The Complete Guide to Budgeting

The Problem

“Budgets are for people that aren’t good with their money” – a close and misguided friend

“Budgets are for people who actually have money to spend” – equally as misguided friend

“Budgets are for every single person. Everyone can benefit from knowing what money they do and do not have” – The Common Cents Millennial

Keeping track of our money seems like it should be a basic concept, right? How much do you have coming in the door and how much is going out? But the reality is that most households in the U.S. do not keep track of their money with a budget. According to a Gallup poll, two-thirds of American households do not keep a monthly budget. Those who had a college degree were slightly more likely to keep a budget, as compared to households with a high-school degree sitting at only 26%. So what is the disconnect?

I mean we were really good at it when we were little. You always knew how much money was sitting in your piggy bank. And if you were lucky enough to get an allowance, you always knew what day and for how much. You thought even more carefully about how you spent it. Whether it was on food, the newest game, or trip to the mall, you put some thought in to how you were going to spend that money. And you definitely knew how much it cost, down to the penny! Did we just start caring less once we started making money?

I think a lot of it is psychological. Not only do we think we make more so we can be looser with our spending, but the introduction of debit and credit cards have created a divide in the reality of spending money. Online shopping has contributed to this as well. It’s harder to feel an ownership and responsibility for our spending whenever we never actually “see” the money that we are spending. This problem is becoming even more prevalent for us Millennials, who have been dubbed as the “now” generation. Now, more than ever, we really should be focusing on how we are spending our money and the areas that we can improve. Never created a budget? Maybe you have but it didn’t feel useful enough to keep up with. Let’s try to breakdown the budget into useful categories and the best resources to use to make budgeting even easier.


Getting Started:

  • Salary: For many people, this is the easy part of budgeting. Most people have a pretty good handle on how much income is coming into their bank account each month. If you are a salaried employee, you know exactly how much money is deposited and exactly which day, so for you this step is easy.
  • Hourly: If you are paid hourly, this still shouldn’t be too hard. Many people still work about 40 hours a week. If you have a part time job that has a standard hourly rate, the best thing to do is look at your pay stubs (or deposits into your bank account) for the last three months. You should be able to average out your income that way.
  • Contract: Some of you are contractors or work on a contract-based system. Some of you even own your own businesses, which means income can fluctuate. This can definitely make things a little more difficult, and updating your budget weekly will be more important for you. My advice is to create a schedule of your past and upcoming work with the income associated with them. I know that my dad has to keep in mind pay lags for his contracts as it can take a few weeks for his check to get to him. The more detailed you can be, the better. This type of income stream can be dangerous if not managed because there can be times when you run out of cash during slow times, but then it can feel easier and more justified to go on spending sprees whenever larger checks come in at other times. Also, keep in mind that if your income levels are very cyclical (based on weather or consumer habits), you should try to save more to average out your monthly intake.
  • Other Types of Income: A person’s monthly paycheck is not the only source of income to include. If you make money off of rental properties, dividends, interest, make sure that you include them! Some people think that not including them will help them be more conservative with their spending, but it is usually the opposite. Budgets should be as detailed as possible, so that you can create a plan to send this extra type of income into your savings or an investment account or to pay off debt. If you don’t have a plan for it on paper, chances are you will just spend it once it hits your bank account.


This is the part that people start to struggle with. But you really don’t need to. Most people think that it is harder to track expenses because they happen more frequently than income hitting your bank account, and that expenses fluctuate more. But they really don’t. It’s more a symptom of if you have it, you’ll spend it. Here are categories to include:

  • Housing – Whether it is your monthly rent or your mortgage, this is usually the largest monthly outflow of cash. Paying your rent is easy to track since it is the same amount and paid on the same day each month. If you own your house and don’t have your tax payments built into your monthly mortgage payment, you should either be prepaying or setting aside that amount each month so you aren’t slapped with a large bill during the bill without the cash to back it up.
  • Car Payment – While I am a strong proponent of not having car debt (as it is insanely expensive and does not have great interest rates at the moment), sometimes life happens and you have to take on the debt for a car.
  • Utilities – This means gas, electric, water/sewage, trash, cable/internet. I’m a big fan of ditching cable and just using a good internet connection to watch TV (like Netflix, Prime, Hulu, etc.) One thing to keep in mind is the fluctuations that can happen with certain utilities, mainly gas and electric. If you know you vary your use of these based on the weather, consider setting up more averaged payments instead of waiting for actuals. While some months you overpay, everything evens out in the end.
  • Insurance for Things – Think of your house, apartment, car, etc. Insurance is something that is not only required in many cases, but strongly encouraged. It is way easier to make a small monthly payment than to wind up with nothing in your hands after an accident or fire. You need to shop around for the best type of rate you can get, but make sure you know exactly what is included in your package. Many times insurance companies will give you better pricing for bundling these together!
  • Groceries – This can be another big ticket item for some people, especially for families. I really push people to use Aldi, Trader Joes, and other budget friendly places to grocery shop. Ingredients are almost the same across most items you buy, so that pretty box and name you are used to isn’t worth the price. And Aldi has become more natural, organic, and provides better options than many other Big Name grocery stores. Remember, it is better to spend a little more here and prepare all meals at home than to eat out even a couple times.
  • Student Loans/Fixed Debt – You should have a fixed amount to pay per month (unlike credit card debt). Pay it off early and quickly. Feel free to check out my other post on Destroying Your Student Loan Debt, to find ways to be more efficient in tackling this kind of debt.
  • Cell Phones – Look into some carriers that don’t have a million commercials on TV. Many times they provide equal or about “1% less coverage” than other competitors but charge half of the price. Keep this cost low as possible.
  • Health Insurance – Necessary and important. Many times this is deducted from your pay before you even see it, but it’s important to keep track of your expenses throughout the year for tax reasons and for planning the next year. Look into HAS’s and other ways to lower your health related expenses each year.
  • Life Insurance – Again, I strongly recommend getting at least something if you don’t already have a plan. If you think life is hard with money now, image what would happen to your spouse/family if you weren’t around to help. Try to have it deducted from your pay before you even see it, otherwise pay it ASAP.
  • Retirement: Hopefully you have a 401k or some plan set up through your employer and can contribute with pre-tax dollars (always try to do this).  If not, you can still contribute to a traditional IRA on your own with pre-tax dollars. Or, many people also like Roth IRA’s and other after-taxable accounts to help them prepare for retirement in addition to their pre-tax options.
  • Credit Cards – Now paying this type of debt off should be easy because the only things charged to these are things you have cash for and already budgeted on here somewhere else. Now I know this isn’t always the case, because, well life happens. The only number that goes here is the interest that you are accruing or debt from a previous month that hasn’t been paid off yet. Pay this off now as the interest rates are always the worst.
  • Entertainment – Please budget for this. Many people will not because they live in some fantasy that they are not going to purchase one item of food or drink or do one fun thing all month. This is not realistic at all. By failing to plan for it, you’re planning to fail. Give yourself a number and stick to it.
  • Taxes – If you are self-employed, you know how this goes. Do not wait until Uncle Sam has a hefty bill for you to plan. You already have a good idea what tax bracket you will be in for the year. Set aside the money as it comes in and pay it quarterly. You will thank me (but mostly yourself) when the tax man comes around.
  • Savings – You need to consider this as one of your first expenses after getting your paycheck. Pay yourself first. I’ll say that 1,000 times across this blog. You need to set a specific amount that you are going to stash away each month. Automate this as fast as you can, that way it is taken out of your account before you can even touch it.
    • Playing off of savings, it is really important to have an emergency fund set up. This should be cash that you can easily have access to. Whether it is car issues, you were laid off, or a medical emergency, life is so much easier when you don’t have to worry about the issue AND the money. The recommendation on the amount ranges from who you talk to, but since I have a rather stable job, I keep mine at about 3 months’ worth of expenses. For those of you in more volatile job markets or have more risk in your expenses fluctuating, perhaps budget for more.
  • Time to Get Specific: It might seem stupid to plug in such small amounts, but it’s the small ones that add up and are the most unexpected.
    • Netflix/Hulu/Spotify (streaming services)
    • Pet food
    • Toiletries
    • School Expenses
    • Charity
    • Miscellaneous fees
    • Gifts
    • Coffee


Paper vs. Computer: The majority of users that I know use online resources to help them make budgeting even easier. However, this does not mean that you cannot still write everything down to get it all in front of you. Feel free to create a binder that help you save all of your expenses and to break them down into categories. But if you’re willing to learn, keep reading about the awesome resources that will help you track your finances.

