What Is a Budget?

Before you can start to track where your money goes via a budget, you need to know how much you actually have coming in. This varies between people; you might get paid weekly, biweekly, monthly, or on an unpredictable schedule if you freelance, do gig work, or make commissions that aren't paid out regularly.

If your income is irregular, it may make it more difficult to create a budget, but it's likely even more necessary so you can stay on top of what you're spending for bills and other expenses. See if you can calculate an average month's income to make your monthly budget.

We mentioned budgeting methods earlier, but it's worth repeating: you have options. Budgeting apps, such as Mint or YNAB (You Need A Budget) are very popular and user-friendly, or you could even go old school and try the envelope method. This one has been very big on social media lately. You literally have labeled envelopes for cash, and you split up your money based on its purpose. Your bank might also have budgeting tools built right into its mobile app.

It's likely that your first month living on a budget won't go smoothly. You might have a large unexpected expense that you have to handle (like a car or home repair), or you'll spend more money than you anticipated in one of your expense categories. And this is when a lot of people will give up on budgeting. Don't do that! The goal isn't to be perfect; the goal is to make small improvements every month.

Consider your needs and wants when it comes to your money and creating a budget (or consider what you must, should, could, and won't spend money on). It's up to you to give your money a job, and part of this process is also figuring out where you're overspending. For example, many people struggle with spending on food (in the form of groceries, going out to restaurants, and ordering takeout).

A lot of us overspend on food because we're busy people. By the time you've worked and taken care of all your responsibilities at home, the thought of cooking and cleaning up can be exhausting, and you end up going out to a restaurant or opening your favorite food delivery app. The next thing you know, you've spent $500 in one month on restaurant meals. Whatever you spend per month, consider how many hours you had to work to earn that much money.

If you like to order drinks when you go out to eat, a lot of your costs are going to alcohol; the markup on it is one of the major ways restaurants make money. Consider making your alcohol spending a separate line item in your budget, if it's a big expense for you. The good news is that it's not too late to make better choices when it comes to your food costs.

The trick is to figure out how much you want to spend on food every month and find ways to make that work. That might mean cooking at home more often, if you enjoy it (or at least don't mind it) and have the skills. You could consider subscribing to a meal kit service, like HelloFresh – a lot of people find that this makes cooking easier and more fun. And if you don't want to cut restaurant spending out of your budget, find a balance.

For example, if you decide you want to spend $250 a month on dining out, that might mean you can visit two very nice restaurants per month, at a cost of $125 per night out. If you can manage to spend just $50 to eat out, that's going out to eat five times per month.

The goal is to make your budget reflect your life, your income, and your spending, and still be able to save money, pay off debt, and improve your financial life – all while actually seeing where your money goes.