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By Michael Penney and Kamithan Sureshkanna

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Hello everyone, and welcome to our Padlet.  We will be talking about various aspects of budgeting.  We recommend that you go through the whole wall, if you do, we can promise that you will learn a thing or two.

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The photo above is the definition for the term Budgeting

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Creating a budget doesn’t have to be difficult. Simply commit to the process of knowing how much money comes in and goes out.

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If I have take-home pay of, say, $3,000 a month, how can I pay for housing, food, insurance, health care, debt repayment and fun without running out of money? That's a lot to cover with a limited amount, and this is a zero-sum game.

The answer is to make a budget.

What is a budget? A budget is a plan for every dollar you have. It's not magic, but it represents more financial freedom and a life with much less stress. Here's how to set up and then manage your budget.

How to budget money

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Understand the budgeting process

Figure out your after-tax income: If you get a regular paycheck, the amount you receive is probably it, but if you have automatic deductions for a 401(k), savings, and health and life insurance, add those back in to give yourself a true picture of your savings and expenditures. If you have other types of income - perhaps you make money from side gigs - subtract anything that reduces it, such as taxes and business expenses.

Choose a budgeting plan: Any budget must cover all of your needs, some of your wants and - this is key - savings for emergencies and the future. Budgeting plan examples include the envelope system and the zero-based budget.

Automate your savings: Automate as much as possible so the money you've allocated for a specific purpose gets there with minimal effort on your part. An accountability partner or online support group can help, so that you're held accountable for choices that blow the budget.

Practice budget management: Your income, expenses and priorities will change over time, so actively manage your budget by revisiting it regularly, perhaps once a quarter. If you're struggling to stick with your plan, try these budgeting tips .

Before you build a budget

NerdWallet breaks down your spending and shows you ways to save.

Frequently asked questions

How do you make a budget spreadsheet?

Start by determining your take-home (net) income, then take a pulse on your current spending. Finally, apply the 50/30/20 budget principles : 50% toward needs, 30% toward wants and 20% toward savings and debt repayment.

How do you keep a budget?

The key to keeping a budget is to track your spending on a regular basis so you can get an accurate picture of where your money is going and where you'd like it to go instead. Here's how to get started: 1. Check your account statements. 2. Categorize your expenses. 3. Keep your tracking consistent. 4. Explore other options. 5. Identify room for change. Free online spreadsheets and templates can make budgeting easier.

How do you figure out a budget?

Start with a financial self-assessment. Once you know where you stand and what you hope to accomplish, pick a budgeting system that works for you. We recommend the 50/30/20 system, which splits your income across three major categories: 50% goes to necessities, 30% to wants and 20% to savings and debt repayment.

Try a simple budgeting plan

We recommend the popular 50/30/20 budget to maximize your money . In it, you spend roughly 50% of your after-tax dollars on necessities, no more than 30% on wants, and at least 20% on savings and debt repayment.

We like the simplicity of this plan. Over the long term, someone who follows these guidelines will have manageable debt, room to indulge occasionally, and savings to pay irregular or unexpected expenses and retire comfortably.

Find out how this budgeting approach applies to your money.

Savings and debt repayment

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Do you know your "want" categories?

Track your monthly spending trends to break down your needs and wants.

Allow up to 50% of your income for needs

Your needs - about 50% of your after-tax income - should include:

If your absolute essentials overshoot the 50% mark, you may need to dip into the "wants" portion of your budget for a while. It's not the end of the world, but you'll have to adjust your spending.

Leave 30% of your income for wants

Separating wants from needs can be difficult. In general, though, needs are essential for you to live and work. Typical wants include dinners out, gifts, travel and entertainment.

It's not always easy to decide. Are restorative spa visits (including tips for a massage ) a want or a need? How about organic groceries? Decisions vary from person to person.

If you're eager to get out of debt as fast as you can, you may decide your wants can wait until you have some savings or your debts are under control. But your budget shouldn't be so austere that you can never buy anything just for fun.

Every budget needs wiggle room - maybe you forgot about an expense or one was bigger than you anticipated - and some money to spend as you wish. If there's no money for fun, you'll be less likely to stick with your budget.

Commit 20% of your income to savings and debt repayment

Use 20% of your after-tax income to put something away for the unexpected, save for the future and pay off debt. Make sure you think of the bigger financial picture; that may mean two-stepping between savings and debt repayment to accomplish your most pressing goals.

