Budgeting

How to Track Expenses in 3 Easy Steps and Never Fail at Budgeting Again

Our number one goal at DollarSprout is to help readers improve their financial lives, and we regularly partner with companies that share that same vision. Some of the links in this post may be from our partners. Here’s how we make money.

If you’ve tried budgeting before and failed, you’re in good company.

In fact, I’d argue it takes most people 3-6 months to learn how to track expenses, stick to a budget, and plan achievable goals for the future.

In other words, no one is born knowing how to track expenses and budget. It’s something that you have to learn, and it takes trial and error.

I’ve tried just about every method out there from budgeting apps to a pen and paper to cash envelopes. While there are many different ways to manage your money, one thing is true about all of these methods: you have to track your expenses or your budget will never work.

Why Should You Track Your Expenses?

Keeping track of expenses is important for so many reasons. First of all, it’s impossible to budget your money if you don’t know where it’s going each month.

Tracking your expenses also gives you insight into some of your behaviors around money. For example, you might notice you spend more money on the weekends or tend to order take out on Thursdays when you don’t feel like cooking anymore.

Tracking your expenses gives you good information. It shows you where you excel when it comes to money and places you can improve. It also lets you know your priorities. All you need to do is see where you spend the most money to find out what is most important to you.

3 Steps to Track Expenses

If you’re ready to become a champion spending tracker, there are three steps you need to take. First, create a budget. Then, decide how you will track your spending (with an app, spreadsheet, etc.) Lastly, schedule weekly check-ins to keep yourself on track.

1. Create a Budget

People usually cringe when they hear the word budget because it sounds like a fun suck. After all, don’t people who budget live boring lives? Not so!

The first step to creating your first budget is to set goals for your spending. For example, is it your goal to spend less than $50 a month on takeout? Write it down.

Then, after your first few months of using a spending tracker, you can measure your goal with your reality. If you come up short, that’s ok. That’s why it’s so important to track your spending. We usually spend more than we think on certain categories. Tracking that can help cure some bad financial habits.

2. Decide on a Spending Tracker

Once you have a basic budget in place and a list of your spending goals to go along with it, it’s time to start tracking. There are many different spending trackers out there. Here are a few of the most common ways to track what you spend.

Best Budgeting Apps for Personal Expense Tracking

In the modern, digital age, budgeting apps are taking the market by storm. It seems every time you turn around, there is another one out there. Below are some of the best budgeting apps we’ve tried and like.

Personal Capital

First and foremost, Personal Capital is an investment advisory firm. This means Personal Capital employs financial advisors to help their clients with their investment choices. In order to work with them as an advisory client, you have to invest a minimum of $100,000 with them.

However, even if you don’t have $100,000, Personal Capital offers free budget tracking software. Connect all of your accounts to their free platform, and you can see your net worth, track your spending, and more. You’ll get emails every week telling you how your portfolio is doing.

Keep in mind that the overall goal of Personal Capital is to eventually acquire clients, and offering free tracking software is one way to spread awareness of their services. However, before you sign on the dotted line as a client, take the time to compare their fees with other brokerage firms to make sure you find one that’s the best fit for you.

Tiller

Tiller is similar to an expense tracker worksheet that you would create yourself, except it’s so much more sophisticated than that.

Tiller pulls information from your bank accounts and then automatically populates a spreadsheet for you. You still get the same great spreadsheet magic that you love except Tiller does all the heavy lifting and data entry for you. You can try Tiller free for 30 days, and then it is $59/year to keep.

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Tiller at a Glance:

Tiller is similar to an expense tracker worksheet that you would create yourself, except it’s much more sophisticated. Tiller pulls information from your bank accounts and then automatically populates a Google spreadsheet for you. So, you still get the same great spreadsheet magic that you love except Tiller does all the heavy lifting and data entry for you. You can try Tiller free for 30 days, and then it is $59/year to keep.

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YNAB

YNAB stands for You Need a Budget. YNAB offers a comprehensive online budgeting software that is based on the principle that everyone should budget one month ahead. YNAB does come with a monthly fee, but you can try it for free for 34 days.

