A detailed guide on how to budget and start saving money to achieve your financial goals

How to Budget and Save Money: Best Guide For Millennials

Even when we know that it’s necessary to budget and save money, most people never get to start doing it.

Money topics are generally intimidating and overwhelming for everyone. Not to mention that making ends meet is already hard enough for us.

The idea of this article is to help you figure out how to avoid spending all of your money. Building a comfortable money cushion takes time and sacrifice, but it has to start somewhere.

If you are done procrastinating on organizing your financial life- and want to start your own journey to managing your expenses with the end goal of financial freedom in your mind, then let’s take a look on how to budget and save money.

Budgeting is a crucial step in saving your money and before we get into the “hows” of budgeting, here are a few reasons that can help you back up your resolve to start budgeting and saving money.

Why Do You Need a Budget?

The main reason for budgeting is to make good use of the money you have to reach your goals. Here are some more reasons. 

1. You remain on Top of Your Finances

You may not know it yet, but you’d be surprised how much of your money falls through cracks such as spending and wastage.

Budgeting will help you know what you have, how much you should spend, and how much you should put away for your future.

By budgeting, you take control of your lifestyle by modeling it around the money you have. It’s a super move that helps you stick to your financial lanes to avoid debt and bad credit.

2. You Can Plan Your Expenses

Everyone has common expenses such as cell phone bills, groceries, housing, health insurance, student loans, auto loans, and entertainment.

It’s impossible to keep track of all these, and many other expenses, mentally. You’ll end up feeling overwhelmed if you have to recall all these bills off your head and pay them before their due date.

You may end up spending on an expensive date night and forget that other expenses still need your attention.

A budget will come in handy to help you know exactly how much money you need to allocate to your expenses.

3. Budgeting Helps You Create Sound Financial Habits and Find More Saving Opportunities

Ever found yourself rationalizing an expensive purchase that wasn’t necessary? A budget would have saved you!

By having a budget, you can tell your needs apart from your wants. And that is freaking liberating.

Spending is more psychological than we like to admit to ourselves, and if a budget would help save you from unnecessary Amazon shopping sprees, go for it!

If you can’t shake off eating out with your colleagues during lunch, budgeting will help you see how much money you could save on lunch alone.

You’ll even reconsider other “inconsequential” expenses such as your daily Latte, your more than three streaming subscriptions, your all-inclusive gym membership, etc.

4. Finally! You Can Work on Your Financial Goals

You may have shoved your financial goals deeper inside your bucket list, but having a budget can help bring your long-term goals closer.

Maybe you’ve been hoping to get a down payment on a house, or you’ve just been dreaming about a long overdue vacation?

A budget will help you consider putting some money down to your long-term goals and forego that neat pair of shoes.

5. Set Up Your Emergency Fund

We all know Dave Ramsey is fooling us with his $1,000 a month emergency fund idea, right?… Wrong.

Setting up an emergency fund sounds like an impossibility for most people, but you’re better off starting one- however small.

You never know when your roof will start leaking or when your car gets totaled, and you need a major repair.

By budgeting your money, you can set aside some for your emergency fund. As you save more and create better financial habits, you’ll free up more to go to your emergency fund.

A general rule of thumb is to have an emergency fund that can last you 3-6 months, covering normal expenses if you lost your income.

6. Budgeting And Saving Boosts Your Confidence and Gives You Peace of Mind

Unlike when you’re not budgeting and end up getting surprised by common expenses that you forgot about, budgeting does the opposite.

You know what expenses to expect when they are due and how to pay for them.

You get to enjoy peace of mind and have the confidence to make better financial decisions.

Step By Step Guide on How to Budget and Save Money

Step 1: Choose a Budgeting Method to Follow

There are 5 main budgeting methods that you can use to budget and save money.

These methods are; The envelope system, zero-based budgeting, Dave Ramsey’s cash envelope system, the 50-30-20 budget plan or you can create your own unique budget. There’s a detailed section of these budgeting techniques down below. Stay put.

