Budgeting Tips to Safeguard Your Hard-Earned Cash

The secret to spending wisely starts with a plan. Learn the best budgeting tips and strategies for any level.


Without a budget you won’t know how much you’re earning, spending and saving or if you’re on track to reach your financial goals. You could be spending beyond your means and not even realize you’re in the red.

Creating and following a budget can give you confidence in your purchasing decisions and provide financial peace of mind. The next time you need to pay for car repairs or a medical bill, you’ll be able to look at the numbers and see where the money should come from. Or when you’re considering your next vacation, you can figure out what fits comfortably within your budget or tweak your budget accordingly. Read on for several budgeting strategies to help you get started.

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The 50/30/20 rule

One of the most popular budgeting strategies is the 50/30/20 method. Used by newbies and pros alike, it can adjust to any income because it’s based on percentages. It’s especially helpful when you’re just starting out and need to know what a good ballpark is to budget in each category, since it breaks it down into needs, wants and savings.

Here’s how to budget with the 50/30/20 method:

  1. Calculate your after-tax income. Your after-tax income is the amount of money you collect after taxes are taken out of your paycheck. If healthcare, retirement contributions, life insurance, disability insurance or any other deductions are taken out of your paycheck, add them back into your total monthly income. You’ll account for these deductions later in your budgeting process.If you don’t have a steady paycheck because you work on commission or freelance, take the last three months and average them to estimate your after-tax income. If you have inconsistent income, then you may want to round down your estimate so you’re not over-extended during leaner months. Extra income can always go towards savings and help fill in the gaps during slower periods.
  2. Spend no more than 50 percent on needs. Gather at least three months’ worth of bank statements and note how much you spend on necessities such as groceries, housing, utilities, health insurance and car insurance. Any expense that impacts your quality of life, such as electricity or housing, are needs. Also include minimum payments on your student loans or credit cards, as these should be treated as non-negotiables. Any payment that you can eliminate with only minor inconvenience, such as your cable TV bill, is a want. The amount that you spend should be no more than 50 percent of your total after-tax pay, so if you’re spending more you need to make some adjustments. For example, if your monthly after-tax income is $4,000 per month, all your necessities should cost no more than $2,000 per month. Of course, if you can comfortably lower your expenditure on needs — for instance, by moving to a less expensive apartment or biking more instead of driving — that will free up more money for other categories.
  3. Spend no more than 30 percent on wants. Tally how much you’re spending per month on wants such as clothes, cable TV, gym memberships or entertainment. To use the earlier example, if your monthly after-tax income is $4,000, you should be spending no more than $1,200 per month on wants. Certain months may have higher expenses in this category — for instance, the month when you go away on vacation or buy Christmas gifts — so you should average these expenses over the course of the year and spend less in other months to account for this. Don’t use these one-time expenditures as an excuse to blow your budget.
  4. Allocate at least 20 percent for savings/debt repayment. Spend at least 20 percent of your after-tax income repaying debts and saving money in your emergency fund and your retirement accounts. If you’re contributing to a retirement plan at work, this counts towards your 20 percent. Remember, if you carry a credit card balance or student loans, the minimum payment is a “need.” Anything above the minimum is an additional debt repayment, which qualifies towards the 20 percent savings target. In the example above, you should be putting aside at least $800 for savings or debt repayment. If you’re struggling with the motivation to save, consider this: saving $150 a month starting when you’re 25 will add up to $45,000 by the time you reach age 50. If you started saving just 10 years later at age 35, you’d have to save $100 more every month (that’s $1,200 more a year) just to reach the same goal.

Common budgeting mistakes

Now that you have a basic framework for budgeting, here’s a look at common budgeting pitfalls — and how to avoid them.

  • Forgetting one-off expenses. When you’re setting a monthly budget, it’s easy to forget expenses that occur less regularly like your life insurance premiums or an annual contribution to your favorite charity. Divide these expenses by 12 and put aside a little each month to avoid an ugly surprise one month.
  • Keeping up with the Joneses. Other people spend money differently: flashy cars, designer handbags, frequent vacations. Don’t feel pressured into matching their spending or it might derail your budget. If you need a reminder, write your 50/30/20 budget on a piece of paper and wrap it around your credit or debit card. Or, try practicing the art of gratitude. Just take a moment to bathe in abundance as you think of the warm roof over your head, clothes to wear, safe car, or friends and family to enjoy.
Quick Tip!
Quick Tip!

Count your blessings to automatically feel richer.

  • Letting lifestyle inflation creep in. Whenever you get a hefty bonus or a tax refund, it’s easy to blow that money and get used to a higher standard of living. That can backfire because the money disappears but your taste for nicer things doesn’t. To avoid this pitfall, try to save bonuses or put it towards debt, suggests Katie Ryan O’Connor at Get Rich Slowly. If you must indulge, set the expectation for yourself that it’s a one-time indulgence and not something you intend to spend on regularly. One-time indulgences also feel more special, because we quickly stop appreciating things we get all the time.

When to adjust your budget

A budget should be a living document, not a set-it-and-forget-it rule, so revisit your budget several times a year and adjust as your needs change. However you decide to spend and save your money, it must jibe with you and your financial goals. If you try something that’s not working, don’t give up on budgeting; tweak your system until you figure out what works for you.