Full disclosure: After trying many different budgeting apps, YNAB is the one that works best for me personally because I also adhere to the philosophy of starting the month with the full amount of money I need for that month.

However, it really took some time to learn how to use the software. I actually tried it once before, got frustrated, and stopped using it. Then I got an email from YNAB inviting me to try it again.

The second time I tried it, I spent more time watching the videos and understanding how it worked. That did the trick. I’ve been using it faithfully for over a year.

Also, even though YNAB isn’t free, it is ad-free. So you won’t be faced with ads for insurance or phone companies or other financial products while you’re using it. This allows you to focus on your own budget without distractions.

Related: An Up-Close Look at You Need a Budget (YNAB Review)

Mvelopes

Mvelopes is a budgeting app that helps you track your spending through the use of digital envelopes. What makes Mvelopes so cool is that you can actually get the help of a one-on-one money coach if you choose their upgrade feature.

A basic account is $4 a month, but for $19/month, you can get a quarterly check-in from a money coach. They also have an option to pay for a monthly phone call, too. If you think accountability will help you reach your financial goals, this is the app for you.

Mint

Mint is one of the most popular budgeting software systems out there. They were one of the very first companies to help consumers digitally track their budgets, and it’s free to sign up.

Connect your accounts, categorize your spending, and then find ways to customize Mint to work for you. You can even set up reminders to notify you on your phone to pay your bills.

You can also add alerts to let you know when you’ve gone over budget. If you happen to find out you’re over your grocery budget, you know it’s time to open up the pantry and start using those cans of tuna you’ve been avoiding.

Of course, part of what makes Mint free is that they earn money from different recommendations like credit cards, life insurance, and other financial products. If you don’t mind the ads, this is a great, free product that many people have enjoyed using for years.

Wally

Wally is a relatively new budgeting app that’s recently hit the financial tech scene. Based on reviews of the app, Wally is still in its beta phase but with room to grow.

The way Wally works is by keeping you hyper-aware of your spending. Rather than automatically importing your credit and debit transactions, you manually enter what you spent.

Wally can, however, use GPS to see where you are when you spend money. So if you are waiting for your coffee in line at Starbucks, Wally should be able to know you’re there and suggest that vendor as the one to enter.

This system of entering in your spending after you just had the transaction keeps you aware of your day-to-day transactions. This would be excellent for someone just starting out budgeting who really needs to understand their behaviors around money in real time.

Pen and Paper

You can’t go wrong with a good, old fashioned pen and paper. This is a very low tech and inexpensive way to track your spending. I used to do this when I lived abroad and didn’t have a smartphone.

I had a little pad of paper I’d keep in my purse. When I bought something to drink or eat, I just jotted it down. After a few weeks of doing this, you can notice spending patterns. It’s also a very active way to track spending that really makes you think before you buy something. After all, if you buy it, you have to write it down so you remember!

Expense Tracker Spreadsheet

Many people love using their own expense tracker worksheets, which you can create in Excel or Google Sheets.

The reason this works is because you can really customize an expense tracker spreadsheet to your own budget and spending categories. It’s free, and now you can share a google doc spreadsheet with your spouse and track your spending together.

3. Set Weekly Check-Ins

Once you’ve found an expense tracking system that works for you, it’s important to set weekly check-ins. This can be something you put on your own schedule and stick to if you’re single or it can be something you do with your partner.

The reason weekly check-ins are so important when it comes to expense tracking is that it allows you to adjust your spending for the following week. That way, if you bought too much wine because it was on sale at the grocery store, you know that you might be having a pantry challenge the following week to make up for it.

Track Expenses: Your Budget Will Thank You

If you’ve struggled with budgeting in the past, tracking your expenses every day is likely the missing ingredient to budgeting success.

Remember, creating a budget and sticking to it doesn’t mean your life will be full of restrictions. Instead, you can feel more control over your money, learn how to allocate funds to your priorities, and cut back on the things that don’t really matter to you.

Be patient with the process, and switch up your expense trackers if the first one you tried doesn’t work for you. Try this for a few months, without fail, and tracking expenses will become a part of your daily life. Soon, you won’t know how you lived without knowing exactly where your money goes each and every day.

