How to budget: The 5-minute guide to taking charge of your finances and slashing spending


Adulthood is great. You can eat ice cream for dinner!

But of course it's not all fun and games. If you're like most, your bank account is similar to a pint of Phish Food: You empty it embarrassingly quickly — and there's hardly enough in there to begin with.

For this reason you may have put "make a budget" on your New Year's resolution list.

Still, the simple act of sitting down and taking charge of your finances can seem daunting. After all, before you can plan, you need to do some work — to know exactly how much is going in and how much is going out. There's no other way to start.

The good news? It's actually not that hard. Especially if you break it into these four easy-to-do steps.

Sure, there are plenty of apps that can help you with this, but there's an argument for skipping technological assistance the first time you budget — and instead taking pen to paper (or at least cursor to Excel spreadsheet).


Doing it the "hard" way the first time means next time and the time after that will be easier — and clearer. You'll be able to tell for yourself if those app are actually any good. That's empowering.

Here we go.

1. Calculate exactly how much you're taking in after the tax man cometh.

You already know your pre-tax income, which you found out when you negotiated your salary.

But your real income is what lands in your bank account after your employer subtracts taxes — as well as any 401(k) contributions or health insurance costs.

Do you know that number?

First figure out your monthly income amount by looking at your pay stubs, which will show the exact amounts being contributed towards taxes, insurance, and retirement. If you have direct deposit, also check your bank statements and see how much your employer deposits into your account.

That will help you catch any errors, in case you are not getting paid the right amount. It happens — underpayment is a surprisingly common problem and if too much time passes, your employer might not have to correct the difference.

So do the math.

For most full-time workers, pay comes every two weeks; that's 26 paychecks a year. Figure out your true post-tax income annually in addition to monthly.

Also, knowing when your paycheck comes in can help you spread out your spending over a month, so you don't overspend in the first week and find you don't have enough left to last until your next paycheck. 

2. Calculate your monthly expenses. 

Next, write out what you spend your money on every month.

There is a smidge of bad news: You're going to have to do a little math. Just remember, this doesn't need to be an exact science, but it's supposed to give you a pretty good idea of where your money goes.

If you're having trouble remembering, go look at your bank statements for the last three months and do an average. It might also help to do a quick Excel spreadsheet (not that the back of a cocktail napkin won't suffice). 

A sample spreadsheet of your monthly expenditure

Write out what you spend your money on, how much you spend monthly, how much you earn monthly and how much you save or pay towards debt. 

You may discover you're overspending — so be ready to adjust accordingly. 

3. Categorize your monthly expenses and set goals based on what is realistic.

There are fundamentally two types of spending: Money toward things you cannot avoid, like rent and food, and then what the pros call "discretionary expenses," which are funded with your "disposable income" — think that Sloe Gin Fizz or those pug-themed socks.

You can go a step further with your spreadsheet work by highlighting what you can cut back on, that you don't absolutely need to spend money on.

A spreadsheet highlighting discretionary income and laying out monthly expenditures

This is one of the easiest ways to figure out where you can cut back or save, so you can set — lower — spending goals for the month ahead.

4. Calculate your potential monthly savings.

With this new set of goals, you can then calculate how much you could end up saving each week, month and year.


It can be particularly helpful to calculate how much your proposed budget amounts to on a weekly basis.

There are technically about 4.35 weeks in a month, so — using the above table — this is how much you can plan to spend on each category every week in order to stick to your plan.

As previously mentioned, there are a bunch of apps that can help keep you on track, like Mint, Penny — which tracks your expenditures — and Qapital, which sets up personalized financial rules to follow.

Setting aspirational and fun savings goals can make budgeting less of a drag. 

Say, for example, you want to save a couple thousand dollars for a trip to Bali. You can set up an automatic transfer to your savings account — of that $46 you now save every week on this new budget — and watch your dream vacation money pot fill up.

NB: Not a great idea to prioritize travel until you have the right minimum amount saved up in an emergency fund. After that? You're good to go.

Your budget doesn't need to be perfect. But getting in the habit of financial control now will certainly set you up for life.

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