How to Establish An Effective Budget

Managing finances is a tough thing to do for a lot of people. Growing up there’s not much you have to deal with money-wise, and when you finally join the “real world,” figuring out a good balance can be challenging, especially when you’re dealing with a lot of new things like living expenses, debt, saving for retirement (even though it’s decades away), paying for vacations, etc.

So where do you begin?

Not sure how to handle your finances? Check out this guide to help you establish an effective budget!

Set up separate bank accounts

If you get all of your money dumped into one account it can be easy to mismanage what you have. The most helpful thing I’ve ever done is create 4 separate bank accounts, 2 checking and 2 savings accounts, to keep my money organized and allocated to specific things. My breakdown is:

  • Housing + Bills (checking): Money for monthly recurring items such as rent, cable, water, electric, and car payments.
  • Long-term savings + Emergency (savings): Retirement money (separate from 401k), savings for big-ticket things like a house or car, and any unforseen events
  • Vacation fund (savings): Money for travels
  • Main account/”Fun” money (checking): All “leftover” money

Establish a budget + goals

This is the toughest part of managing finances. There’s a popular formula out there that says 50% of your income should go to essentials/living expenses, 20% for savings/investments/debt, and 30% for flexible spending/”fun money.” While it’s a good starting point, I don’t think it’s necessarily for everyone. Here’s how I set my budget and goals.

  • The first thing I do is look at my living expenses (housing/bills). What can I be sure that I’ll need to spend every month? It’s usually a semi-fixed number, although water/electric bills tend to fluctuate slightly.
  • Next, what are my savings goals? I have 2 savings accounts – one for long-term + emergencies and the other for vacation. I also technically have a third, my 401k retirement fund, which I make sure to set a little aside for.
  • The rest of the money goes into my “fun” account for non-essentials, which also goes toward my credit card bill, since I use my credit card as if it were a debit (only spending what I know I can afford – the KEY to credit card usage)!

So what’s the magic budget formula? There’s no right one for everyone, but here’s what works for me:

  • Calculate my monthly net income (multiply paycheck by 2 – the typical number of pay periods in a month)
  • Subtract my fixed living expenses for the month
  • Divide what’s left by 2 to allocate between “fun money” and savings accounts
    • Half will go to the “fun money”/non-essentials account
    • The other half will be further divided by 3 and equally allocated to my long-term/emergency savings, vacation fund, and 401k fund

Utilize direct deposit

Direct deposit is probably one of the greatest things since sliced bread. I love being able to put in how much I want going to each of my accounts with every paycheck, without having to deal with manually dispersing funds across accounts. Once you’ve established your budget, take the numbers you set for each account and divide by the number of paychecks you receive each month. That will be the amount to input for each account in your direct deposit.

Track finances

The final step is an ongoing one, but extremely important. Tracking your finances. There are a ton of different ways you can do this, whether manually in a spreadsheet on your own, or with an app or tool. My personal favorite is Mint, since I can see a full view of all accounts and debts, no matter which bank/company they’re with. You can also get even more detailed in your budgeting, selecting how much you want to spend on things like dining out, entertainment, travel, etc., and notified if you’ve exceeded your set budget so you can re-evaluate if you need to allocate more or cut back.


Do you have a budget in place? What works best for you?

  • Jessica Hughes

    Great tips! Budgeting is hard, especially this time of year!

    • Thanks, Jessica! It definitely gets tougher toward the end of the year – you’re so right!

  • Great tips! I don’t know what I would do without a budget. We use the every dollar app to keep us on track. Things start to loosen up this time of the year but with a budget I’m not caught by surprise.

    • Thanks, Ivanna! I’ve found apps to be SO helpful with keeping track of money. I haven’t heard of that one though so I’ll have to check it out!

  • Shannon Doyle

    I have such a hard time tracking my finances. I have YNAB, it’s just a matter of getting used to spending money then tracking that spend (I’m mostly cashless at this point in my life). For some reason I’ve struggled with it for ages.

    • I don’t use cash too much either! Has YNAB helped you at all? I’m not familiar with that tool so I’ll have to look into it!

  • Ever since I started really tracking my spendings using an Excel document, I am much more chill about my finances because I know I don’t have to remember where every single penny went, because they are tracked down in that document and I take care to updated it as soon as I buy something.