The first step is to choose a budgeting technique that will work best for your needs and then move on to the next tip!

Choosing a budgeting method is necessary as it will help you understand the type of saver you are; and the best way to achieve results when budgeting.

Step 2: Create Goals for Your Budget

After choosing a budgeting method that suits you, the next step to save more money every month with budgeting is to create goals for your budget.

Creating goals for your budget helps you plan and give you a clear understanding of what your budgeting goals are, which will help you achieve them!

Be specific with these goals as they are what you want to achieve with your budget.

Step 3: Create an Action Plan

After creating goals for your budgeting, the next step is to create a plan of action and to set a timeline.

You should create an action plan that will help you budget and save money – and this isn’t just about writing down what you need to do.

Set a timeline for each goal, which will help keep you accountable and realistic about your budgeting goals!

For most people goals imay be; saving for a car, saving up for retirement, or paying off debt.

Step 4: List All Your Expenses

Listing your expenses is necessary if you want to budget and save money successfully.

This is one of the most important aspects of budgeting because if you don’t know how much money goes out, it’s hard to know where you need to cut back on spending.

At the beginning of each month, make a list of all your expenses and get an idea of how much you’re spending in different categories.

Use a spreadsheet or app to keep track of your expenditures, so you can better identify where there’s room for saving.

A typical list of expenses includes items such as rent/mortgage, utilities, car payments, or gas.

It can also include things like groceries and eat-out expenses if you want to make sure that you capture everything.

By listing everything down, tracking your expenses effectively.is a tad bit easier.

You can track the expenses manually, or use apps such as Mint and You Need a Budget.

Budgeting apps will help you track your expenses by automatically categorizing your spending. and show where there’s room for savings.

Step 5: Find ways to Reduce Your Expenses

Effective budgeting involves cutting your expenses to realize more money that can be put into savings or investments.

Some ways to do this include changing your car insurance, having a yard sale, or doing an inventory of what you have.

It may also include getting a cheaper cell phone plan, dropping your cable TV, choosing to work from home to cut down on commuting costs, etc.

Step 6: Figure out your expense-to-income ratio

To find your expense-to-income ratio, divide all of your monthly expenses by the total income you make.

This will show how much of your income goes to covering your expenses.

If this number is higher than what you would like it to be, make adjustments as necessary. The recommended ratio should be between 30%-50%.

Step 7: Work on Paying off Your Debts

If you have a credit card and/or student loan debt, see about getting your balances down.

Paying off these debts will help you budget and save money because you’ll no longer have to pay interest on the balances.

Still you will need a solid strategy to pay off all your debts.

Step 8: Keep Track of How Much You save Every Month

There are many ways to save money each month and it’s important that you keep track of how much you’re saving.

As part of the effects of good budgeting, saving will help you track your progress and motivate you to continue saving.

Step 9: Create an Emergency Fund

It’s also important to build up an emergency fund, so you’ll have money in the event of a financial crisis.

You can do this by saving a certain percentage of your income each month.

Ideally, your emergency funds should be equal to an amount that can cover at least three to six months’ worth of living expenses. Building an emergency fund is one of the perks that you realize when you budget and save money consistently.

Step 10: Set Up Automatic Payments for Your Monthly Expenses

Set up automatic payments so that money is withdrawn from your checking account at the beginning of each month for bills such as rent/mortgage, car insurance, utilities, etc., which will save time and make sure nothing slips through the cracks.

Use cash instead of debit/credit cards whenever possible. It’s harder to spend more than what is in your wallet when paying with cash. This also helps you to be more aware of your spending.

STEP 11: Schedule Regular Savings Deposits into Your Bank Account

Saving regularly will help you get used to living on less money and it’ll be easier for you to save up when a major expense comes up.

