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The Beginner's Guide to Budgeting

By 2:24 PM

Starting out on your own can be a little frightening, especially when you aren't used to paying bills and buying your own groceries. 

One way to make this less scary is to make yourself a budget. If you make a plan, you can control your money—instead of the other way around. I don't make a lot of money, but by carefully budgeting my money I can make sure that I have enough money to buy as much food I want, pay my rent, and buy things like throw pillows and craft supplies for fun.

This is a nice, long, and lengthy guide to setting up a budget for those just starting out. 

My parents and I have both attended Dave Ramsey's Financial Peace University. I have adapted his system to perfectly fit me. Once you have used a system for a few cycles, you will understand what fits you best and will be able to adapt the system to yourself.

Throughout this tutorial, I will be referring to a spreadsheet. You can download the base spreadsheet here.

Setting up the Budget

Here are some sample categories that you might need to plan for:
  • Charity
  • Saving
  • Housing
  • Utilities
  • Food
  • Clothing
  • Transportation
  • Medical/Health
  • Insurance
  • Household items
  • Recreation
  • Debts
  • Personal
I have tweaked these categories to fit my lifestyle and you should tweak them as well.

I'm going to tell you the percentages Dave Ramsey recommends and then what I recommend for someone just starting out (and why).

Dave's Recommendations
  • Charity: 10-15%
  • Saving: 10-15%
  • Housing: 15-35%
  • Utilities: 5-10%
  • Food: 5-15%
  • Clothing: 2-7%
  • Transportation: 10-15%
  • Medical/Health: 5-10%
  • Insurance: 10-15%
  • Recreation: 5-10%
  • Debts: 5-10%
  • Personal: 5-10%
Holly's Recommendations
  • Charity: 1-5%
  • Saving: 3-5%
  • Housing: 25-40%
  • Utilities: 5-10%
  • Food: 10-15%
  • Clothing: 2-3%
  • Transportation: 10-15%
  • Medical/Health: 5-10%
  • Insurance: 10-15%
  • Recreation: 5-10%
  • Debts: 5-10%
  • Personal: 5-10%
Here's a screenshot of what the sample budget looks like to begin with.

First, you should plug in your income in the box beside "total income" to see what some recommendations for what you should be spending on everything. Then feel free to play with the percentages. For someone just starting out with a fairly low income, you will probably be saving less and giving less than someone who has a higher income. You will also likely be spending toward the higher end of the recommended percentages on housing and more on food. A word of caution: you should not spend more than 40% of your income on your rent! Keep that in mind. 

I run my budget bi-weekly instead of monthly because I get paid every other week. I budget for half of everything that has a monthly due date—rent, utilities, student loans—that every four weeks, I have enough money to saved to pay these things and they don't hit me all at once. For the sake of this example, we're going to say that this person makes $800 bi-weekly or twice a month (budgeting for bi-weekly paychecks and twice-monthly paychecks is more or less the same except there will be maybe two months a year where you have over-budgeted for rent and debts, which isn't a bad thing—it's always good to put extra on things like debts!

Tweaking the Budget aka where things get squirrel-y

You can see here that my percentages no longer add up to 100% and that I now have some leftover money. Dave Ramsey says your budget should always zero out. I, however, like to have a little room to play with my money. It makes me feel a little unrestrained and free, despite the budget. Dave gives you this freedom by budgeting for "blow money," or money that you're allowed to blow on whatever the heck you want.

When you are first starting out, you may find out that your leftover money may have to cover items you under-budgeted for, like food or transportation costs.

Things don't add up to 100% and that's okay with me.

When something has a set in stone amount (like rent, student loans...), I delete the percentage in column B (replacing it with something like "—" so I know that the value in column C is no longer dependent upon the percent in column B) and enter the amount I need to save in the cell in column C.  

You may decide that you'd rather delete all of the percentages and enter pure amounts in column C. That works. However, as a beginning budget-er, I think it's important to see the percentages because it gives you a guideline as to what you should spend. 

Sticking to the Budget

Pay for all categories separately and always keep your receipt. (Self check-outs at the grocery store are your new best friend.) 