    Cristina | *janded

    • That’s a great idea! It’s so helpful to see your income + spend all laid out in front of you!

  • I couldn’t agree more with you about having separate accounts set up for different things! It makes budgeting for different things, especially vacations, so much easier when everything is separated!

    • Exactly! It’s nice to know you can shuffle money around if needed, but I like seeing an overview of how much I have in each bucket of things!

  • Mar

    Budgeting is one of the biggest things that I have difficulty with. It’s so hard to stay on track! Thanks for sharing these tips :)

    • There are SO many things to keep track of, it can definitely be overwhelming!

  • Budgeting is something I definitely need to work on. The last few months especially – I had water damage to my floors and the cost of repairs threw everything off! I love these tips & can’t wait to incorporate them into my budget making for this month :) Thank you for sharing!!

    • Oh no! I hope you had some emergency funds stashed away!

  • These are great tips! It can be hard to stay on track sometimes, but I use both an Excel document and the Mint app to track my expenses.

    Jenn |

    • Thanks, Jenn! Sounds like you do a great job keeping on track of your finances between Mint and Excel!

  • Great article! Budgeting is so important and it can be hard to stay on track.

    xo, Elizabeth

  • Isabella @ Belle Etincelle

    Budgeting is SO important. My husband and I are trying to establish ours at the moment, thanks for sharing this. It’ll definitely help to keep us on track!

    • Agreed! I hope this helps you find the right balance :)

  • Such good tips! I’ve used logs on the computer and papers in a binder, but I can’t seem to stick with anything specific, just jumping back and forth between the two!

    • Thanks, Jackie! I used to manually keep tabs but then it got to be a lot, so I rely on tools like Mint to keep me on track. I think it’s important to just find a system that works best for you!

  • Love all of these tips!! I budget all the time. My bills come first and after that I allocate what is left over to savings,fun,etc. I may have to look into opening other bank accounts!

    • Thanks, Mistle! That’s exactly how I handle mine as well. Having separate accounts for each thing is really helpful!

  • Yes, these are so important. I try to stick to my budget fairly strictly.

    xoxo, Jenny

    • Me too! Although there are some months that are worse than others when it comes to spending. The end of the year always seems to be a crazy one for me, haha.

  • Lauren Norton

    This is great! I LOVE direct deposit. I have a setup with one of my bank accounts where $25 is automatically transferred from checking into savings each month. It isn’t a lot but it guarantees that even on financially tight months, I am still saving a little bit. The best part is that often I forget that it happens so it’s a nice surprise to see my savings continuously increase without my constant attention.

    • Thanks, Lauren! I’m totally with you on direct deposit + savings! Out of sight, out of mind is how I look at it!

  • Jennifer Bigler

    These are all important. We live on a strict budget.

  • These are such good tips, Rachel! Many people don’t realize how easy it is to separate accounts and save for even the littlest things, including the holidays, a particular trip, or an upcoming move!

    • Thanks, Monica! You’re right! Most people I’ve talked to about it never thought to create separate accounts. I’ve found it to be incredibly helpful!

  • Great tips, especially for a freelancer always having to think about managing money. Thanks for sharing! xo, sharon

    • Thanks, Sharon! Hope you found some you can apply to your own budget!

  • Direct deposit is really the key for me! I need to hide money from myself otherwise I will just spend it all in one fell swoop!

    xx katie // a touch of teal

    • YES! At first I had everything going into one account and I was like WOW this is great look at all this money I can spend.. but that was short lived when I created a savings, 401k, etc. haha.

  • These are great tips! Keeping track of your finances is the main way I manage a budget!

    Alix |

    • Thanks, Alix! It’s such an important thing to do!

  • Tracking finances and spending is so important, and such an eye opener!! Great tips!

    • Agreed! It can be scary to see how much you’re spending on certain things!

  • Emilee W.

    Great tips… I needed them as our finances our steady, but our savings not so much! Determined to get better!

    • Thanks, Emilee! Direct deposit helps so much with getting money into your savings account. Good luck!

  • Candy Kage

    Two accounts are enough for us. Make realistic budget. Tracking spending is important.

    • I think tracking spending is key! It’s easy to buy things with our credit/debit cards without thinking much about it!

  • Great budgeting tips. You can do something similar to your first tip using a ‘jam jar’ account. You can divide your income into separate pots without needing multiple accounts.