Make this regular savings deposit the same amount each time, such as $50-

Understanding Different Budgeting Methods

Just like in other aspects of life, there are proven ways that you can follow to budget and save money effectively.

Different people use different methods to budget and save money. Here are 5 different budgeting techniques that most people use today. The budgeting technique you choose to use is totally up to you and will depend on your saving and budgeting style.

Most budgeting apps are based on these budgeting techniques. Ensure that you go for a budgeting app that uses a budgeting method you are comfortable with.

These budgeting techniques also have their different benefits and disadvantages. It’s important to understand your technique fully before going with it.

1. Zero Based Budgeting

Popularized by finance and investments specialist, Dave Ramsey, Zero Based Budgeting is a technique where you approach budgeting from scratch. In this technique, previous budgets are not used as the foundation for your next budget. You start from $0.

Zero-based budgeting requires that you justify every expense before it gets on your final budget.

Using this budgeting method, you focus on reducing your costs significantly by removing all the unnecessary expenses.

You will have to design your budget by assigning an amount of money to all expenses individually.

You have to think about and capture every expense that you expect to incur- making it the most detailed budgeting technique.

The zero-based budgeting method is effective in ensuring that you account for every dollar. It’s meticulous, and you have to micromanage and track all your expenses to achieve your budgeting goals.

The zero-based budgeting technique is best for you if you want to have complete control and oversight of your money.

2. 50/30/20 Budgeting Technique

If you want an easy way to budget and save money without having to worry about intricate details, the 50/30/20 rule technique may be a great option for you.

With the 50/30/20 budgeting technique, you spend 50% income (after tax) to pay for your needs, 30% on wants, and then save the remaining 20%.

All you need to do with this budgeting technique is divide and track all your expenses into three main categories of needs, wants, and expenses.

Here you will focus on the big picture, so you don’t have to spend a lot of time tracking your expenses.

Needs 50%

The needs category includes all the things that are necessary for your survival. These include; minimum debt payments, basic utilities, food, mortgage/rent, healthcare, Car payments/ Transportation

Ideally, if needs are more than 50% of your income, you may be living above your means. You may have to make some adjustments to avoid going overboard.

Wants 30%

Wants are not necessary for your life, but some comfort and occasional splurging isn’t a bad idea. Expenses in this category include; gym/ yoga memberships, streaming subscriptions, expensive dates, and eating out.

20% For Savings And Debt

This category makes up the money you put into saving, setting up retirement funds to take care of future emergencies or expenses, retirement investments, etc.

Expenses in this category include emergency funds, IRA, investment accounts, and extra debt payments to reduce your debt repayment period.

One of the biggest pains with using this budgeting technique is the broad categories. You could miss out on budgeting for key elements in your categories or misappropriate your money unknowingly.

If you like the 50/30/20 budgeting technique, check out our review of the Qapital app. Qapital is a budgeting app to help you budget and save money to automate budgeting through the 50/30/20 budgeting technique.

3. 80/20 Budgeting Technique

This is a budgeting technique where you pay 20% of your income into your savings account after taking out all other expenses from your paycheck after taxes.

It’s a simplistic budgeting approach that focuses on saving 20% of your income first before taking care of everything else with the remaining 80%.

Most people who want to budget and save money with this technique choose to automate the withdrawal of their income from a checking account into a savings account.

While you don’t necessarily have to put your money into a traditional savings account, you can consider putting it into a retirement savings account such as Roth IRA.

Like with the 50/30/20 rule, the broad categories on this budgeting technique are a potential loophole for missing out on important bills at the expense of your wants. 

4. Envelope Budgeting

As the name suggests, this budgeting method has lots to do with envelopes. Ideally, you start by writing up a budget, then divide your money into different spending categories represented by envelopes.

This way, you limit yourself to spending as much money as you have in the envelope for a particular category.

You may not feel like you are spending as much money swiping credit/ debit cards as you would when spending from an envelope. 