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How to Make a Budget in 7 Easy Steps

This guide is going to walk you through, step by step, how to make a budget that you can actually stick to.

You’ve got money goals. Whether you want to get out of debt, save for retirement, or afford that luxury vacation in Cabo, there is one thing you know you have to do:

Get control of your spending.

Creating a budget doesn’t have to be scary or overly restrictive. In fact, a good budget is flexible! It knows that your life is ever changing and helps you prepare for that reality. The only requirement of a good budget is that it helps you get conscious of your spending — and live within your means.

Here’s how to make a budget that works for you, so you can stress a little bit less about money.

Table of Contents

  • Budget Template
  • Step 1: How to Make a Budget Plan – Find the Best Method for You
    • 50/30/20 Budgeting Method
    • Envelope System
    • Zero-Based Budget
  • Step 2: Decide How You’ll Track Things
    • Use a Budget Worksheet
    • Use a Budget App
    • Write It All Down In A Bullet Journal
  • Step 3: Figure Out Your After-Tax Income
  • Step 4: See Where You Are Currently Spending
    • Allocate 50% of Your Income to Needs
    • Allocate 20% of Your Income to Debt Repayment and Savings
    • Allocate 30% of Your Income to Wants
  • Step 5: Set Your Priorities
    • Build an Emergency Fund
    • Pay Off High-Interest Debt
    • Get a Full Employer Match on Your 401(k)
    • Set Up Automated Saving for Retirement
  • Step 6: Track Your Progress
  • Step 7: Re-Evaluate and Make Adjustments

Budget Template

Make sure to download our free budget template below to help set your finances straight. Our budget worksheets include everything you need to start budgeting the right way.

Step 1: How to Make a Budget Plan – Find the Best Method for You

There are many budgeting methods, each of which has its merits. We’ve summarized three of the most popular methods below that will teach you exactly how to make a budget plan. Consider your personality and choose the one that sounds most attractive to you. Don’t worry if it takes a little trial and error!

50/30/20 Budgeting Method

Best for: People who want a budget, but also want to keep things simple.

The easiest budget rule, the 50/30/20 method is indifferent to your exact spending on electricity versus your cell phone bill this month. All that matters is your spending stay within three main categories: Needs: 50%, Wants: 30%, Savings: 20%.

The benefit of the 50/30/20 rule is that no one category is expected to be static. The composition of spending can be different every month. But as long as your spending fits into the limits set by the broad categories, you’ll continue moving towards your goals.

This is DollarSprout’s preferred method of budgeting. It is simple, yet powerful. You are always saving for the future, but you don’t get bogged down in the details.

Envelope System

Best for: Habitual over-spenders who need to more discipline built into their budget.

Meant for those who really struggle with overspending, the cash envelope method is rigid.

Originally a cash-based method, you would withdraw all the money you planned to spend that month in cash, then split it into individual envelopes for all your expenses — cell phone, groceries, gas, clothes, and so on. If you run out of money in an envelope before the month is up, you’re out of luck. You either need to move money from another envelope, or just wait until the following month.

Luckily, there are now apps to help you create an envelope method while still using debit and credit cards. However, there are some big-name proponents (like Dave Ramsey) of continuing to use cash over an app. They believe it fosters greater awareness and good habits.

Zero-Based Budget

Best for: People who want full control over the purpose of every dollar in their budget.

A zero-based budget operates under the idea that any dollar not tracked will be spent — and probably on something silly.

With a zero-based budget, you assign every dollar a job. If you have $4,000 of income and only $3,500 of expenses in your budget, you aren’t done. You must give the remaining $500 a task. Are you saving $200 for retirement? Putting aside $50 for you daughter’s college? Create budget categories and assign values until your income minus your assigned outputs equals zero.

This method takes time. It requires that you look at every single expense in your budget. But practiced well, users find they have less unexpected expenses and more confidence that their spending expresses their values.

Step 2: Decide How You’ll Track Things

Creating a budget once won’t change your financial life. To have an impact, you need to continue budgeting consistently. Which means, we need a way to track your budget.

Here are some popular options:

Use a Budget Worksheet

The pen and paper method isn’t fancy, but it gets the job done.

Especially for beginners, tracking expenses has the benefit of making you carefully consider where you stand, in a way that more automated budget systems don’t.

