by Maja Majewski

How to Budget Your Way to Financial Confidence

Want to feel more in control of your personal finances? Sounds like you need a budget! Here’s how to budget your way to financial confidence in a few easy steps.
How to Budget A woman standing in front of a blue stone wall.

Budgeting can be mentally and emotionally hard. Basic arithmetic is scary enough without throwing your sense of self worth into the mix. But if you’re making enough money to cover rent and pay your bills, and still never feel like you have quite enough, it may be time to give a monthly budget a try.

You might not become a personal finance expert overnight, but you can start to feel more confident about your money in just a few basic steps! Here’s how to budget your way to financial confidence.

Figure out your whys.

Before you start totalling your income and expenses, take a moment to reflect on why you want to start a budget. What brought you to this place of wanting to make a budget? What do you want to get out of your monthly budget? Take out a pen and a piece of paper (or open your favorite note-taking app on your phone) and write down the answers that come to you.

Some of your reasons might be cautionary—you don’t want to struggle with money like your parents did. Some of them might be aspirational—you want to be financially comfortable enough to be able to take an extended parental leave when you have kids.

It’s important to understand all of the reasons you want to build your financial confidence, the good and the bad. But to motivate yourself for the long haul, you’ll want to cultivate a positive money mindset.

If you find yourself thinking mostly about negative or fear-based reasons for why you want to budget, try reworking them into more empowering alternatives.

Instead of: Try:
“I don’t want the thought of my student debt to keep me up at night.” “I want to aggressively pay off my student loans.”
“I never want collections to interrupt my workday with an embarrassing phone call.” “I want to be confident that I can pay my bills on time, and in full.”
“I’m tired of having to say no to exciting opportunities because I can’t afford them.” “I want to be able to chase opportunities that come my way.”

Calculate your net income.

Once you have a clearer understanding of why you want to start a monthly budget, it’s time to start crunching some numbers!

Start by looking at how much you make each month by looking at your latest pay stubs. Be sure to figure out your net income, or take-home pay (not your gross pay). You may find yourself surprised to see what $15 an hour or $75k yearly looks like in monthly earnings after taxes.

Terms to Know: Net Income

Net income, or take-home pay, refers to the remainder of your pay, or the amount of money earned after payroll withholding, such as state and federal income taxes; social security taxes; and pretax benefits like health insurance premiums, retirement plan investments, or commuting costs. It’s the amount of money you actually see on your paycheck.

Once you know your monthly net income (or your average monthly net income if it varies), you know how much you have to work with for your monthly expenses.

Add up all your expenses.

You might be familiar with the 50/30/20 rule of budgeting, in which you aim to spend 50 percent of your income on ‘needs’, 30 percent on ‘wants’, and 20 percent on saving and paying off debt. (You can use this budget calculator to figure out how much you should be devoting to each of those categories.)

Although your budget might not align with this structure perfectly, it can be a helpful guide as you’re setting up your budget to make sure that you’re on the right track. (For example, if your rent, utilities, and transportation costs are over 60% of your monthly income, you’ll want to find ways to reduce those expenses.)

Look through your recent bank account history and write down each of your current monthly expenses, noting what the expense is, how often you pay it, and how much it costs in a month. Then, make note of which expenses are wants, needs, savings, or debt.

Note that these categories are not the same for everybody: Your budget will be a reflection of your life and your priorities.

For example, if you’re living with your parents to save money, you might be able to devote a higher percentage of your income to saving and paying off debt. If you’re living in the city because of an exciting job, your ‘needs’ might be higher, and you might need to do some adjusting to your ‘wants’ in order to make it work.

Compare the answers from the budget calculator to your actual totals: How are you doing? Are you close to 50/30/20, or will you need to do some adjusting? If your expenses are higher than your income, see if you can reduce your monthly bills so that you can have a little bit of a financial cushion each month.

Once your expenses are realistic and within your means, create Expenses for them in the Simple app! For a step-by-step guide to keeping track of your Expenses with Simple, check out this blog.

Once your expenses are realistic and within your means, create Expenses for them in the Simple app! For a step-by-step guide to keeping track of your Expenses with Simple, check out this blog.

Plan ahead for rainy days.

Your monthly budget should be flexible enough to cover most of the fluctuations in your fixed and variable expenses. For everything else, you’ll want to set aside some emergency savings, also known as an emergency fund.

You’ll want to eventually have about three to six months of monthly expenses set aside in your emergency fund. Know that it’ll take time, and remember that every little bit counts! As your income grows and you gain control over your expenses, you should be able to build your Emergency Fund faster.

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I## nclude a debt repayment plan. Are you carrying student loan debt or an outstanding credit card balance (or both)? Do you owe money on your car loan, or mortgage loan?

Once you figure out your monthly expenses, you’ll want to figure out how much you can dedicate to paying off these debts over time as part of your monthly budget. At the very least, you’ll want to make sure you are able to make your minimum monthly payments on all of your debts.

Create Expenses for each of your debts in your Simple Account, so you can set money aside for them automatically each month. If you have any money leftover at the end of the month or have a one-time influx of cash (like a tax refund), use it to pay off your debt even more aggressively!

Learn more in our Simple Guide to Emergency Funds!
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Plan for your future.

It’s okay if you don’t know exactly what you want your life to look like one, five, ten, and twenty years from now. You don’t need to have all the details figured out to start saving for your future!

Just clarifying your goals—putting them into words—can be a great motivator to save. It’s the difference between, “Ugh, I know I should be saving,” and “I’m working on paying off my student loan debt so that my partner and I can start our married life debt-free!”

Whether you’re chipping away at a mountain of debt, or debt-free and looking to save, you can create Savings Goals with Simple to get a headstart on saving for all of your near and distant plans.

Goals App Screen

Here are some Goals Simple customers shared with us on Instagram!

  • Saving up for our wedding
  • “Adult” furniture and a second dog
  • Ramping up the side hustle
  • A new Tesla
  • A down payment on a house
  • Catching up on my retirement savings

Another plus to stashing your savings in a Savings Goal? We’ll keep them safe from accidental spending–helping you keep your budget on track!

Read more tips for paying off your student loans faster.
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Track. Analyze. Adjust.

Now that you’ve learned how to budget, it’s time to put your budget to use! As you make purchases and pay your bills throughout the month, check to make sure that your budget is working the way you want it to.

Keeping an eye on your account activity and tracking your spending is a good way to make sure everything works as planned. If you bank with Simple, we also recommend turning on push notifications. If you have push notifications enabled, we’ll send you one every time you make a transaction. That way, if there are any unexpected transactions on your account, you’ll know right away.

At the end of each month, take a moment to see how much you have left in each Expense, and how much progress you’ve made in your Savings Goals.

Go forth and budget!

Life happens, so don’t paint yourself into a corner with an unworkable budget. Keeping some room in your budget for that random expensive night out, or bill you forgot to prepare for, can help you in the long run. Exercise forgiveness with yourself, and you’ll be more likely to stick to your budget in the long term.

Learn more about how to save up for something big with Simple!
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