Here are a few examples:

  • Getting a raise. Maybe you’re getting a raise at work or you’re taking on a side hustle so you can reach your financial goals faster. Revisit your budget and decide where the extra money will go; otherwise, it’s too easy to spend the extra cash without thinking about it.
  • Changing your living situation. Whether you’re relocating to a new apartment, moving in with your new spouse or getting a roommate, these changes are likely to impact your spending on housing, utilities and transportation. Take another look at your budget and try to look for ways to offset higher costs or reallocate extra money.
  • Saving for a big financial goal. If you’re actively working towards a financial goal like buying a home or paying down credit card debt, that’s a great time to reexamine your budget. Where can you cut back to redirect more money towards savings? Are there opportunities to bring in more money by selling your old electronics sitting in a drawer or the unloved clothes in your closet?
  • Struggling to make your numbers work. If your current budget isn’t working, then it’s time to rethink things. Maybe you can get a part-time or seasonal job to make up the deficit. Or perhaps shopping around for a cheaper cellphone plan or apartment could help relieve financial stress. Also look for things you can eliminate from your budget, such as memberships or a video streaming service you aren’t using.

Budgeting tools

The low-tech way to budget is with a pen and paper, but there are plenty of tools that can help you create a budget and stay on top of your spending. You might experiment with a few of these options to find what works for you.

  • Budgeting calculator. Kiplinger has an online budgeting worksheet you can customize to your needs and fill in your numbers. Also check out SmartAsset’s budget calculator, which allows you to input your household details to see averages in your area. But keep in mind that just because someone else’s budget for food or transportation might be at a higher level doesn’t mean you need to match their spending!
  • Budgeting apps. If you prefer a more automated approach to budgeting and accountability, mobile apps such as YNAB (You Need a Budget), Illuminate™ and Mvelopes can help you stay on top of your spending.
  • Budgeting software. Not a mobile app person? Personal finance software such as Quicken® or the budget planner from SimplePlanning are alternate options.
  • Budgeting templates.
    • Excel: Whether you want a complex or more streamlined budget template, you’ll find tons of free downloadable template options created for Excel. David Weliver of Money Under 30 created a simple budgeting spreadsheet, and the Super Starter Budget from Savvy Spreadsheets is another good option for budget beginners.
    • Google sheets: If you and your spouse both want access to your household budget, you could set it up as a shared Google spreadsheet so you can both access and update it as needed. However, as Bob Lotich writes on the Huffington Post, some functionality might be lacking

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Budgeting tips for …

Budgeting is far from a one-size-fits-all endeavor. Here are some tips tailored to specific types of consumers.

Budgeting for Beginners

  • Set savings goals. Set goals for yourself, like reaching $1,000 in savings, then three months’ income saved, then six months. Having a goal in mind will keep you from using your savings unnecessarily. Then when you do reach those marks, you can reward yourself a little to reinforce the benefits of saving.
  • Set up auto-savings. Trick yourself into thinking you have less money than you do, and you may not even miss the dough in the first place. You can do this by opting to have a portion of your paycheck automatically deposited into a savings, retirement, college or other type of investment account. Out-of-sight, out-of-mind is the best trick for saving money without too much heartache.

Budgeting for Married Couples

  • Set up money dates. Whether you set up joint bank accounts or keep your money separate, it’s a good idea to have periodic money dates with your spouse so you can discuss your goals and monitor progress. You should set a shared budget and look for ways that you can reduce costs together, such as getting a family cellphone plan or creating a grocery list so you’re not buying duplicate items. Beyond day-to-day discussions about budget, you should also discuss your long-term financial goals so you can get on the same page. A 2015 MONEY poll found that many couples need more discussion about their visions for retirement. If you’re not discussing retirement, then you might find that you’re both invested the same way, which means you’re not as diversified as you could be, or you may not be saving enough to reach your goals.
  • Try living on one income. If you both work, try living on one spouse’s salary and save the other one. This allows you to test-drive living on one income in case one of you later decides to stay at home with kids. Plus, if one spouse loses their job, knowing you can comfortably live on one income will relieve stress. “By making sure a single salary can cover your living expenses, you get the flexibility of saving the other salary, investing it, and letting it grow into a sizable retirement nest egg,” points out Maurie Backman of the Motley Fool.

Budgeting Tips for Stay-at-home Parents

  • Purchase life and disability insurance. Many working spouses know that they need life insurance to provide for their family in case of an untimely death and disability insurance to replace part of their income in case they’re unable to work. Stay-at-home parents need these protections too, because if a stay-at-home mom or dad wasn’t able to make the kids’ lunches, pick them up from school or change a baby’s diaper, the other spouse might need to hire help or scale back work to pick up the slack.
  • Save for the future. Stay-at-home parents may not have earned income or an employer-sponsored retirement plan, but they can still set aside up to $5,500 per year for retirement using a spousal IRA. This can be a Roth or a traditional IRA depending on if you want to fund it with pre-tax (traditional IRA) or post-tax (Roth IRA) money.

Now that you know the basics of budgeting, it’s time to implement these strategies in your own life. By living below your means and allocating money for everyday expenses, as well as long-term financial goals, you’ll set you and your family up for financial security.

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