Hit Refresh on Your Budget for the New Year
Budgeting Doesn’t Have to be Hard
Fun Fact: budgeting activates saving behaviors and can help override anxiety, according to the National Institutes of Health. And get this: NIH concluded that saving money can help you reduce future-related fears, including the fear of death.
Got your attention? Let’s dive in.
Using a budget to guide your spending can help you keep your financial life organized and help you achieve goals like building an emergency fund, buying a car, or saving up for a wedding or dream vacation. And it doesn’t have to be complicated. Get started with these five simple steps.
- Determine Your Net Monthly Income
To begin your budget, you need an accurate picture of the amount of money you’re bringing in. Most budgets are based on monthly income and expenses, so you’ll have to do some calculating. Your net income is your take-home pay – the amount of money left after taxes, insurance premiums, and any other payroll deductions. You’ll have to multiply the amount of your paycheck by the number of paychecks you get in a year and then divide by 12 to calculate your monthly income. If you have additional sources of income, like rental and investment income, break those down to a monthly amount and include that, too.
- List Your Monthly Expenses
Start with your basic expenses, like rent, car payments, and student loan payments. These are easy to track because they’re the same every month, but don’t forget other core expenses that are paid quarterly, annually or semi-annually, like car insurance, and monthly bills that may be variable like groceries, healthcare, phone and utilities.
Next, add discretionary expenses, like restaurant and takeout meals, and subscriptions –things you could live without if you had to (sorry, but Netflix is discretionary). Be brutally honest when estimating what you pay each month for things like clothing, spa services, and vacations. Your budget is only as accurate as the information you include.
- Choose a Budgeting Plan
Keeping your budgeting plan simple will help you stick with it. The 60-20-20 method works for a lot of people. Earmark 60% of your income for housing, transportation, groceries, healthcare, and other basic expenses, but not the discretionary ones. Set aside 20% for savings (e.g., emergency fund or house down payment account) and automate it, if possible, so you aren’t tempted to “borrow” from yourself! That leaves the last 20% of your monthly income available for discretionary expenses.
You can do this by hand, but there are lots of free or low-cost mobile budgeting apps to help simplify creating and monitoring your budget and progress toward financial goals. We like this overview of best budgeting apps for 2025, but members also have access to lots of budgeting tools and resources in the financial education section of our website.
- Find Ways to Cut Costs
Once you’ve tracked your expenses for a month or two (maybe less), you’ll almost certainly find places you can cut back on discretionary expenses to ensure you meet your 20% savings goal.
Basic expenses are a tougher nut to crack, but you do have options. For example, you have to pay rent, but maybe you could move into a cheaper place or find a roommate to share expenses. To cut your grocery bill, try experimenting with Meatless Mondays and buying fewer convenience foods which tend to be pricey. If you typically replace your car, laptop or phone as soon as you’ve made all the payments, hold onto them for an extra year or two – you won’t be that far behind with the technology, and will save a bundle on your monthly expenses.
- Monitor and Adjust Your Budget as Needed
Budgeting is an ongoing process of monitoring your income and adjusting expenses to achieve your long- and short-term financial goals. The great news is that as you get in the habit of living within your means, you’ll be encouraged as you reach your savings goals!
When you pay off an installment loan like your car loan, for example, you could add the amount of that monthly payment to your savings — paying yourself instead of your lender. Similarly, when you get a bonus or tax refund, resist the temptation to inflate your expenses. Instead, if you take a small amount to blow on something fun and allocate most of your windfall toward savings, you’ll reach those financial goals that much faster!
Want to learn more about budgeting and other personal financial topics? Visit the financial education section of our website.
