For many, creating a budget can feel constraining. In actuality, though, a budget does the opposite of boxing you in; it gives your relationship to your money a framework and can be incredibly freeing. And if you create your budget thoughtfully, you can maintain or even increase your quality of life while gaining control over your finances. Not sure where to start? Below are four budgeting methods to consider and some pointers on how to get started.

On this page:

• The calendar method
• The zero-based budget
• The envelope system
• The percentage-based budget
• Budgeting tips and tricks

The calendar method

With this method, you’ll write down your monthly bills, when they’re due, and their expected amounts. You can do this on a physical printed calendar or by simply writing down dates in a notebook. The physical calendar method can be particularly impactful for those who like to consume information visually, as it allows you to see the bills placed at their respective times of the month. This method doesn’t allocate specific percentages of money to any particular area of your finances, but that’s the beauty of it. Want to pay down a certain amount of debt each month? Schedule it. Want to save for a big purchase? Schedule it. Want to allocate a portion of your check to savings? Schedule it. You can make this method work for you no matter what your goals are.

The zero-based budget

The zero-based budget gives every single dollar that you earn each month a place to go. To start, write down how much you plan to make in a month (or in a pay period, whichever works best for you). Then write down your expenses and subtract the amount from your total pay. If you have extra money left over (hopefully you are making more than you spend!), find a job for it. Allocate it to savings, to debt, to investments, or to any other goal you have. The point is to find a place for every single dollar before you actually earn it. If you tend to overspend or have trouble sticking to goals, this method could work well for you, as it gives you a solid plan for all of your income. This method works best if you are paid on a regular schedule and in regular amounts; those with significant variation in their paychecks may find this method awkward.

The envelope system

This is an oldie but a goodie! With the envelope system, you’ll designate categories and put a pre-determined amount of money into those categories with each paycheck. Your categories can be anything you want. You can go simple with just “needs,” “wants,” and “savings,” or you can create specific categories for your unique goals. The envelope system was traditionally done with actual envelopes and cash money, which can still be a good way to budget if you find yourself motivated by cash rather than by numbers on an online banking screen. You can do this digitally, though, by using spreadsheets or even by opening separate accounts for a few different goals.

The percentage-based budget

This budget could be a good choice for numbers-minded folk. With percentage budgets, you allocate certain percentages of your income to certain financial needs. A few different versions exist, including the 50/30/20 budget (50% to needs, 30% to wants, 20% to savings) and the 80/20 budget (20% to savings and the rest to whatever you’d like), but you can make this budget strategy into whatever you’d like. Just like the envelope method, you can create your own percentages that work for your goals. With this method, though, you’re using percentages and not amounts. This means that a percentage-based budget could be a better choice for those whose paychecks vary. You may not make the same amount each pay period, but you can always break your paycheck down into percentages.

Budgeting tips and tricks

If you are new to budgeting, you might want to keep a few things in mind. These tips and tricks increase your chances of sticking to your budget and reaching your goals.

• Be realistic. You need some breathing room in your budget. Unless you are in dire straits, you probably have the ability to allocate some “fun money” for yourself. Having money to play around with each month—and the amount is completely up to you—can keep your mood up and increase your quality of life.
• Switch methods if you need to. If you’ve never budgeted before (and even if you have), it’s okay to play around. Try different methods until something feels natural and easy to stick with. If you’re dreading creating a monthly budget or find it frustrating and difficult, you’re probably using the wrong method. Budgeting shouldn’t be a fraught endeavor.
• Allocate money for savings and retirement. No matter the budget method you use, you should always plan for some money going into savings or retirement. If you don’t have an emergency fund built up, make that your first priority. Once you have some financial padding in the bank, your extra money can be allocated to retirement savings and/or investments.
• Practice patience. Every month is different, even if you make the same amount of money. Bills vary, emergencies arise, and goals change. You may need to adjust your budget in lean times, and you can reallocate your money in good times. You’ll slip up, get off budget, and get frustrated. That’s life. Be kind to yourself, take a deep breath, and move on. Your budget gives you the tools and the financial framework to move on from mistakes and hard times, so practice gratitude for finding a method that gives you control.

There you have it! Hopefully one of these methods works for you. Happy budgeting!

Money. It can be a taboo topic, but it’s an important one. Your relationship with your finances ultimately determines how you live your life. You can live paycheck to paycheck, always worrying about unexpected expenses popping up and never reaching any of your goals, or you can take control of your finances and empower yourself to create a better relationship with money.

Think the second option is more appealing? Me too. And don’t worry, it’s not complicated. Let me show you how to create a basic financial plan that will help you reach your money goals.

On this page:

• Get clear about your financial goals
• Track your spending and make adjustments
• Create an emergency fund
• Save for retirement
• Pay down debt
• Start investing
• Tips for success

1. Get clear about your financial goals

You can’t reach goals that you haven’t set. Your goals can be big or small. As long as the goal matters enough to motivate you to take action, it’s a good one. Goals can range from buying a home or launching a business to saving up for an expensive purse or redecorating your space. The trick is to get as clear about your goal (or goals, you can have more than one!) as possible. Knowing what you’re working toward will help keep you on track with your plan when temptations and old habits arise.

