After I graduated college a few years ago, the “real world” awaited. There were many things I knew I had to do to prepare.

Learn how to cook. How to sew a button. How to get out of bed before 9 am.

Those were a few.

But another one was how to create a budget.

And I barely knew where to start.

I had spent money before, of course. But I never had the discipline to track where my money was going.

That needed to change.

My expenses were going to increase as I moved to a new city and lived on my own. I had to take control of them.

So I did my research, asked for help, and created a monthly budget before I began my full-time job.

Now I’ll share with you some tips to help you get started with yours.

Now, it doesn’t matter if you’re just graduating college or if you’re married with kids. And it doesn’t matter if you make five figures or seven.

A budget is a pivotal tool to help you plan and track where your money goes. It’s necessary for all people. It gives you a clear picture of what your money is doing.

Before You Start

Before you begin creating your budget, there are a few things you should think about.

1. Consider budgeting 50/30/20.

Take a look at the popular 50/30/20 budgeting rule.

This "rule" suggests you spend 50% of your income on needs - things like housing, food, and transportation. Thirty percent goes to wants - things like sporting events, cable, and nights out. And 20% goes to saving and debt payments.

Now, I wouldn't really call it a "rule". It's more of a guideline - it's not hard and fast but it's a decent place to start.

I like to think of 20% as a minimum for saving and debt. If you have high-interest loans, you really should pay as much as you can toward them. Or if you’re serious about retirement, you may want to save more than the guideline suggests.

Provided you can afford it, the more you save, the better. No one ever complained that they saved too much money.

2. Think about your primary, personal goals.

So you can start with the 50/30/20 guideline. But the main purpose of the budget itself is to help you achieve your personal goals.

So it helps to have some idea of what those are, either short term or long term.

If your primary goal is saving for retirement, that’s great. Tailor your budget around that. Maybe you cut spending in some categories to favor an IRA or 401(k).

Or perhaps your big goal is to make as many friends as possible. You don’t mind spending a little extra money to hit the bars, go on dates, or attend social events to meet people.

That’s great, too. Consider that as a priority when drafting your budget.

Your budget will allow you to plan your spending so that you can put your income where it matters most to you.

Having a general idea of your top goals will help you diligently build your budget around them.

3. Understand the uniqueness of your environment.

No one's budget is going to look exactly like anyone else's. We all have different things about us that influence our money habits.

Your individual situation - whether you like it or not - will affect how you spend money. Understanding that will help you devise a plan suited for your own needs.

This means how much you spend could differ from what is “recommended”. Or it could mean that your spending doesn’t fit into a typical category.

It may be obvious. But the point is just that your individual budget won’t always fit into a typical outline. It’s unique.

4. Plan how you’ll track spending.

This one is huge.

If you don’t stick to the budget you create, it pretty much is worthless.

You need to follow the plan. And the first key in doing so is tracking your actual spending.

It’s better to think about this before you create your budget. So that you're prepared and ready to go.

And often you can have your budget and track your spending in the same place. Here are a few suggestions:

1. Use a Budget app.

There are a few great apps out there that can help you track your spending.

Mint is one that I've heard a lot of people recommend. It's free and has a really clean interface - definitely worth checking out. This may be the best app strictly for budgeting.

You can also go with the app You Need a Budget, which is highly regarded. It does have a monthly fee though.

Empower is a fantastic app you can use. It’s not strictly a budget app, but it has a feature that lets you view your spending across categories. It syncs with your bank accounts and credit cards to show you real-time updates. I use it all the time and highly recommend it.

2. Use a spreadsheet in Excel or Google Sheets to track expenses.

If you don’t feel like downloading another app, then you may prefer a spreadsheet.

This is a solid option. It will involve more manual input than an app would, but it can also provide more functionality.

A big plus is that your spreadsheet is more customizable than an app. You can adjust categories, rows, and calculations however you like.

I've created an Excel workbook you can use to get started. It includes a sheet for creating your budget, a sheet for entering expenditures, and a sheet that compares your planned vs actual expenses. It's what I've used for my own personal budget. It's pretty detailed and works well. Click here to get the workbook.

3. Use a budget planner.

If you like the original pen and paper method, then this is for you. This budget planner is very highly rated and will do the trick for you.

4. Plan how you’ll be accountable.

Tracking your spending is super important to a successful budget.

But it’s more than just tracking. It’s about accountability.

This means doing what you can to ensure you follow the budget.

Now, you can expect some natural variation in spending from month to month. If your actual spending doesn’t exactly equal your budget, it’s probably okay.

But sometimes, a new cost comes up. Or maybe something is more expensive than you thought.

If that happens, consider reallocating your money across the categories.

Now sometimes, you end up spending more than you wanted to or should have.

If so, you should revisit ways to motivate yourself to stick to the plan. Consider setting small checkpoints, rewarding yourself occasionally, or finding friends with similar financial goals.

How to Craft Your Budget

Great! Once you’ve thought a bit about your approach, you’re ready to get into it.