You can see how far your spending goes, and you can tell when the envelope gets thinner.

Expenses such as entertainment, rent/ mortgage, personal care, eating out, and groceries; each goes into a category envelope of their own.

You’ll now allocate cash to each of the envelopes and, by doing this, limit overspending.

What’s great about this is that you may not need to have physical envelopes tucked in your back pockets all day long. Budgeting apps such as Mvelopes, , and, give you the space to create virtual envelopes.

The main drawback to this budgeting technique is the inconvenience of carrying your money around in envelopes. It could also compromise your safety significantly.

Luckily, you can substitute physical envelopes by making use of the budgeting apps mentioned above.

5. Value-Based Budgeting

If you feel that budgeting is restricting you too much, you may want to try value-based budgeting.

This budgeting technique requires you to factor in the things that matter most to you. How you assign money is determined by the value you attach to your budget items.

If you value eating out with friends daily or value buying a new pair of sneakers every month, then you will factor it into your value-based budget.

This budgeting technique may not work well for you if you are yet to cultivate the financial displines we all wish for. You may end up ascribing value to some items at the expense of necessary things such as your water bill.

However, you can still make some headway if you just want to budget and save money by determining value.

How to Build a Budget You Can Stick To

First, you must have a positive attitude to budgeting if it’s going to work. Remember that you need a budget to manage your finances and take care of your bills.

Budgeting plays a big role in your financial success. It’s a utility tool to help your financial goals.

Now that we’re clear on what a budget means to you, let’s take a look at how to develop your own budget and save money. I use these five simple steps to create my budget.

1. Figure Your Net Income

In this case, figuring out your net income involves what you are left with after paying your taxes and other social security deductions such as 401(K)s. What you remain with is your net income, and this is the money you will budget.

Your income should also capture other revenue streams such as interest from high-interest savings accounts, freelancing or hobby-related incomes, etc.

2. Identify Your Expenses

This step involves tracking all your expenses. Your receipts, utility bills, and debit and credit card statements will help you know your expenses.

You could also pick from the common expenses we’ve already mentioned elsewhere in this article. They include gas, eating out, rent/mortgage, insurance, etc.

3. Categorize Your Expenses as “Fixed Recurring” or “Variable”

Some expenses are constant every month, and others vary. All monthly expenses that are constant and which recur every month go into the fixed recurring category.

Such expenses include rent/ mortgage, student loan payments, car insurance, and phone bills. You may also add your emergency funds savings in this category.

Other expenses that do not recur every month and whose fees vary can be put in the variable expense category. Items in this category can include entertainment, groceries, clothes, shoes, etc.

List all of these expenses down. Your total expenses should not exceed your income. If your expenses exceed your income, you may have to re-evaluate your expenses and make adjustments.

3. Set Your Financial Goals

As we’ve already noted, budgeting is a key tool if you want to become financially successful. Setting your short-term and long-term financial goals will help you know what you are working on. Add these goals to your budget.

Short-term goals should only last a year or less, while long-term goals may take years to reach.

By understanding your priorities, you’ll likely be motivated to spend your money wisely, and budget and save money wisely.

4. Check-In and Update Your Budget Regularly

Creating a budget is one thing. Updating it is another.

Budgeting is a mind game, and you have to follow through if you wish to get any results. Ensure that you capture how your money goes.

Keep in mind that your budget can change from time to time. You can readjust it periodically to fit your changing lifestyle, account for additional or new income streams, among other factors.

Conclusion

In order to have a healthy money cushion, it’s important that you budget and save money so that you get to keep more of your hard-earned cash.

While it sure may feel difficult at first because staying consistent will help you get better at working towards hitting your saving goals.

Budgeting and saving makes sense especially because you are able to establish financial security and to get off of living from paycheck to paycheck.

Do you have any other tips that you use to budget and save money? Please let us know in the comments section.

Samuel Mutahi
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