Simple Budgeting for Beginners (Create a Budget Plan in 5 Steps)

Are you looking for a simple budgeting plan that you keeps you on track?

We have been through it all when it comes to budgeting.

We’ve created countless budgets, followed through with a few, and finally felt satisfied with one.

We’ve seen for ourselves how much budgeting can suck.

Spend all this time making a budget plan and then we can stick to it. Or, worse we forget about it.

But, we’ve also felt the happiness and satisfaction of accomplishing our budget.

We want to help you feel the same happiness and satisfaction by sharing what we have learned about budgeting.

The most important lesson we’ve learned is that if you want to stick to your budget, you have to keep it simple.

Simple budgeting will lead to successful budgeting.

That means creating a budget plan that is easy make, change, and stick to so that you achieve your goals.

A budget is one of the first steps to stop living paycheck to paycheck.

So, if one of your goals is to have more money at the of the month, you have to start budgeting.

Simple budgeting can be achieved by looking at each of the parts of a budget and using the simplest form of each part.

So, if you want to know how to budget and also make sure that you stick to your budget keep reading below.

We have the easiest way for you to create a simple budgeting plan that can help you today.

What Is A Budget, Really? 

If we are going to go through each of the different parts of a budget and simplify each, we should probably know a little bit about each.

Wait, but what is a budget? And, what does it mean to budget?

It can be a verb and noun. Ugh.

Often, there are a lot of “financial” terms that we actually don’t even know what they mean.

Even we still look up financial definitions everyday, especially when it comes to more complex aspects of finance.

Here’s the short answer:

A budget is a list of where you’re putting money for expenses over a specific amount of time.

When you budget or you’re budgeting, it means that you’re going through the process of allocating money for expenses over a specific amount of time.

Basically, a budget is mostly about deciding where you’re going to spend money.

It involves other stuff, but all that other stuff helps you work through your spending.

Now, that we’re on the same page, we can start to look at the different aspects of a budget.

But, if you want more information on the definition of a budget, check out our post:

What is a Budget?

A Personal Budget is a Balancing Act

Creating a budget sounds easy. But, as you start looking at your expenses it can quickly become complex and confusing.

At its most basic level, a budget is trying to balance three items: future income, future expenses, and future savings.

Wait, income and savings were not in the definition!

Nope, but if you think about the goal of a budget, you’ll quickly see how they are a part of the budgeting process.

Why do you want a budget? Yes, we’re asking you.

Hell, what can you even accomplish with a budget?

Usually, the main goal of a budget is to spend a specific amount of money and specifically spend less money.

If your income doesn’t change then that leads to saving more money. Yay!

Now back to balancing act.

Your savings should equal the difference between your income and expenses.

If the amount of your expenses is more than your income, then you have to create debt to balance your budget.

Savings (Debt) = Income – Expenses

Step 1 of Simple Budgeting: Time Period of Your Budget

All budgets are for a specific amount time.

A travel budget is for spending over a specific trip. For example, all the spending for the five days you are in Ibiza.

Most personal finance websites recommend a monthly budget for your overall budget.

We don’t.

Monthly budgets are meh and don’t keep your budget simple.

Do you really want to work on budgeting every month for the rest of your life?

That’s just too much time wasted.

And, the time spent looking at your budget doesn’t necessarily mean you’re going to stick to your budget.

It may even make you want to not look at your budget because you’re sick of doing it every month.

We use a quarterly budget. It’s better in many ways.

A quarter is three months when we’re talking about the year.

So, January to March, April to June, July to September, and October to December.

Since quarters are three times longer than months, we have three times the money to play with or budget.

It also means that we can see a meaningful difference of our spending habits.

Reducing your spending in one area by $50 for a month is nice but spending $150 less over three months is a legit difference in spending.

Now, you may be asking, will I create my budget and forget about it for three months?

It’s possible but we don’t think so.

Remember, the goal of a budget is to guide you towards spending a specific amount of money on different expenses.

If you remind yourself everyday of how much you have to spend in each category, you’re much more likely to achieve your budget.

Looking at it every month or every quarter isn’t going to change that.

There are also all kinds of expenses that happen every quarter but not every month.

Maybe you spend $200 every quarter on clothing. Does that me you’re spending $66.67 every month on clothing? Probably not.

A quarterly budget smooths out infrequent and potentially large purchases.

Additionally, each quarter has roughly the same amount of time within a year, 3 months or ~13 weeks.

With 3 months, each quarter should have the same amount of recurring expenses (rent or mortgage) and roughly the same amount of spending on basic goods.

For more, check out our post:

5 Reasons Why You Should be Using a Quarterly Budget

If simple budgeting is your goal, use quarters for your budget time period.