How's your financial health?

Check how you're doing on the key elements of personal finance, and learn ways to build your score.

Many experts recommend you try to build up several months of bare-bones living expenses. We suggest you start with an emergency fund of at least $500 - enough to cover small emergencies and repairs - and build from there.

You can't get out of debt without a way to avoid more debt every time something unexpected happens. And you'll sleep better knowing you have a financial cushion.

Get the easy money first. For most people, that means tax-advantaged accounts such as a 401(k). If your employer offers a match, contribute at least enough to grab the maximum. It's free money.

Why do we make capturing an employer match a higher priority than debts? Because you won't get another chance this big at free money, tax breaks and compound interest. Ultimately, you have a better shot at building wealth by getting in the habit of regular long-term savings.

Once you've snagged a match on a 401(k), if available, go after the toxic debt in your life: high-interest credit card debt, personal and payday loans, title loans and rent-to-own payments. All carry interest rates so high that you end up repaying two or three times what you borrowed.

You can't repay your unsecured debt - credit cards, medical bills, personal loans - within five years, even with drastic spending cuts.

Your total unsecured debt equals half or more of your gross income.

Once you've knocked off any toxic debt, the next task is to get yourself on track for retirement. Aim to save 15% of your gross income; that includes your company match, if there is one.

Regular contributions can help you build up three to six months' worth of essential living expenses - not your full budget, just the must-pay basics. You shouldn't expect steady progress because emergencies happen, and that's when you should pull money from this fund. Just focus on replacing what you use and building higher over time.

If you've already paid off your most toxic debt, what's left is probably lower-rate, often tax-deductible debt (such as your mortgage). Tackle these when the more-basic goals listed above are covered.

Any wiggle room you have here comes from the money available for wants or from saving on your necessities, not your emergency fund and retirement savings.

Congratulations! You're in a great position - a really great position - if you've built an emergency fund, paid off toxic debt and are socking away 15% toward a retirement nest egg. You've built a habit of saving that gives you immense financial flexibility. Don't give up now.

Consider saving for irregular expenses that aren't emergencies, such as a new roof or your next car. Those expenses will come no matter what, and it's better to save for them than borrow.

WATCH TO LEARN MORE ABOUT BUDGETING

Bev O'Shea is a freelance writer and a former NerdWallet staff member who specializes in consumer credit, scams and identity theft. Her work has appeared in The New York Times, The Washington Post, MarketWatch and elsewhere. Read more

Lauren is a personal finance writer at NerdWallet. Her work has been featured by USA Today and The Associated Press. Read more

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Your Guide to How to Budget Money - NerdWallet

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Follow this guide to learn how to budget money. Create a budget using the 50/30/20 rule to split your income between needs, wants, savings and debt repayment.

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What is Budgeting and Why is it Important?

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What is Budgeting? What is a Budget? Budgeting is the process of creating a plan to spend your money. This spending plan is called a budget. Creating this spending plan allows you to determine in a

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Why make a budget

A budget is a plan that helps you manage your money. It helps you figure out how much money you get, spend and save. Making a budget can help you balance your income with your savings and expenses. It guides your spending to help you reach your financial goals.

A budget is especially important if you:

don't know where your money is going

don't save regularly

have problems paying off your debts

feel overwhelmed by your finances

feel like you're not in control of your finances

want to make the most of your money

are planning for a major purchase or a life event

Making a budget can help you:

set spending limits

find ways to pay down your debts

reduce costs and save more

live within your means

reduce financial stress

have more money for things that are important to you

feel in control of your finances

What to consider before you make a budget

Take these simple steps before you make your budget.

Think about your financial goals

Identify your short-term and long-term goals. Make saving for those goals part of your budget.

For example, goals may be:

Short-term goals:

paying off your credit card

reducing your weekly expenses

starting to build an emergency fund

Long-term goals:

paying off all of your debts

saving to buy a home or a car

saving to have children, to go to school or to retire

To deal with unexpected situations, create an emergency fund. Your emergency fund should provide you with enough money to cover your living expenses for 3 to 6 months. These amounts can sometimes seem out of reach. That is why you should start by saving a small amount on a regular basis.