Use a Budget App

If you prefer to operate in the 21st century, there are numerous apps to help you track your new budget.

Personal Capital is the one of the best budget apps for those following the 50/30/30 rule (and it’s free!).

It allows you to set a spending target and alerts you to progress throughout the month. It also automatically breaks expenses down into categories for you, so you can easily see where your money is going.

Other popular free options include Mint and PocketGuard. Alternatively, I’ve been using You Need A Budget since college, but it does have a monthly fee – unlike the other options listed here which are free.

Write It All Down In A Bullet Journal

Can’t find a worksheet or app that works for you? Or just love being creative?

Bullet journals allow you to bring organization and beauty to your budget tracking.

Get a quality notebook, check out some bullet journal layouts for inspiration, and design your unique budget journal.

Now, choose your tracking method, and let’s get to work.

Step 3: Figure Out Your After-Tax Income

You can’t determine your budget until you know how much you have to spend.

To figure out how much you have available to spend each month, you need to determine your after-tax income. This is the amount that comes in on your paychecks and that you have available to spend.

Add up all your sources of income in a given month. Your job, your spouse’s job, any side hustles or passive income. This is your base.

Note on bi-weekly paychecks: If you get paid every two weeks, you know there are some months you get a lucky third check. Don’t try to add that payment in and create an average month. Build your budget around a two-check month, then use the little bonus to fuel your savings goals.

Bonus: Want more spending money? Check out these side 25 online money-making ideas.

Step 4: See Where You Are Currently Spending

Hold on tight. It’s about to get real.

Before you can finish your budget, you have to reflect on where your money is really going. And if you’re starting a budget because you know you’ve been overspending, this can be tough. Just remember not to beat yourself up for past spending. You’re making positive steps to be more financially responsible. That’s all that matters!

Review your last two to four months of expenses and break them down into spending categories. Look at bank and credit card statements to help you get a sense for where you are at. In places where you use cash, try to make a best guess at your spending. Also make note of any minimum payments on debt, as that also has a white-knuckled claim on your money.

Have your list of categories, along with what you are spending on average, on hand. Now you can build your 50/30/20 buckets.

Allocate 50% of Your Income to Needs

Your most significant and crucial budget category is needs. But what are needs?

Needs are comprised of living expenses and essentials. Items like your rent or mortgage, utilities, home and auto insurance. These are expenses that you can’t forgo without a major inconvenience. (Your cable package and yoga classes don’t count.)

You’ll also want to include any minimum payments on debt. These are required expenses and should be treated as “needs” instead of debt repayment.

Make a list of all the items in your needs list with their associated expenses. If the total is more than 50% of your income calculated in Step 3, find places to cut. If you can’t get to 50%, the overage will have to dip into your 30% “wants” budget for a while.

Allocate 20% of Your Income to Debt Repayment and Savings

After needs, the 50/30/20 budgeting method prioritizes savings. You need to save for your future, every single month.

Calculate 20% of your monthly after-tax income from Step 3. If you aren’t a math whiz, just open up your phone and multiply your income by 0.2. This is the amount you need to contribute to saving money in your emergency fund or retirement accounts.

However, if you still have debt, you can also include extra principal payments in this 20%. Getting out of debt is an investment in your future, and the 50/30/20 rule knows that.

Related: How to Save $5,000 with the 52-Week Money Challenge 

Allocate 30% of Your Income to Wants

What is left over after your spending on “Needs” and “Saving” is the maximum you can spend on wants. This is your quality of life spending, like your cell phone’s data plan, date night, Chinese take-out, and new clothes.

You’ll want to reflect on the spending categories you compiled earlier from your last few months of spending. What items were left after removing the needs? Does the sum fit in the remaining 30% of your budget? And if not, where can you cut?

Remember that you also need to set aside cash for longer-term wants, like your annual family vacation.

More than any other, this step can be tricky. You’ll have to make choices. Unfortunately, we can’t do everything we want. But if we understand our own priorities, we can do anything we choose. Reflect on which of your “wants” is most important to you, then skip the things that don’t bring you joy.