Step 2: Figure Out Your Income

You don’t actually need your income to make a budget. But, knowing your income will make it much easier and simpler to create a budget.

When you know your income, it can help you to determine your total spending.

Remember, the main part of budgeting is deciding how much money you’re going to spend on expenses.

Since you’re using a quarterly budget, you should figure out how much you expect to make over the next quarter.

Step 3: Figure Out Where You Spend Money

After you have your income, you could just jump straight into budgeting your money.

Pick an amount for one category and move on to the next.

But, the problem with that is that you’re likely pulling numbers out of the air.

It’s great that you only want to spend $200 dining out next quarter.

But, if you spent $1,000 dining out last quarter, you’re probably not going to be able to make such a drastic reduction in spending.

That’s why you need to gather your previous spending.

Simple budgeting is all about using the information to help guide you along the budget process.

Your income will help you decide the total amount of money you want to spend each category.

And, your previous spending will help you decide how much you want to spend within different categories.

Since most of our spending is now done with credit cards, debit cards, or other electronic forms of spending, we can easily pull that information.

You can pull information from your different spending accounts or you can even use an online platform that links all of your accounts.

Websites like Mint and Personal Capital allow you to link your financial accounts and have all of your transactions in one place.

Go back and pull all your spending transactions over the last quarter or two quarters.

For more on tracking your expenses, check out our post:

How to Track Your Income and Expenses

Step 4: Decide How You Want to Categorize Your Spending

So far, we’ve told you exactly what to do to build a simple budget.

But, now we’re going to give you three options on categorizing your spending.

Everyone has expenses but expenses can vary quite a bit from person to person.

For example, if you have a pet and I have a child, we have to completely different types of expenses.

So, here are the categorizing options for simple budgeting:

1. Two Categories: Essential and nonessential expenses
2. Five Categories: Essential expenses and four of your choosing

These methods are very simple but are simpler in different areas.

Option 1: Essential and nonessential expenses

Categorizing your expenses is super easy. An expense is either essential or nonessential.

Additionally, your essential expenses are usually fixed or don’t change much.

The downside is that you don’t really know where you’re spending on nonessential expenses.

So, you may become frustrated when you see that you overspent but you don’t know why you overspent on nonessential expenses.

Option 2: Essential expenses and four categories of your choosing

This option helps the problem of option 1.

You have your fixed essential expenses and then you have to make four categories to put everything else.

So, now you are able to have more insight into where you are spending each quarter.

The one thing is that categorizing will take more time each quarter.

You’ll also need to write down what expenses go in what categories.

Which Option Should You Choose?

It comes down to time versus detail when choosing between the two options.

You’ll spend less time with option one because you’ll only be categorizing into two categories.

With option two you’ll spend more time categorizing but you’ll have more knowledge of where you’re spending.

We tend to lean towards option two because it will make the budgeting process simpler.

How is it more simple?

It’s a lot easier to set spending goals for individual categories than one big group.

Lastly, if your goal is simple budgeting, you should be trying to use two to five categories at most.

Every additional category just adds more work.

Step 5: It’s Time to Budget

By now, you’ll have pulled all of your previous transactions and assigned a category for each expense. If you haven’t done that you’ll need to do it before step 5.

The first thing to do is to figure out how much you spent in each category during the last quarter.

Simply, add up all of the transaction amounts for each category.

Now, you two to five expense totals.

These are the categories that you are going to budget.

For essential expenses, there isn’t likely going to be much change in cost next quarter.

So, you can probably keep essential expenses about the same unless you have a reason to increase or decrease it for next quarter.

At this point, subtract the essential expense cost from your expected income.

That’s how much money you have left for nonessential expenses and savings.

There are all kinds of ways that you can budget the rest of your money.

Maybe start with how you want to save each quarter if your goal is to save more money.

When it comes to the other expenses, use your prior spending numbers to guide you.

We know from experience that drastically reducing an expense category takes time and doesn’t happen over one quarter.

If we spent $1,000 on eating out last quarter we would probably set a goal of only spending $900 next quarter.

It takes time to change habits.

But, a budget can help you gradually change those habits by making you more aware of where you’re spending your money.

Bonus: Budget Your Savings

If you left some money over after spending, and we hope you did, you should think about where you’re going to put that money.

You may want to create an emergency fund.

Or, you may want to start investing for retirement.

There are plenty of reasons to save your money.

You should think about where you are going to put each of those dollars that you will be saving.

Final Thoughts on Simple Budgeting

Budgeting can look pretty easy on the surface. However, with all the different ways that you can budget, it can become complex fast.

We hope this budget plan is simple enough that you can create a budget and start accomplishing your financial goals.