Budgeting & Saving for Beginners

A young couple is with child finding ways to save at store.

Key Takeaways

  • A budget helps you track spending, meet financial goals, and build savings. It's a cornerstone of personal finance.
  • Save for short-term needs like an emergency fund, medium-term goals like a wedding, and long-term goals like retirement. Calculate how much you need to save each month.
  • Create a realistic budget that works for you, like the 50/30/20 rule or a weekly/monthly budget. Stick to it by using tools to automate and monitor progress.
  • Look for ways to save like negotiating bills, cutting discretionary spending, using HSAs for health costs. Pay off high-interest debt first.
  • Invest for goals like retirement. Contribute enough to your 401(k) to get the full employer match. Adjust your budget as life changes.

Budgeting helps create a roadmap for understanding your spending habits, where you can start saving, your future money goals and how to pursue those goals over the long term.

Developing good money management habits is a skill learned over time. It can begin with learning how to budget. If you want to feel more confident about your finances, here are some budgeting and saving tips to get you started.

What Is a Budget?

A budget is a plan for how to use your money every month. It's one of the cornerstones of personal finance. When you know where your money is going, it's generally easier to address savings goals — ones such as setting up an emergency fund, putting money aside for retirement and saving for your next vacation.

Why Should I Try to Save Money?

Without a budget, it's easy to get off track from progress toward hitting your financial goals. It's easy for small or unexpected expenses and purchases to add up. That in turn can take away from your ability to save or get out of debt. Learning how to budget helps you keep an eye on your spending while making sure you're still building savings for future goals.

Life is often unpredictable. Without a savings cushion, you may struggle to pay bills and cover your needs if, for example, you're laid off or your car breaks down unexpectedly. Plus, you may have plans to buy a home, grow your family or enjoy your retirement to the fullest. Achieving those goals is easier with a savings strategy. Building good financial habits now will help you meet those needs in the future.

Setting Financial Goals

How much money should I save? It's a common question. A budget can help you determine the answer — since it's not the same for everyone.

For example, a 30-year-old can have a vastly different savings strategy and financial goals than someone nearing retirement. However, for younger savers, the benefits of compound interest are on their side over a longer period. Adding savings goals into your budget early could provide a significant head start in meeting retirement needs and other long-term goals.

Exactly how much you may need depends on a variety of factors. They include your age, income and lifestyle. But a closer look at the numbers helps you start seeing how much you may need for short- and long-term financial goals.

Generally, you should consider three key savings buckets:

  • Your emergency fund: This is money that helps cover unexpected expenses.
  • Short- and medium-term goals: These goals may address needs like a wedding, educational costs or savings to help you start managing debt.
  • Long-term goals: For many, the biggest long-term savings goal is retirement. A retirement savings calculator  helps you start running the numbers to see how much you may need to budget for savings. 

How to Create a Budget

How can you cover your needs, pay down debt and save for retirement? Here's where your budget can be a big help.

You can start creating a simple budget in just a few steps.

  1. Start with your take-home pay — the money available after taxes and deductions for your health insurance and retirement plan.
  2. Next, track your spending. Note what you've spent over the past month (ideally, you can go back a few months to get a better idea). Include fixed costs that are the same every month, such as your mortgage or car payment, as well as variable costs that may change month-to-month.
  3. You'll also want to look at your goals and how they fit into those key savings buckets. To set a schedule to reach them, how much will you need to save each month?
  4. Now, you can start making a plan. Look at what you do spend versus what you should spend to help meet your goals and make adjustments. Here's where you may need to cut some expenses to boost savings.
  5. Finally, don't forget to adjust. No budget is set in stone. As things change, revisit it and make changes as necessary.

There are many tools and apps out there that can help you create a budget, track your progress and continue to master your budget. Automating your finances may also help by ensuring that bills are paid on time and that savings are automatically pulled from your checking account.

How Do I Make a Realistic Budget?

Physically creating a budget is relatively straightforward — it's sticking to it that's the challenge. That's why it's important to use a budgeting tool or system that's easy to follow and helps you set realistic goals. It will start you on the path of building good financial habits.

The best budget is the one that works for you. But here are a few common methods people use to learn how to budget.

The Classic Budget

The classic budget is probably the simplest approach, but it works for a reason. With this budget plan, you can subtract your expenses from your income. What you have left can go to savings and debt repayment. If you're in the negative, then you'll need to go through your expenses and see what you can cut.

The 50/30/20 Budget Rule

With this model, allocate 50% of your income to your needs, 30% to your wants and 20% to your savings. So, if your take-home pay is $5,000, your budget may look like this:

  • $2,500 to your needs: This would cover your mortgage, transportation, utility bills, groceries, etc.
  • $1,500 to your wants: This should cover some of your discretionary spending and lifestyle wants, such as gym memberships, dining out and streaming services.
  • $1,000 to your savings and debt repayment: This money goes to your savings goals, including your emergency fund, medium-term goals and retirement, as well as paying down debt.

The Weekly/Monthly/Yearly Budget

Another option is to review your budget on a rolling basis, focusing on a specific period. A budget generally isn't "set it and forget it." As changes happen, you should adjust it to start planning for the next period.

Focusing your budget on a fixed period can also help as you start the process for the first time. For example, you may find it easier to monitor your budget weekly, then switch to monthly as you become more comfortable with your spending habits.

Creating a budget and sticking to it is a skill you can build over time. Monitor your progress and adjust your plans as you get more comfortable. It may take a few trials and errors to figure out the best budget system for you. Have patience and don't forget to celebrate your wins.

