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Budgets as a lifestyle, not as a restriction

Budgeting has a pretty bad reputation. People hear the word “budget” and think it means “no more spending on fun things ever again.” And while budgeting apps and services are abundant out there, finding the right one for you can be a challenge.

In the health arena, people often say that diets fail, but lifestyle changes succeed. It's less “Eat only cabbage for a week to hit your goal weight” and more “Find an exercise you love and do it three times a week for life.”

It's the same with your budget and spending. If you restrict yourself for a short amount of time, you may see some financial improvements. But eventually, you'll let go of that restriction and overspend.

We don't want that. We want a budget that makes sense for your lifestyle, your values, and your goals. And here's a little personal-finance secret: Everyone's budget is going to look different.

Many people try to market the idea that out of the many budgeting strategies out there, there is one budget formula that will work for everyone. And if it doesn't work for you, it's because you — not the system — are the problem. We think that's ridiculous. A married parent with two children is going to have different costs than a single 25-year-old with student loan debt.

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Budget step #1: Examine your lifestyle

The very first rule for designing a budget is to look at your current numbers. You have to know what you're working with before you can start working toward anything.

Calculate your net worth

Figure out how much money you take home each month. If you're a W2 employee who collects a paycheck twice a month, total how much that comes to in a year.

  • To figure out your net worth, add up all the assets you have (cash on hand, stock values, home equity, savings, and retirement accounts) and deduct from that all the debt you have. It's OK if the number is negative. Some types of large debt — such as student loans and mortgages — can mess with our net-worth numbers. You can also use net worth trackers.
  • Now examine your monthly spending. Sit down with a spreadsheet or a piece of paper and write down all of your expenses in two main categories: necessities and flexible spending.
  • Necessities should be things like rent, utilities, insurance, and health-related costs. If you're a parent, childcare might be a need. If you own a car, oil changes might be a necessity. Debt payments should also be considered a need since you'll get into financial and possibly legal trouble if you don't pay your debt.

Be as specific as you can in your budget — don't just write down “housing” to cover all of the expenses that keep a roof over your head.

For example, here’s how my housing category breaks down into my budget:


  • Rent
  • Utilities (electric, trash, water)
  • Internet
  • Renters insurance

If you’re a homeowner, things like property taxes should be included in this budget. For each item, I assign a cost. Knowing that cost allows me to put aside that money from month to month.

Here’s another example. I recommend that people keep a list of their debts in their budget so they can see how much they owe and where it is. If you have a monthly debt payment (like student loans), it should definitely be included in your budget, since you have to pay it each month.

You can list them out something like this:


  • Credit card 1
  • Credit card 2
  • Student loan
  • Car loan

By listing your debts separately, you see each debt’s individual balance and interest rate, as well as how many debts you have in total. It’s a fantastic way to organize your debts and keep everything straight.

An easy way to easy categorize and limit your spending habits is to use a budgeting app like Empower. This app lets you customize your budget and set weekly or monthly spending limits. The best part is that it tracks your budget in real-time so you know when you're spending too much. Empower even classifies expenses for you and provides a monthly report so you can get insight into where your money is going.

Once you know where all your money is going, you can start to change these numbers.

Budget step #2: Set financial goals

Now that we know where we are, we can start looking at where we want to go. Ask yourself what your biggest financial goal is. Pay off student loan debt? Save for a house? Pile up cash for your emergency fund?

Write down your goals in a language that is as specific as you can get. For example, this is an excellent financial goal: I want to pay off $20,000 in debt by the end of the year. It gives you a timeline and a specific amount of debt to pay off.

A great way to make sure you're setting aside the right amount each month is to automate it. For example, with Acorns you can use Smart Deposit to automatically set aside a portion of your paycheck into your checking, investing and retirement accounts. Plus right now you can get $75 when you sign up for direct deposit with Acorns and get two deposits.

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Budget Step #3: How much do you need to live on?

The only way to reach your financial goals is to create a financial roadmap. And that means figuring out how much you need to live on, how much you need to put toward your goals, and how long you want to work on each target.

Take a look back at the spreadsheet or list you made earlier of all your expenses. Adding up all your necessities will give you your barebones budget, the absolute minimum you need to survive each month.

If you're not ready or willing to go full-on frugal, add back in some of the flexible expenses that you really love. Look at your flexible expenses and see which ones brought real joy to your life and weren't just mindless spending.

3 important questions

To make the difference super-clear, go over the list and ask yourself these questions:

  1. Did I truly need that item?
  2. Was this an item or experience I want for a valid reason or was it to make me feel better in the moment?
  3. Did this expense support a system I believe in? Do I want to spend more of my money on this system in the future?