Note: For “Needs” and “Wants,” 50% and 30% are the max you can spend. Spending less, in support of greater savings or debt repayment, will help you reach your financial goals faster.

Step 5: Set Your Priorities

What do you want to achieve with your money?

While your ultimate goal might be saving for a big vacation or new house, you first need to build a solid financial base. By getting the necessary foundation right, your security won’t be thrown off by one unexpected expense. Setting your priorities is key to ending financial stress.

These are a few key money priorities you want your budget to tackle:

Build an Emergency Fund

If you’re still living paycheck-to-paycheck, your first goal is setting up a $1,000 emergency fund. Because we all know life loves sneaking up on us.

We recommend saving your emergency fund in a high-interest online savings account that provides safety plus guaranteed returns. This will ensure that you don’t spend that money, while allowing it to continue to work for you while it waits on the sidelines.

Once you’ve tackled your $1,000 starter emergency fund, you’ll want to continue to add to it. Depending on your job, a three- to six-month emergency fund is ideal. This will protect you from more considerable financial surprises, like a job layoff or health issue.

These online banks are all great places to build your emergency fund:

Pay Off High-Interest Debt

Debt is an anchor on your money goals. Particularly high-interest debt like credit cards. Every dollar you pay in interest is a dollar you can’t spend on your real month goals.

If you are still forking over part of your budget to lenders every month, you’ll want to start paying down debt. Organize what debts you have, decide which you want to pay off first, and start attacking your balance.

Get a Full Employer Match on Your 401(k)

Who doesn’t like free money? If you aren’t getting the full match on your 401(k), you’re missing out on the easiest free money you’ll ever get.

An employer 401(k) match is your company paying you to save. It’s an instant return on your retirement savings, and you should never leave that money on the table.

If you aren’t sure what your company’s 401(k) program offers, reach out to HR. Then adjust your contributions to maximize your match (a.k.a. free money).

Set Up Automated Saving for Retirement

Covered the basics? Good! Now you need to start getting serious about preparing for retirement.
If you don’t already have one, you’re going to want to open an IRA, or Individual Retirement Account.

These accounts offer excellent tax benefits to incentivize you to save money for the future.

Determine how much of your monthly 20% savings allocation will go towards retirement. Then, set up an automatic deposit into your account each month through your IRA provider (most places nowadays have this functionality). With automated investing, you’ll be building a nest egg without even thinking about it.

Step 6: Track Your Progress

It’s official: you’re all set up! But you’re far from done.

Budgeting is a long-term game. You need to check in on your spending regularly to ensure that your needs and wants aren’t creeping beyond their 50% and 30% income designations. Plus, you’ll need to add new budget categories and delete others over time.

We recommend reviewing your budget on a weekly basis at the beginning.

Checking in every week will allow you to make course corrections before things get too far off track. Make note, if you’re budgeting with a spouse, you both need to be involved in the review. Having one person in a relationship dictating the budget isn’t a recipe for long-term success.

Eventually, you’ll get a feel for your spending habits and will be able to extend the time between meetings. However, always try to review your budget at least once a month. Even the most practiced and thoughtful spenders see money slip through the cracks when they lose focus!

Step 7: Re-Evaluate and Make Adjustments

One of the biggest mistakes new budgeters make is not sticking with the budget long enough. They get frustrated when they overspend in a category or an emergency expense sets them back on their goals. Not understanding that there is no such thing as a normal month or a static budget, they conclude that they are “just bad at budgeting”… and then they give up.

These are the moments to power through!

The first budget you make won’t be your last. You are new to tracking your expenses, so you are going to get things wrong. The important thing is to continue monitoring, review where your weak points are, and adjust your habits and budget accordingly.

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The 50/30/20 Budget for People Who Hate Managing Their Money

Our number one goal at DollarSprout is to help readers improve their financial lives, and we regularly partner with companies that share that same vision. Some of the links in this post may be from our partners. Here’s how we make money.

We all know someone who loves numbers. 

They’ll spend hours poring over budgeting spreadsheets, examining the finer details of their investment accounts, and organizing the cash in their wallet by denomination. For someone like that, offering basic budgeting advice is like preaching to the choir.

For the rest of us, there’s the 50/30/20 budgeting system.

