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Budgeting is a great way to plan and track spending, as long as you accurately account for all the bills you need to pay. So before you start plugging numbers into a spreadsheet or app, take a minute to list out each of your monthly expenses.
Sorting those expenses into needs and wants can help you organize your budget and prioritize spending, especially if you need to trim costs to make room for savings or debt repayment.
These are the expenses you cannot avoid. If you use the 50/30/20 budget, these should account for 50% of your spending. Necessities often include the following:
Homeowners or renters insurance.
Property tax (if not already included in the mortgage payment).
Out-of-pocket medical costs.
Electricity and natural gas.
Groceries, toiletries and other essentials.
Cell phone and/or landline.
Student loan payments.
Other minimum loan payments.
Child support or alimony payments.
Budget tip: If you find your budget is way out of whack, look closely at those items you’ve classified as needs and consider negotiating, refinancing or downgrading.
These expenses are harder to account for in a budget, as they don’t always come with a set monthly fee. If you use the 50/30/20 budget, wants should account for up to 30% of your spending.
Clothing, jewelry, etc.
Special meals in (steaks for the grill, etc.).
Movie, concert and event tickets.
Gym or club memberships.
Travel expenses (airline tickets, hotels, rental cars, etc.).
Cable or streaming packages.
Self-care and personal grooming.
Budget tip: Scan your spending for the past few months to get a sense of what your wants are and how much you tend to spend on them. Have each adult in your household do the same if you're creating a family budget. This exercise gives you a realistic baseline. You can use what you’ve learned to make small changes in your spending over time.
Don’t forget savings and debt repayment
This is the money you’re putting toward your retirement, emergency fund and other savings, and using to pay down credit card and other "toxic" debt like payday loans. It also includes anything over the minimum payment on your "good debts" such as your student loans and mortgage. In the 50/30/20 budget, this should account for 20% of your income.
Individual retirement account.
Credit card payments (see budget tip below).
Extra payments on mortgage.
Extra payments on student loans.
Budget tip: If you pay off your credit cards in full each month, classify the expenses according to what you buy — groceries under needs, for example. However, if you maintain a balance and are accruing interest and fees, list payments beyond the minimum under debt repayment.
Build your budget
Add up your expenses for each category of needs, wants and savings/debts, then plug in your monthly net income below.
Every few months, revisit your budget and adjust as necessary. Use a budget app to track your expenditures, saving time as you build momentum with your new budgeting habit. If you get stuck, try these budgeting tips.