You can start from scratch if you really want. Or you can make it easier on yourself with a mobile app or Excel template. Click here to get my free, all-inclusive Excel budgeting workbook.

Here are the steps for crafting your budget.

1. Categorize and subcategorize.

I suggest being granular with your expense categories. That gives you the most insight into where your money really goes. And it helps you make adjustments down the line when needed.

So don’t just write “Food”. Go with “Groceries”, “Restaurants”, etc.

You can even break it down further if you want: “Lunches out”, “Dinners out”, etc.

If you use my budget workbook, you'll see this. The more specific your categories, the better insight you’ll have into your spending.

For example, if you look at your sheet and find that you’ve eaten 40 Papa John’s pizzas in 30 days, then maybe that’s something you want to change in the future.

2. Be specific with your paycheck and deductions

Just as you should have specific spending categories, it helps to do the same with income.

Start with your gross income. Deduct for taxes, 401(k), healthcare, and anything else that comes right out of your paycheck. Then arrive at your net income.

This helps because seeing your final paycheck doesn’t always give you the full picture. The amount going to your 401(k) is important, for example. It’s nice to see that on your budget.

3. Fill in your fixed costs

You may already know what your fixed costs are. If so, this part is easy. Just fill them in.

Fixed costs are the expenses that don't change in amount from month to month. They usually include

• Rent
• Phone
• Cable
• Internet
• Car payment
• Car insurance premium
• Any subscriptions, such as Netflix or Spotify

4. Fill in your variable costs with an estimated average

Variable costs are trickier because you don't know exactly what you'll be paying each month. The costs generally include

• Food
• Gas and tolls
• Vacation and travel
• Entertainment
• Clothes and other shopping
• Toiletries and essentials

Sometimes it can be hard to judge what all of these will cost you, especially if this is your first budget. But do your best to estimate, and then you can track your actual spending and adjust as needed.

The goal is to get your budget as close as possible to what it should be, given that many expenses change each month.

Some things might cost $300 one month and $0 the next. If so, I suggest just putting in the average amount per month.

So if it costs you $300 every third month and $0 other months, then enter $100. In the months you don't spend it, the extra money will stay put, waiting for when you need it.

As long as your checking account isn't at a dangerously low level, this is the best way to do it. It’s simple and helps you easily compare your average monthly spending to your allocations.

5. Don’t forget about the infrequent, but high-cost expenses

You may not think about these initially when planning your expenses. There are a few things that don't happen often, but cost a lot of money when they do. Here are some examples:

1. Air travel. The average economy class plane ticket will cost you around $350. If you plan to fly even once during the year, make sure you budget for it! There are ways to spend less on air travel, but even so, it’s going to be a big cost.
2. Medical Event. Trips to the doctor, Urgent Care, or even the Emergency Room - they all happen. If you are in perfect health and avoid the doctor at all costs, then good for you. You might get away with not explicitly budgeting for it and just rely on your emergency fund. But for most people, it’s a good idea to put some money aside for copays, blood tests, prescriptions, and any unexpected medical situation that may occur.
3. Gifts. Everyone loves giving and receiving gifts at Christmas time. But the holidays are an expensive time of year! Make sure you carefully plan and track how much you spend on gifts for the season. And it’s not just holidays - weddings, graduations, and other one-time life events can often go forgotten.

I recommend just doing your best to estimate the costs of these for the entire year, then divide by 12 to get the amount to enter for your monthly budget.

Wrapping Up: Final Considerations

Once you have created a budget you have laid the groundwork for financial responsibility. Congrats! Here are a few final tips needed to help ensure your budget is successful.

Following your Budget

Hopefully you have thought about this before you've created your budget.

As I've talked about above, a budget has no real value if you just ignore it. So make sure you have a plan for holding yourself accountable, and that it's working.

If it's not, try something different.

Adjusting your Budget for New Expenses

Chances are your budget won’t stay the same.

Maybe you tend to spend more in one category than you initially realized. Or maybe there's an additional expense you didn't think about at first.

You'll need to adjust when you discover these things. An accurate budget is important. It's hard to hold yourself accountable to one that isn't up to date.

The goal of this budget is to show and plan where your money goes. So it should do that accurately.

Cutting your Spending

Sometimes you spend too much in a category. We've all been there.

Or maybe a new expense means you have to cut back in other places.

Again, this involves adjusting your budget. But it also involves a plan for spending less in other areas.

The biggest three expenses you usually have are housing, transportation, and food. So there might be room to cut back in one of those categories. Eat out less. Take the bus instead of an Uber. Negotiate next year’s rent.

If those aren’t doable then you'll have to check your personal spending habits to see what works for you.

But that's what this budget is here for! It gives you insight into your spending habits and can help you make adjustments when needed.

Conclusion

With your budget in hand, you're on your way to financial success.

Budgeting requires discipline. You have to really be on top of it for it to work most effectively.

But it's important and the rewards are amazing. It helps you manage your money, save more, and know what your money does for you.

So what do you say? Have you been able to create a budget and stick to it? Or are you ready to try now?