Whether you’ve struggled to budget consistently in the past or you’re looking to find a less time-intensive method, the 50/30/20 might be the approach you need to finally make it all click.

Table of Contents

  • What is the 50/30/20 Budget?
  • Is the 50/30/20 Budget Right for You?
    • It’s Vague but Flexible
    • It Puts Savings and Debt on the Back Burner
    • It May Not Be a Long-Term Solution
  • How to Use the 50/30/20 Budget Spreadsheet
    • Step 1: Figure Out Your Take-Home Pay
    • Step 2: Calculate Your Percentages
    • Step 3: Adjust Your Spending and Saving
  • The 50/30/20 Budget Simplifies Managing Your Money

What is the 50/30/20 Budget?

The 50/30/20 system was designed to make budgeting more accessible to people who get overwhelmed by complicated spreadsheets and budgeting apps. It was popularized by Senator Elizabeth Warren in her book All Your Worth: The Ultimate Lifetime Money Plan.

The beauty of the 50/30/20 budget is in its simplicity. It’s designed for people who want to track their spending without dividing each expense into a dozen separate categories.

Users of the system divide their transactions into just three buckets: needs, wants, and debt payments/savings. Spending is broken up into 50% for needs, 30% for wants, and 20% for savings and debt. Groceries would be in the needs group, makeup would be a want, and student loan bills would be a debt payment.

Here’s an example of what kinds of transactions might fit into each category:

Needs – 50%

  • Mortgage/rent
  • Car payment
  • Car insurance, maintenance, and gas
  • Public transportation
  • Health, life, disability, and other insurance
  • Daycare, school tuition, etc.
  • Groceries
  • Utilities, phone, and internet
  • Medical bills and prescriptions

Wants – 30%

  • Eating out
  • Movies, sports, and concert tickets
  • Clothes, shoes, and accessories
  • Makeup and hair products
  • Cable TV
  • Netflix, Spotify, and other subscriptions
  • Home decor and furniture
  • Gifts
  • Charitable donations
  • Travel

Savings and Debt – 20%

  • Retirement contributions for your 401(k) or IRA
  • College savings
  • Short-term savings goals
  • Student loans
  • Personal loan payments
  • Credit card bills

Is the 50/30/20 Budget Right for You?

If you’ve tried to budget before and never quite got the hang of it, a 50/30/20 budget might be right up your alley. It’s like starting a fitness program. Jumping straight into a powerlifting routine might leave you sore and unmotivated, but starting with some light yoga will allow you to build a consistent exercise habit.

With the 50/30/20 system, you can start with the basics and get more complex as your financial literacy improves. It’s less of a specific system and more of an overarching philosophy.

It’s Vague but Flexible

The 50/30/20 budget has become popular with people who struggle to categorize their spending. If you have separate line items for household goods and groceries, for example, a simple trip to Costco for saran wrap and cooking oil forces you to separate individual items from your receipt. With the 50/30/20, that kind of fussing is unnecessary.

The upside to this broader approach is that you spend less time figuring out how to budget each shopping trip. The downside is that you don’t really see where your money is going. If you need to cut some expenses from your “wants” category, the 50/30/20 budget won’t show exactly where you’re overspending.

It Puts Savings and Debt on the Back Burner

One of the reasons the 50/30/20 budget is popular is because it allows for 30% of a consumer’s income to go toward discretionary spending. Unfortunately, that doesn’t leave as much room for savings and paying off debt.

If your student loan payments make up 20% of your budget and you aren’t saving anything for retirement, the 50/30/20 approach could give you a false sense of stability. In reality, you’ll just be forced to play catch-up in the future.

Anyone who uses the 50/30/20 budget while paying off a significant loan balance should still try to save between 10-15% of their salary for retirement, even if that means shifting the spending ratio to allow for more saving.

It May Not Be a Long-Term Solution

The 50/30/20 is often suggested for beginners because it’s easy to use and set up. It also leaves a lot of room for variation, as long as you’re staying within the correct spending ratio.

But as a long-term budgeting strategy, the 50/30/20 budget might not hold up as well as a traditional line-item budget. That’s because the 50/30/20 split makes less sense above a certain income bracket.

