The purpose of a budget is to…

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A budget is essentially a spending plan or a guide for how you’ll allocate income for expenses, debt repayment and savings. Budgeting can be tedious, restrictive and difficult at first, and some people would rather stick their head in the sand than deal with their money. But regardless of your income level, you can’t go wrong with a financial plan. The purpose of a budget is to help you take control of your money. So rather than see your budget as a buzz killer, think of it as a friend.

Budgets ensure you have money for “needs”

Budgets also ensure that you have enough money for your needs (and a few of your wants).

Budgets are simple, but powerful. They take the guesswork out of managing your finances by revealing exactly where your money goes. Budgets can even offer insight into areas where you’re overspending. As a result, you learn how to control your money so that it stops controlling you.

Everyone can benefit from a budget no matter their income. The truth is, regardless of how much you earn, consistently spending more than your income can negatively impact your financial life.

Since budgets encourage spending within your means, coming up with one contributes to more disposable cash. In fact, many people who adjust their spending habits and stick with a budget are able to save more each month.

The less money you pay out or waste, the more cash you’ll have available for important matters: bills, paying off credit cards, building an emergency fund, planning a vacation, etc.

Budgets can stop late payments and overdrafts

Budgeting also keeps your bank account and credit accounts in good standing. When you don’t use a budget or track spending, it’s far too easy to spend more than a reasonable amount each month — or worse, more than you actually earn.

If you overspend on non-essentials, you might not have enough money to pay important expenses. This can trigger late payments, defaults and damage your relationship with creditors. You might even rely on credit cards to compensate for lack of cash flow and dig a deeper hole for yourself.

There’s also the risk of a bank overdraft if you don’t have money in the bank to cover written checks or debit card transactions. And unfortunately, overdrafts often result in expensive insufficient funds fees.

Some people might blame late payments or overdrafts on lack of income. But if you compare your income with your expenses, you may find that you earn enough to pay your expenses.

The problem isn’t lack of money, but rather lack of a budget.

Simple budgeting tips

To prepare a budget, you have to know what’s coming in and what’s going out.

Start by gathering your pay stubs and writing down you total take-home pay for the month. This is your income after taxes.

Next, list all of your fixed expenses for the month. These are expenses that don’t change (or change slightly) from month-to-month:

  • rent/mortgage
  • utilities (electricity, water, gas, phone, cable)
  • insurances (health, life, renter’s, car, etc.)
  • auto loans
  • credit card payments and other debt payments

Subtract fixed expenses from your take-home pay. From here, determine a reasonable amount to spend on your variable expenses. These are discretionary expenses that can change from week to week, or even month to month:

  • groceries
  • fuel
  • entertainment/recreation
  • personal
  • donations

As a general rule of thumb, allocate 10% of your discretionary income for personal savings.

The percent of your income spent on variable expenses is up to your discretion. Here’s a look at recommended percentages per category:


  • 28% to 30% for housing
  • 10% to 15% for transportation
  • 10% to 25% for insurances
  • 5% to 10% for utilities


  • 10% to 15% for food
  • 10% to 15% for personal
  • 10% to 15% for savings
  • 10% for donations
  • 5% to 10% for entertainment/recreation

Once you decide how much to spend on variable expenses each month, use the envelope method to manage expenses in these categories and avoid overspending or overdrawing your bank account.

This system is easy to follow. Let’s say you budget $200 a month for entertainment, or $50 a week. Withdraw this amount from your bank and put the cash inside an envelope marked “Entertainment.” Repeat this process for the other expenses.

The purpose is to only spend what you put in the envelope and nothing more. When the money is gone, it’s gone. Don’t borrow from other envelopes and don’t withdraw additional cash from the bank.

Best budgeting app

Budgeting is easier said than done. Fortunately, there’s an app to make budgeting feel like less of a chore.

The Mint app is a popular (and free) personal finance tool, and it’s worth the download if you’re looking for an effortless and user-friendly way to manage your expenses.

Using Mint to track your income and expenses can help you stay on top of bill payments, due dates, and savings goals. The “Trends Overview” provides insight on how much you’re spending on average in different categories, so you can adjust your spending accordingly, if necessary.

The app is not only customizable, but also intuitive. You’ll receive alerts about upcoming due dates and automatic bill payments, as well as receive helpful suggestions and practical tips on how to save money.

Early Paycheck Apps

But even when you’re diligent about budgeting, life doesn’t always go according to plan. It only takes one unexpected expense to throw off your budget. When you don’t have enough cash for bills and other expenses, you might be tempted to use a credit card. But there’s a better way.

Early paycheck apps (such as apps like Dave and apps like Earnin) are a lifesaver in these situations. Earnin provides a way to access your earned income ahead of your paycheck, putting cash in your bank account in about one to two business days.

Once you sign up and Earnin verifies your employment, you’re ready to access your earned wages. There’s no fees and no interest. Get up to $100 a day, and up to $500 per pay period.

Dave is also perfect if you’re short on cash and want to avoid an overdraft. When signing up, you’re required to provide your bank account and employment information. Once enrolled, you’re eligible to receive cash advances up to $75. There’s no interest or credit check. You’re given 10 days to repay this advance.

Some people don’t like the “B-word” because they feel it prevents them from having fun. But budgets serve a useful purpose and contribute to financial growth, which can open the door to a bigger savings account and more choices.

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