Budgeting Tips to Save Money

Making a budget is one tool that can help you identify ways to save money. Here are a few different scenarios where it may help.

How Do You Budget Money on a Lower Income?

It's not hard to look at your expenses and see the list pile up. Especially when your money and budget is already tight, it can be a challenge to figure out where additional savings can come from. But there are strategies for finding a few extra dollars to save every month.

  • Consider negotiating your bills: You may be surprised at how many bills you can lower by calling and asking. Of course, do your prep work first. Shop around if your providers won't negotiate.
  • Look for support: Many programs are aimed at helping people living paycheck to paycheck manage finances and pay off debt. Look for services in your local area. 

How Can Couples Set a Budget?

For couples, there are a few more steps in the process. While the basic framework is the same, the key is agreeing on your budget, spending and how you want to save or pay down debt.

One area couples may want to focus on is determining a plan to split expenses. For example, some couples do 50/50, while others do a percentage based on income, such as 60/40. It can help you agree on responsibilities and keep you both on track to hit your goals.

How Can I Budget for Children?

Budgeting for children requires estimating costs across categories like healthcare, childcare/activities, food, clothing, housing, and miscellaneous expenses. When planning, research prices for your area and the ages of your kids. Budget higher healthcare costs for pregnancy and the first few years, plus childcare if both parents work. Allow for extra food, clothing, housing, and activities as kids grow.

Also budget for unexpected costs like school supplies or medical copays. Automate savings for college if possible. Reevaluate the budget yearly as kids age, you have additional children, and expenses change. The key is planning for both recurring and unexpected child-related costs.

How Can I Budget Without Changing My Lifestyle?

For most people, the biggest opportunity for potentially cutting expenses is in their discretionary spending. That includes non-necessary costs and the things you do for fun. If you're struggling to maintain a budget, you may have to look closer at your lifestyle to see if you can make some cuts.

One culprit may be lifestyle creep or "revenge spending." As people make more money, upgrading to more costly expenses is easy, even if how you lived before was fine. You may want to downgrade a few of those expenses. Doing so can help you save more without substantially impacting your lifestyle.

Budgeting Tips for 30-Somethings

Budgeting tips for individuals in their 30s involve identifying and prioritizing financial goals, emphasizing savings, cutting down on unnecessary expenses, planning for significant periodic costs, and implementing gradual changes over time to foster financial well-being.

Budgeting Tips for Your 60s

When entering and budgeting for your 60s, it's crucial to review your retirement income, prioritize paying off debt, consider downsizing, and schedule meetings with a financial advisor to confidently prepare for your future retirement years.

Saving Tools Can Help With Expenses

You can use a traditional savings account for your emergency fund and money for potential expenses. A few types of savings accounts have additional benefits in certain situations.

One is a health savings account (HSA). It's a savings account you can use for health-related expenses (though generally not your premium payments). For example, you can use pre-tax income to make contributions and withdraw funds to cover prescriptions and co-pays.

For some, an HSA helps to avoid pulling money from emergency funds or other savings accounts for medical-related needs. Check with your employer to see if you qualify.

Managing Debt and Reducing Expenses

For many Americans, debt is a financial strain. From credit card bills to student loans or health care costs, it can feel draining to find a way to pay down debt while saving for the future. But there are strategies you can use to manage both.

Building an Emergency Fund

Life will often send unpredictable expenses your way, so it's important to have a plan to help cover these costs when the situation arises. Two common strategies to help are a rainy day fund and an emergency fund.

An emergency fund can help cover your basic lifestyle needs if you lose your job or face significant unexpected bills, like medical expenses. Once you review your budget, you'll know how much you need to survive month to month. Use that as the basis of your emergency fund. Then, you can make a goal to have a few months of savings to cover the unexpected — most experts recommend three to six months' worth. An emergency fund calculator  also helps with figuring out your needs.

While both cover expected costs, a rainy day fund is usually for (hopefully) minor expenses, such as a vet bill or car repairs. If you're working on building up savings for emergencies, one strategy could be to set a goal to boost your rainy day fund first and then build a bigger emergency fund.

How Can I Prioritize and Pay Off My Debts Faster?

Pay off debt , or prioritize saving? It's a question many people face when starting to build a budget. While it can feel overwhelming, with the right tools and strategies — including your budget — it's possible to make progress on your debts and save for the future at the same time. Here are a few approaches:

  • Not all debt is bad. Learn the difference between good debts and bad debts and focus on paying down the bad first.
  • You may also want to consider implementing a debt management plan, which can help you pay off debt over the course of multiple years. 

Implementing Investment Strategies

As you plan for some of those medium- and long-term savings goals, you may want to explore your investment options and consider how to work those into your budget.

Nearly half of Americans build wealth through budgeting focused on saving and investing in the stock market. But there's no one-size-fits-all solution for investing. Determining your goals and risk tolerance serve as a great first step to finding the investment opportunities that may work for you. From there, you can make the necessary changes to your budget to include your investment strategies. And don't forget to adjust it as things change.

Look to Your 401(k)

Another option is to review your 401(k) contributions. If your employer offers to match your contributions, it's essentially free money. For example, your employer may offer a 50% match on up to 5% of your base salary. If you're only contributing 3%, it may make sense to increase your contributions to get the biggest benefit.

The Bottom Line

Making a budget and sticking to it is a great way to start building sound financial habits for the long term. As you develop your future financial goals, it may make sense to sit down and chat with a financial professional. They can work with you to review your budget, help set realistic goals and start on the path to a stronger financial future.

Save, Invest, Grow Your Wealth!

Save, Invest, Grow Your Wealth!

Take control of your financial future by budgeting, saving, and investing wisely.

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