Create an envelope for each category that have irregular spending in (i.e. everything but debts, rent). Write the name of the category and the amount you have to spend on the envelope.

After you make a purchase, subtract the amount from the total amount on your envelope and keep the receipt within the envelope. 

Don't let yourself spend gas money on eating out. That's important.

When your money's gone, it's gone. Use your leftover as a buffer, if you must.

My notes on the categories:

  • Food means groceries, not eating out. I allocate my eating out money under "recreation" because eating out is a treat, not a necessity. 
  • Take charge of your categories. Know what things mean. Think of each purchase and where it falls under your system—what I think might be different than what you think.
  • Add, edit, and delete categories as you wish. I combined personal and household and allow it to encompass not only things like shampoo but also ziploc baggies and command hooks
  • I pretty much only use my Medical category to save for prescription medicine and doctor's visit. I purchase Advil and vitamins under personal/household.

Other helpful hints

  • Don't blow all of your "leftover" money in a couple of days. Try to ration it out. Remember, it's also there just in case.
  • Give yourself a little while to get used to your new budget. If you're not comfortable saving at first, that's understandable. But eventually, it's very important to save money!
  • Give yourself several periods to get your budget set up perfectly. You're probably not going to budget the perfect amount for stuff at first. That's okay. 

When you mess up...

  • There's going to be a time when you're at the grocery store at 6PM and you've waited in line for 30 minutes and there are five people behind you and you don't feel like demanding that the clerk process five separate transactions for you so you buy food and DVDs and deodorant all in one transaction. It's okay. You haven't killed your budget. I do this more often than I'd like to admit. When you do this, copy your receipt however many times is necessary and mark out items to make a receipt for each category (I usually keep the original intact in case I need to return something). 
  • You're going to spend more in some categories than you meant to and leave a negative balance. Dave Ramsey recommends that you put cash in each envelope and when it's gone, it's gone. This isn't realistic for me. Sometimes I go to the grocery store two days before payday—my food category is almost depleted and I'm really buying food for the next paycheck period anyways. It's not a good idea to take money from the transportation category and put it in the food category. I usually have a lot of extra money in my account from things that haven't come out yet so I allow myself to borrow from myself and keep a negative balance. DO NOT DO THIS OFTEN AND DO NOT DO THIS IN MULTIPLE CATEGORIES. When I get paid, I simply budget what I would normally budget plus enough to cover what I have already spent. If you're regularly overspending a category, you're not budgeting enough. After several cycles of budgeting, I realized that I was consistently overspending in food and recognized I needed to budget more for food.

Advanced Budgeting

  • When you are comfortable with your budget, start saving an emergency fund. Why? Because your dog might start peeing blood and you might feel inclined to take her to the ER vet. Emergencies come up. Expect unexpected expenses. 
  • Look out for the future. Wouldn't it be easier to stomach Christmas if it didn't hit you all at once? I'm planning to start saving for Christmas in August—$15 from each paycheck. Once time rolls around to start buying gifts, I'll already have a good amount saved up and Christmas won't hurt me. I've also budgeted in advance for birthdays.
  • There may be other categories you discover, seasonal and things that you just tend to purchase frequently. For example, I garden. In the springtime, I have a separate category for gardening. Technically, I could encompass this in my personal/household category but I know myself: I would end up spending money I needed to spend on vitamins on flowerpots. If you find that you're spending a lot of the money in a particular category on something (for example, purchasing a lot of home decor in personal/household) you might need to create a separate category for that item or type of item.

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  1. Hi cutie, I was curious and looked you up again to see how you're doing two-years later.

    At your age, I'm impressed with your focus on budgeting and expenses, most of us start out as care-free liberals but eventually with the cost of living, we find ourselves embracing a more conservative lifestyle.
    Maybe I'll be seeing that change in two-years? I was hoping to see you'd started a bakery by now...

    best wishes!

  2. Really good recommendations here. I try to be a very conscientious budgeter, but sometimes I'm not as organized as I'd like to be.