How to make a budget

A budget is a plan: how much you're ready to spend on something over a set period of time. It helps you spend with intention, save for big purchases and avoid wondering at the end of the month where all the money went. Budgeting is easier than it seems. Here are three popular methods and how budgets work in Moneon.

Ways to Create a Budget

The best-known approach is the "envelope method". It's used all over the world, and other methods grew out of it.

The Classic Envelope Method

You split your income into "envelopes" — the things you plan to spend on: groceries, housing, transport, fun. When you need to buy something, the money comes out of the matching envelope. If the category is essential, like food or health, you can borrow from another envelope in a pinch. But for entertainment or eating out, it's best not to spend more than the envelope holds. At the end of the month, look at how it went and adjust the amounts if your first try turned out unrealistic.

The 50/30/20 Method

This rule was popularized by Elizabeth Warren and her daughter Amelia Warren Tyagi in their book "All Your Worth". Your after-tax income is split into three parts:

• 50% goes to needs: housing, utilities, transport, groceries, health, minimum loan payments. These stay roughly the same every month.
• 30% goes to wants: entertainment, hobbies, travel.
• 20% goes to savings and paying off debt faster.

If your needs take more than half of your income, you'll have to cut back on wants. If they take less, put the difference into savings. The split is a guideline, not a law: adjust it to your income and local prices.

Max Krainov's Four-Envelope Method

Planning a whole month across several categories is hard. This method works week by week. From your monthly income, first set aside savings (about 10%), then your fixed bills. Split the rest into four weekly envelopes. Put the few remaining days of the month into a small extra envelope or add them to the fourth one. If you spent less in a week, move the difference to the next week or into savings.

All these methods take time and attention

Keeping track of envelopes, their amounts and purposes is tiring, and that's why many people give up on budgeting. An app takes the math off your hands: you record expenses, and the budget counts what's left.

Budgets in Moneon

First, decide which expenses you want to keep an eye on. Maybe you eat out a lot, or take a cab where you could walk? Then create a budget: on iPhone, in Budgets in the side menu; on Android, with Add budget on the Budgets card on the Summary screen. A budget belongs to one wallet, and a wallet can have several budgets. Here are the main settings.

1. Name, categories and tags. Give the budget any name and choose which expenses it covers: one or more categories, one or more tags. If no category is selected, the budget counts expenses in all categories of the wallet. This makes it easier to slow down in categories where you want to spend less, like cab rides. Tags are especially handy on vacation: add a "Vacation" tag to every expense on the trip, and a budget with that tag shows how much is left. Learn about tags in our help center. And if some expenses shouldn't count, you can exclude them from the budget by tag.
2. Time period. Choose it to fit your goal. A monthly budget helps with everyday spending: you can track spending by category without counting money in envelopes. You can also pick a week, two weeks, a quarter, half a year or a year — a yearly budget is handy for planning big purchases. For a vacation, use a custom period: cover both the preparation, when you pay for tickets and lodging, and the trip itself.
3. Amount. The most important step. Look at your spending in the previous period, split it into regular and occasional expenses and estimate how much you can realistically cut the latter. That gives you the budget amount.

You can show a budget on the Summary screen, so you see it every time you open the app (on iPhone, the Summary screen fits one budget). In a shared wallet (a Premium feature), you can choose whose expenses the budget counts. Budgets themselves are free.

The budget page shows how much you've spent, how much is left and how many days remain in the period, with all the expenses that fall into the budget below. If you go over the amount, the app shows the overspend. To keep the numbers honest, record every purchase, even the smallest ones.

A budget helps you see where your money goes and make plans without extra spending. Look at your expenses, set up budgets for your goals — and let Moneon do the math.