When you’re making an entry-level salary, the 50/30/20 ratio is perfect. It allows you to enjoy your life and live comfortably while still prioritizing debt repayment and saving for retirement. But as your career progresses and your income increases, spending 30% of your income on discretionary items can be frivolous, and it can hold you back from reaching significant financial milestones.

Under the 50/30/20, someone making $80,000 a year after tax would have $2,000 a month for discretionary spending. That may be reasonable for someone with a robust social life and multiple hobbies, but many people would have to go out of their way to spend that much. As you approach upper-middle class, it makes more sense to follow a personalized budgeting system and devote more of your income to building a nest egg.

See Also: How to Make a Budget (With Wiggle Room): A Step-by-Step Guide

How to Use the 50/30/20 Budget Spreadsheet

There are three simple steps to creating and implementing a 50/30/20 budget spreadsheet.

Step 1: Figure Out Your Take-Home Pay

The first step in creating a 50/30/20 budget is to figure out your net income since that’s the figure you’ll be dividing from. Your net income is how much you take home after payroll taxes are deducted.

Look at your most recent pay stub to see what your take-home pay is. Even though your health insurance and retirement contributions may be deducted from your paycheck, you want to count these expenses as part of your budget.

If you’re self-employed, you’ll want to figure out your take-home pay after federal and state self-employment taxes. These will vary depending on your income and business expenses, so just use your best estimate.

People with irregular salaries, like salesmen working on commission or those with seasonal income, should use a realistically low figure when calculating take-home pay.

Step 2: Calculate Your Percentages

First, make a list of all your transactions from the past month:

Category Amount
Rent $775
Electric bill $50
Water/gas bill $60
401(k) Contributions $100
Car payment $250
Car insurance $65
Restaurants $150
Groceries $350
Health insurance $95
Gas $115
Cell phone $45
Internet $55
Lyft/Uber $50
Student loan payments $250
Netflix/Hulu $30
Clothes, shoes, and accessories $100
Makeup/haircare $35
Pets $40
Total: $2,615

Then divide them into needs, wants and savings/debt categories. Divide each of the three categories by your take-home pay to calculate your percentage, then compare those percentages to the ideal amounts. For this example, let’s assume a take-home amount of $2,700 per month.

Needs 50% Wants 30% Debt/Savings 20%
Rent $775 Restaurants $150 401(k) Contributions $100
Electric bill $50 Netflix/Hulu $30 Student loan payments $250
Water/gas bill $60 Clothes, shoes, and accessories $100 Car payment $250
Car insurance $65 Makeup/haircare $35
Groceries $350 Pets $40
Health insurance $95 Lyft/Uber $50
Gas $115
Cell phone $45
Internet $55
   
Total: $1,610 $405 $600
% of Income: 60% 15% 22%

Step 3: Adjust Your Spending and Saving

Like most people who create a 50/30/20 budget, you’ll probably discover that your percentages are out of alignment like the example above. Maybe you’re spending too much on your needs and not enough on your savings, or your wants category might be out of control. Don’t beat yourself up – it’s normal to find out your spending is a little off.

Examine where you need to make a change and explore options for how to save money in those categories. In this example, you can clearly see that the needs category greatly exceeds the 50% goal. To cut back, this person could reexamine their utility usage, negotiate with their cell and internet providers, or find a less expensive apartment.

You can also see in this example that student loan and car payments are mostly responsible for exceeding the 20% debt payment/savings category. In that case, it could be wise to make a faster debt payoff a goal or try to pick up a side hustle.

If a spreadsheet isn’t your preferred tracking method, try out a 50/30/20 budget app like Personal Capital. The dashboard shows all your purchases in one place so you can easily see where your money is going without tracking every individual transaction.

See Also: Personal Capital vs. Mint: A Side-by-Side Comparison

The 50/30/20 Budget Simplifies Managing Your Money

Overall, consumers who like and stick with the 50/30/20 budget do so because of how simple it is. There’s little doubt on how to categorize expenses, and evaluating your spending can take just a few minutes each week.

The 50/30/20 budget has stuck around because it helps people who want to be responsible with their money but don’t like the restrictive nature of most budgeting systems.

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