re interested in opening a high-interest savings account to support your budgeting goals, check out Bank5 Connect’s options today.