Having an emergency fund will help you reduce financial stress and avoid getting trapped in a debt cycle.
Learn how to set up an emergency fund.
Know where your money is going

Tracking your money will help you figure out what comes in and what goes out of your pocket. Every dollar you spend affects your overall budget.

For example, if you spend $3 a day on coffee, it will cost you more than $1,000 a year.

To keep track of where your money is going, take note of what you spend.

Try this exercise for 1 or 2 months:

keep track of everything you buy, from groceries to a daily cup of coffee

keep track of bills you pay during this period, for example your telephone or internet bill

try dividing your expenses into 2 categories: "needs" and "wants"

Small changes to spending habits can have a major impact on your budget and your ability to save.
Find ways to save money before shopping.
Evaluate your needs and wants

Knowing the difference between your needs and your wants is key to making a smart budget.

A "need" is something that is necessary, required or essential. For example, a roof over your head, clothing, food, or medication.

A "want" is something that you'd like, but don't necessarily need. For example, meals at a restaurant, a trip, a gym membership, or designer shoes.

Needs and wants aren't the same for everyone. One person's "want" may be another person's "need". For example, if you live near a bus route, a car may be a want rather than a need. However, if you don't have access to public transit and can't move around otherwise, you may need a car.

Your needs and wants may also change over time. For example, a large house may be a need while you're raising a family. However, a condo or a smaller home may be what you need when your children move out.

Once you've figured out your needs and wants, you're ready to make your budget.

How to make a budget

In order to make a useful budget you need an effective tool that is easy to use.

The Budget Planner is a tool that allows you to create a personalized budget and save it online. It gives you tips and guidelines and helps you figure out your next steps with suggestions. It also creates charts that show you where your money is going. You also have the option to compare your budget with those of other Canadians like you.
Use the Budget Planner to make a budget.
Steps to make a budget

Take the following simple steps to make your budget.

Step 1: List your income, savings and expenses

take your recent pay stubs, bills, and account statements

enter the amount of income, savings and expenses into each category of the Budget Planner

if you can't find a field for a specific item, you can always add and name your own items

When you're done, review the amounts to make sure you didn't forget anything. These items should represent your current situation.

As you're entering data, the tool will give you tips to help you save more and/or spend less. Consider those tips to balance your budget.

When you're done creating your budget, save it online so you can return to it anywhere, at any time.

Step 2: Review your results

The results section provides you with average guidelines. These guidelines tell you what Canadians usually spend or save for each budget category, for example, food, housing, clothing, insurance.

Look at the different alerts you receive for each category:

green thumbs up: this amount is within the average range

yellow warning sign: this amount is slightly above the average range

red hand sign: this amount is above the average range

These alerts will help you determine where you should focus your attention or try to reduce costs. Everyone's situation is different and while the guidelines can't apply to everybody, they provide a good starting point.

Review your results graphics, they give you a clear visual of your overall budget. You'll see a graphic that shows you how your budget compares to those of other Canadians in similar situations. It's valuable to compare your financial habits with people with similar age, income, housing and family situation.

Step 3: Review your next steps

In the next steps section, the tool gives you personalized suggestions. These suggestions are based on your situation and what you have entered in your budget. They help you figure out your next steps whether you have money left or are overspending.

Read them carefully and follow the links to useful educational tools and content to improve your budget.

Tips to help you stick to your budget

Now that you have a budget, try to stick to it and improve it as you go.

To help you with this task, try the following:

keep all your receipts and bills

limit your spending as much as possible to what's in your budget

update your budget with any changes, for example, a pay raise or a bill increase

compare your budget to what you actually spend at the end of each month

Evaluate your budget from time to time. If your actual spending often varies from your budget, adjust your figures to make it more realistic.

When comparing your budget to your actual spending, ask yourself the following questions:

are there large differences between your actual spending and your budget

which categories have the largest differences

are differences due to an unusual situation or is this likely to happen each month

can you save enough money to reach your financial goals or pay off your debts

Continue with this exercise each month. You can set a reminder or book time in your calendar to review your budget regularly. If you make it a habit, you are more likely to stay on track.

Related links

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budget; managing your money; financial goals; tracking my money; my financial needs; my financial wants; tracking your money; your financial needs and your wants; budget planner; personal budget; budget maker

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Tips on how to make and stick to a budget. Consider your needs, wants, spending habits and financial goals.