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Start Budgeting By Learning Your Income And Expenses

1st step to budgeting for beginners overlaid over lilac flowersSome people love budgets.

Other people can’t stand them.

It doesn’t matter which camp you fall in.

Budgets are an important tool for planning for your future.

But figuring out how to get started budgeting can be frustrating and stressful.

Rather than worry and stress, let’s break down the very beginning steps of learning how to budget successfully.

Be sure to stick around until the end to find my favorite tool to make tracking your income and expenses a breeze.

Step 1 – Track Your Income

In order to properly budget, it’s essential that you know how much money you earn. To determine how much you earn, keep track of every dollar that comes into your possession.

This is super easy if you have a bank account. Simply deposit every dollar you earn into your bank account. Then, look at your bank statement at the end of the month and count up all of the deposits.

If you don’t have a bank account or all of your money doesn’t flow through your bank account, things are a bit trickier. Even so, you can track your income relatively easily.

Instead of keeping track with your bank account, you need to write down every time you receive money. You can do this in a smartphone app or the old fashioned way on a piece of paper.

Do whatever is easiest for you. The key is remembering to do it every single time you bring in any income.

But what counts as income? You’ll need to count income from your paychecks and any other regular money you expect to get consistently.

Don’t forget to include any income from side hustles, pensions, interest, rent collected from income properties and every other dollar that hits your bank account, wallet or purse.

Related: How To Start Saving And Investing On An Irregular Income

Step 2 – Determine The Income You Can Expect Each Month

When you’re confident you’ve taken note of all of your income sources, make sure you can reasonably expect to receive this amount every month.

For instance, let’s say you work at a job that pays hourly.

If you worked 20 hours of overtime this month but have never worked overtime in the past and never will again, you shouldn’t include that in your budgeted income number.

The same concept applies if you sold some items around the house this month, but won’t be selling household items in the future. Unless you plan on consistently generating the income, you don’t want to rely on it in your budget.

Once you have a final tally for your income, make note of what you believe your monthly income number is. In future months, check this number against the actual income you earn and adjust it until you have a reliable income number.

If you’re unsure of what income you can expect, it’s always better to underestimate than to overestimate. This way, you can save any extra income above your conservative estimate for your goals or for future months where income is leaner.

Related: The Most Popular Budget And Why It Sucks

Step 3 – Track Your Expenses

People typically don’t have a problem with knowing what their income is, but knowing how much they spend could be surprising.

Usually, you’re aware of your big expenses each month. Everyone knows how much they pay for rent or the mortgage, their car payments and even their utility bills. 

In fact, utility bills can be super easy to predict if you use budget billing.

The major issue for tracking expenses comes with the smaller purchases that can easily be forgotten or add up quickly.

Unless you keep track of all of your receipts or run every expense through a debit or credit card, you’re probably underestimating your spending. So what do I suggest you do?

As painful as some people make it out to be, I suggest you keep track of every penny you spend. It’s not difficult, especially if you use the tool I’m about to mention below.

To get this done, you’ll need to do whatever works for you.

Related: 9 Ways To Cut $100 From Your Monthly Budget

Ways To Track Every Expense

I always get a receipt for every purchase and put it in my wallet. When I get home I empty the receipts out of my wallet into a bin at home. I then record all of my receipts once a week.

Thankfully, there are some much easier ways to do this thanks to technology.

If you make sure every expense is run through your bank account, a debit card or a credit card, you can track your expenses by looking at your monthly statements.

The issue with this is purchases at some stores could fall into multiple budget categories depending on what you buy.

Without a receipt, you won’t know how to break out the expense. For example, a Walmart purchase could be for groceries or for clothing.

However, some people simply budget by where they spend their money each month. If that’d be easier for you, then this method wouldn’t cause any problems at all.

Here are a few other ways you can easily track your expenses that may work better for you.