  • Online Banking – While this one seems obvious, it will be your obvious source to see what cash you have on hand and can check the exact amounts for certain expenses.
  • Online Savings Account – I strongly encourage people to use online banks for savings accounts, as the difference in interest rates is dramatic. I personally use the Barclay’s Dream Account. Not only does it boast a 1.20% interest rate (for comparison, most big banks offer 0.01%), but it also rewards you with percentage bonuses for every 6 consecutive months that you have a deposit. They also have the same reward for 6 consecutive months of not withdrawing your money.
  • Credit Cards – So many people see credit cards as a way to get into trouble. But if used correctly, they can help you out in many ways. First, it helps your credit and makes you a more reliable borrower. Second, you can earn many rewards, like cash or travel points based on your spending habits. And finally, many will track your expenses and allow you to tag categories. Then you can get a high level view of your spending habits.
  • I personally use as a great resource to get a high level view of my spending. With Mint, you can safely and effectively connect all of your online financial accounts, from student loan debts, checking and savings accounts, bills, to linking your credit card activity. You can record any assets you have to keep track of your net worth. All in one easy place. After pulling in your credit card transactions, it will try to automatically categorize the expense based on the description of where it was spent. You can go through them and change or add categories to match what your budget is. They have high level views with pie charts and spending trends to show you big ticket items and how you are doing. You can even enter your budget that you created above and enter it into Mint. Once expenses are categorized against the budget, you can see how much money you have left in each category and if you went over. This will help you adjust your spending habits for the rest of the month and provide opportunities to change your budget before the next month.
  • Excel – I use all of these resources above to keep track of things, but I still like to make something in Excel for me to look at and quickly edit. I still have my own Excel sheet just because I like to be able to move things around and track the timing of certain expenses verse income as well. I keep my Excel sheet easy to use. I break things down like this:
    1. Money sitting in my checking accounts to use
    2. Money I know that is coming in (mileage, second paycheck, monetary gift)
    3. Expenses (remember to zero these out if you paid them with a credit card and they are now sitting on your credit card as a balance. Avoid double counting)
    4. Credit Card Balances
    5. Savings Goal
    6. What is left over

I do it this way to see what bills I could pay off at any moment in time based on the money I have in my checking account at that time. I compare that to what bills I should wait until more money comes in to pay. This is also an easy way to see the impact that certain purchases or expenses will have on your cash flow for the month. I mainly do this just to make sure I am never in a position where I pushed out too much cash at one time and am cash-strapped.


  • Update your budget every Sunday. This will give you a good idea of how the previous week went and can prepare you for any changes you need to make for the upcoming week.
  • Discuss things as a family (or just with your spouse) at least monthly. Even if you’re the one who handles all the finances, other people in your house are still spenders and consumers. It is important to make the big picture as well as specific goals known to everyone.
  • Get really good at budgeting your month to month activities and then start to focus on long-term goals. Planning for things in the future can be a different type of budgeting experience, one I am going to write about soon.
  • Be proud of yourself. Just by taking these steps, you’re already ahead of 2/3 of other households.
  • Be realistic. While it can be fun to boost possible income and lower certain expenses to see more cash left at the end of the month, it is probably not realistic. Don’t budget $0 for eating out if you already do it twice a week. Don’t budget for 2 drinks with your friends if you go out every single weekend. While I strongly advocate to cut back in those type of areas to save money, you need to balance your goals with your reality. Make sure you don’t go overboard, otherwise you won’t stick with it.
  • If you have a certain budget area where you struggle, reach out to your friends and family and explore ways to save. Going over an area in your budget should be a red flag that sparks discussion, not something to be embarrassed about.

Getting your expenses under control is one of the most important things you can do. We are living in such a consumer hungry society, but really think if all of that spending is making you any happier. Do you really want to buy that new car, or are you just trying to “Keep up with the Joneses”. Is it really worth paying $5 for an avocado, just because the store you bought it at was fancier? No way! You will be amazed at how much money you can accumulate and how quickly if you just stop running on auto-pilot with your expenses.

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About Dave 12 Articles
I'm the Common Cents Millennial and I am here to change how you think about your finances. Follow me as I struggle with student debt, side hustling, budgeting, lowering my expenses, and my path to early retirement. My goal is to go from $150k in student debt to early retirement in 15 years or less!

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