It's time for hard decisions

These questions will help you begin to spend on the items, experiences, and companies that you care about. Try not to spend money on the things you don't care about. That way you can save more overall.

Once you've got a monthly spending number that feels right and allows you to live a life that you can enjoy, turn your attention back to your financial goals. Remember we had a hypothetical goal of paying off $20,000 of debt in one year?

Dividing $20,000 by 12 tells us that we need to make payments of $1,667 a month on the debt to see success. Add this number to your monthly budget. Having a line item for debt in your monthly spending means you'll begin to think of it as a regular expense. You need to make your debt payment before you can splurge on that fancy vacation.

To be able to reach your financial goals, it's best to have them somewhere you see them often. A line in the budget is an excellent place to start, but you should also put your goals somewhere else, so you see them every day. You can stick them on your refrigerator or put them on your calendar or planner. Talk about them with friends, so they become a part of your life. Remember: Budget magic happens when budgeting becomes a lifestyle, not just a diet.

Once you've incorporated your goals into your monthly spending, congrats! You've just built your first budget.

You should have a firm grasp on your monthly spending and financial goals, and an idea of what you need to reach them. We recommend using the excellent budgeting-only YNAB app.

Budgeting services and apps

You can choose to track your spending manually with either an Excel spreadsheet or a notebook. But there’s also a bevy of personal finance apps out there.

Today, so much of our lives are managed online. And it’s no different when it comes to budgeting. Apps like YNAB or Empower might be the way for you to go.

  • Empower is free, which makes it attractive to a lot of people. It also tracks your net worth, has a fee analyzer to see if you’re being overcharged by your broker, and shows your various accounts in a graph. This app incorporates your investments and retirement accounts too (learn how to invest here).
  • YNAB (stands for “You Need a Budget”) is strictly about budgeting. No investing accounts here. So for those who just need a way to track their spending and earning and don’t care about their investments or retirement accounts just yet, this is a better fit. YNAB is also great at accountability — it hooks you up with a budgeting partner so you can use each other to reach your financial goals. It costs only $50 per year.

The most important part of picking the way you budget is to feel comfortable with the system. Budgeting does require some time and effort every month. So do yourself a favor and pick a method that you’ll actually want to use. It’s a small step, but don’t make the whole endeavor harder by choosing a system you hate or one that has a steep learning curve.

Budgeting is supposed to get you closer to your money, not further away from it.

Keep everything on track

It’s important to set up your budget as accurately as possible. If you’re guesstimating the costs in your budget, you’re really not helping yourself out. Accurate numbers are essential to getting your money organized. If you think that your monthly expenses are $2,000, when in fact they’re really $2,400, you’ll end up in the red each month.

Take a month to play around with your budget. Track each purchase you make and every recurring expense you have. By having accurate records of both your income and your expenses you’ll have accurate numbers for your budget.

Increase your spare money

Wait. You may be thinking, “I don't have enough money to reach my goals.” That's a common situation.

There are two solutions: Trim back your spending or earn more.

  • You can advocate for a raise at work to give you more income, or you can pick up a side hustle. Anything from bartending to freelance work, to dog walking can bring in a few hundred extra dollars a month. That can provide the added financial boost you need to hit those goals we set.
  • You can also pull back on your spending. That's why we identified the monthly items that are mandatory and those that are more flexible in your life. If you just need a quick injection of cash, you can eliminate some or all of the flexible category items. Not going out to eat for an entire month may not be the most fun you've ever had, but if it's in pursuit of your bigger goal, it's probably worth it.


After you’ve done steps one through three, your budget should be in great shape! From here on out, it's maintained and adjust.

If you get a puppy, you should add line items that correspond to the cost of having a dog. Food, vet bills, and dog toys should now have a line in your budget. Similarly, if you want to cut costs, eliminate things from your budget that you’ve stopped spending money on.

The first time you sit down to get things organized, give yourself a solid hour. You’ll probably need to sort through your credit and debit card history, pull up bills online or sort through some mail to get a realistic view of your finances.

However, once you’ve broken your budget down into broad categories and individual expenses, you probably won’t need much time month to month to manage your money. As long as you follow your budget faithfully, it can be a pretty low-key part of your life.

Having a clear, easy-to-understand, and up-to-date budget can be a financial game-changer. It just gives you such a clear, big-picture view of your money. Even if that picture is one that you want to change, you have to know what it looks like before you can make any adjustments.

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Kara Perez Freelance Contributor

Kara Perez is a freelance personal finance writer.


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