  • Enter every expense into a running list or email on your smartphone when you make the purchase.
  • Carry a small notepad with you and record your expenses on it the old fashioned way.
  • Every morning or every evening, think through your day or the previous day and record your expenses on your computer.

Related: 15 Money Saving Tips For Grocery Shopping On A Budget

Step 4 – Categorize And Total Your Expenses

Once you have a list of all of your expenses group them in like categories to find out how much you spend in each category each month.

Some ideas of expense categories you can use include:

  • Rent or mortgage
  • Car payments
  • Car maintenance
  • Gas
  • Groceries
  • Dining out
  • Entertainment
  • Clothing
  • Utilities (electric, natural gas, phone, cell phone, cable, internet, etc)
  • Insurance (car, motorcycle, homeowner, flood, renters, etc)

This list can go on forever and will vary for each person, but make categories based on what makes the most sense to you.

Related: Do You Have An Emergency Bare Bones Budget Plan?

My Favorite Tool To Make Tracking Income And Expenses Easier

three phones on orange background displaying personal capital appIf you want to make tracking your income and expenses a breeze, I highly recommend using Personal Capital.

Here’s why.

Personal Capital makes tracking income and expenses easy because it does most of the heavy lifting for you.

All you have to do is link your bank and credit cards accounts and Personal Capital does most of the rest for you.

The software automatically imports all of your banking and credit card transactions then automatically categorizes them.

All you have to do is log in to your account, double check how they categorize each item and read the reports it outputs.

The software isn’t perfect, but it’s 100% free and takes a lot of the manual work away. Personal Capital is safe to use, too.

Personal Capital will also track your net worth for you if you link your investment accounts like 401(k)s, IRAs and taxable investment accounts.

You can even use Personal Capital’s tools to make calculating your liquid net worth easier, too.

How Is Personal Capital Free For Income, Expense and Net Worth Tracking?

person typing on laptop displaying personal capital dashboard But how does Personal Capital offer these services for free?

If you have over $100,000 in investable assets, Personal Capital will call you because they want to manage your investments for you for a 0.89% annual fee.

Personally, I only use Personal Capital for their free income, expense and net worth tracking.

I do not use their investment services because I can do it myself cheaper, but it’s up to you whether you want to hear their pitch or not.

Get A Free Personal Capital Account Now

Time To Start Budgeting

Once you know your income and expenses, it’s time to start budgeting. To make life easier for you, I’ve put together an amazing and free budget printable.

Click the link above to check it out and learn how it works.

Do you know what your income and expenses are or would you have to do research and calculate it? Be honest!


Tuesday 19th of May 2020

Its very important too budget every month. I use a good spreadsheet for my budget. I love filling out my budget at the end of the month for the coming month. I know exactly where my money is going. I use a zero based budget. Took me a while too get used too it but its works well for me. I also have Personal Capital too. Thanks too this blog.

Finance Care

Thursday 26th of July 2012

Budgeting is the one of the most important thing in personal finance management. Monitoring spending as important as income.

Thank you for sharing :)

Regards, Peter


Monday 16th of July 2012

Having a spreadsheet with all of the ways you spend your money for at least one month is the most enlightening way to see your expenses. Keeping track throughout the day of absolutely everything you spend your money on (even if it's a dollar at the vending machine) and then inputting everything, will give you a great sense of where the little holes in your budget appear, and where you need to work to cut back on spending.


Monday 16th of July 2012

Totally agree. If you take 3 trips to the vending machine a day and get both a coke and a snack that hole can be a pretty big sized one for something you aren't keeping track of.

Barbara Friedberg

Saturday 14th of July 2012

So important to monitor spending. It's easier to know where to cut, if you know where your money is going. I've used Quicken for decades, and it works fairly well.

Kevin Ashwe

Saturday 14th of July 2012

It does not matter how much you earn if you are not able to control your expensives and money leakages you will consistently be in the 'rat race'.WATCH YOUR EXPENSES is the name of the game