2. Track your spending and make adjustments

The next step is to understand your current relationship with money. You might feel gung-ho and want to jump in head first to overhaul your spending, but making huge changes like that can be overwhelming and lead to burnout, meaning your desired habits won’t stick in the long run. To avoid that, spend a month tracking your spending—yes, every single dollar—and look for areas to make changes. Can you scale back your impulse purchases? Are you eating out often? You can use tracking tools like Mint, Personal Capital, and Quicken, or you can go low-tech and just use a notebook. If you’re overspending, breaking even, or just not reaching your goals as fast as you’d like, find ways to cut back. If you already have a surplus at the end of the month, start allocating that money to your goals.

A quick note: Quality of life matters. To ensure you are still enjoying life as you adjust your relationship with money, evaluate not only your spending but how your spending makes you feel. If that impulse latte every morning isn’t adding value to your life, ditch it and make coffee at home. But if you look forward to that drink each and every day, it could be worth keeping it in your life and finding other places to make changes. The goal isn’t to spend as little as possible (unless of course you want to). The goal is to make your money work for you.

3. Create an emergency fund

This step is perhaps the most important step of this entire journey. At some point, you will have an emergency that you need to pay out of pocket for. Your car will break down, you’ll be faced with an expensive medical bill, or you’ll need to meet your auto or home insurance deductible after you file a claim. This is not a matter of if, but when. Life will sucker punch you at some point, and you need to be ready. Conventional advice says that you should have 3-6 months of savings in an emergency fund. You can keep this fund in a savings account, a high-yield savings account, a CD, or any other type of fund that you feel comfortable with and where you can access the money quickly and easily.

4. Save for retirement

Once you’re padded against life’s occasional blows, start thinking about your future self. Retirement savings can feel like a bit of a drag when you’re younger and you feel like that money could go to use elsewhere. But trust me, compounding interest is magic, and the sooner you get started, the better off you’ll be as you near retirement. First, make sure you’re at least putting enough into any company-sponsored plans that you have to take advantage of the matching that your employer offers. You can also open your own personal account if your employer doesn’t offer one. As your income increases, you can allocate more money to these accounts. Future You will thank you many times over for starting early.

5. Pay down debt

Debt is one of the most destructive financial forces out there. Some debts are helpful; mortgages are the only way many of us can afford to buy a home, for example. But many other debts are prisons. Student loans, credit card debt, and personal loans can hang around for years, sucking up your future income and stopping you from growing your wealth. Pay them off as fast as you can. There are various methods, including paying off the debt with the lowest balance first and paying down the debt with the highest interest rate first. Pick the method that makes the most sense to you and get to it.

Another note: While there is such a thing as good debt, you need to know your own spending tendencies and tread very, very carefully here. If you have a history of running up your credit cards or only paying the minimum payments each month, cut them up. Get rid of them. Say goodbye. Until you can discipline yourself and use credit responsibly—meaning you pay it off in full at least every month, if not with every paycheck—you should not use credit. Period, full stop, end of story. Doing so will only pull you back into your old spending habits and ruin your chances at meeting your goals.

6. Start investing

Congratulations, you’ve made it to the last step on your basic financial plan journey! It’s time to invest. Entire books have been written about this topic, so a single paragraph is barely going to scratch the surface. However, I’ll leave you with some advice: it’s not that hard. Do not let fear or intimidation hold you back. If you are ready to take the next step in your financial life, I’d recommend that you check out J.L. Collins’ incredible guide, The Simple Path to Wealth. He also has a great Stock Series online that you can read. Collins makes investing simple, understandable, and attainable. Get reading and get investing!

Tips for success

Financial plans aren’t always easy to stick to, and life has a way of trying to knock you off track. After your plan is created and you’re on your way to your goals, here are some things to keep in mind:

• Prepare for pitfalls. Things will go wrong. That’s okay. You’ll have months where you are over budget, you’ll fall back into old habits, you’ll change goals and have to reevaluate, or emergencies will come up and you’ll have to refund your emergency padding. It’s all part of life, and it’s okay. Your plan is there for you so you can pick up the pieces afterward.
• Learn to let go. If you’ve had a slipup, don’t beat yourself up. Practice forgiveness and let it go. We’re all human and we all make mistakes. Perfection in your finances is never going to happen, so don’t expect it to. The key is consistency over time.
• Plan for fun money. If your budget is as tight as a corset, you’re going to be miserable. Everyone needs some breathing room. The level of breathing room you give yourself is entirely up to you. Maybe you want just $10 to go thrifting every Saturday, or maybe you want to plan for a $100 special meal every month. It’s your money and your life. Remember, your plan works for you, not the other way around.
• Practice the art of the pivot. Your goals will change. That’s part of life. When your goals change, your plan will need to change too. That’s okay; it’s a chance to practice your financial agility. When you’re familiar with your finances, making adjustments become easier. (Also, I really hope you’re all picturing Ross and his ill-fated attempt to get a couch up a stairwell right now. PIVOT!)

You’ve just learned 6 steps to create a financial plan and reach your money goals. That wasn’t so bad, was it? Now, stop reading and get to work!