Create a Practical Budget

Categorize Expenses

Start with five categories. Add more or separate them only if it is helpful.

  • Income – what you make
  • Giving – what you give to charities and non-profits
  • Housing – what you spend on mortgage, rent, utilities, insurance, and association dues
  • Living – what you spend on food, personal care, household items, medical expenses, recreation, and unsecured debt payments
  • Driving – what you spend on vehicle loans, maintenance, insurance, registration, and gas

Track Expenses

The only way to know how much you spend in each category is to add it up. Don't let this become a long chore at the end of the month. Make it part of your daily routine. This habit will also help you stay within your budget. You don't need a software subscription to budget – our free budget spreadsheet works great.

Plan for Seasonal and Unexpected Expenses

You don't want seasonal expenses – holiday shopping or bills owed a few times each year – to catch you by surprise. Neither do you want an unexpected expense like a car repair to wipe out your savings. Make room in your monthly budget for these items. For example:

  • Allocate $200/month for education expenses that cost $1,200/semester
  • Allocate $150/month for car maintenance and repairs that might occur ($1,800/year)
  • Allocate $50/month for holiday shopping ($600/year)

Find Ways to Save

Once you track expenses for the first time, the results can be shocking. You may need to trim expenses in order to pay your bills and not overspend. Here are the easiest ways to save:

  • Buy groceries and household items when they are on sale
  • Eat at home more and pack lunch for work
  • Limit Internet, phone, and streaming services

Spend Less Than You Earn

Here's the simple truth: the only way to get out of debt and build wealth is to spend less than you earn. Regardless of your current debt or income, you can do this! Make sure your budget allocates money to pay off high interest debt or accumulate savings.