    • Thanks, David! I’ve heard of a few banks offering that option, I think it’d be really helpful! I’ll have to look more into it.

  • Abby

    I think it’s vital to account for every dollar to avoid that end of the month, “where did all our money go?” confusion.

    • Couldn’t agree more, Abby! It can be scary at the end of the month when you look at your account/bills!

  • I love Mint too. It truly helps kick you in the tail when you are going overboard on certain categories. It’s a great app to help those like me that suck at budgets.

    • It really does! It also helps me see when I’ve been dining out too much :)

  • Abbey Phipps

    I just went over our September budget yesterday, and keeping track of everything helps me feel so organized and relieved! Even in tight months, I feel better if I know what we’re spending our money on. :)

    • So glad to hear that, Abbey! Budgeting is so important!

  • Establishing a budget and spending/saving goals is SO important! That’s how Dave and I have been able to save for a wedding and then a house!

    • Sounds like you guys are doing great with your budgeting :) I think a house will be the next big one on the savings list for me!

  • Chrissa – Physical Kitchness

    My hubby and I have been talking about doing doing a ‘vacation’ fund for years. We NEED to start this and go take one!

    • YES! Please do :) I’m a big believer in the vacation fund! Which destinations are at the top of your list?

  • i have been tracking our finances for over a year, and i love knowing where all our money is going. however, i’ve never been good with actual budgeting, if that makes sense. we pay all our bills and save, but there is left over money that seems to go nowhere and thne we look back and think where’d all our money go? so i am trying to implement a new budget soon so we can make sure every dollar has a job. i love mint too!

    • I know the feeling! I think most often it’s dining out that kills me! If you can pinpoint where the extra money ends up going, maybe you can determine which things to cut back on a little!

  • Love these ideas! I set up separate bank accounts too and it is so helpful!

  • great ideas especially for student budgets!!

  • Ellie Augustin

    Awesome ideas. I am reinforcing these with my oldest who just started college and his first job. So important. Thanks for sharing.

    • Thanks, Ellie! I hope helping him establish a budget and goals goes well :)

  • Laina Turner

    It’s so hard to stay on track when you get started. I’ve been working with my kids to get over the instant gratification aspect and save more.

    • It is! Certain months can be tough with spending too (e.g. Christmas, vacations), so it’s important to keep the bigger picture in mind – not just the month to month budget!

  • Liz Hagan

    I’ve really focused myself on finances this year and have seen the difference in my wallet and attitude. I love the plan on opening separate accounts…time to try this one out!

    • That’s great to hear, Liz! Having separate accounts is incredibly helpful, I think you’ll really see a difference!

  • Luna C. Lupus

    Great tips, you have given me some new ideas and I love that!

  • This is such a great post with ideas I have never thought of before! Pinning!!

  • Samantha

    Direct deposit has helped us so much on our budget! It goes to savings without us ever seeing it!

    • Oh yeah! Otherwise it’s dangerous – we’ll want to spend it all :)

  • This is a great, informative post! I loved that you mentioned tracking your finances. This has personally helped me so much with budgeting and focusing on saving money!

    • Thank you, Kiara! Glad to hear you’re doing well with budgeting and saving! Tracking is key, for sure!

  • Such a helpful post with some great tips! I think it’s so important to set a budget each month!

  • Adriana

    This is sooo helpful! I’m 22 and I graduated college in May – it’s a struggle when I want to shop so much yet my loan payments start soon haha!

    • Oh no! Hang in there, it sounds like you have some big budget adjusting coming up. Hopefully you can still squeeze in a few fun purchases for yourself too :)

  • Kelsie Kleinmeyer

    This is SO great! We just recently made a separate account for my hubby’s extra car work income, and we use it for our “fun” spending. That way, we also don’t count on it to pay our regular bills, since it isn’t dependable income. Great tips!

    • Thanks, Kelsie! Glad to hear you’re taking advantage of the extra accounts. It’s so helpful!

  • Samantha Kinzie

    I loved this post. I am pretty good at tracking my finances, but lately have been slacking a bit. This has helped me to step my game up. Great tips!

    • Thanks, Samantha! Good luck with getting back on track!

  • Dia

    This is amazing advice. I have been planning to create a separate bank account when I launch my course and have a savings that directly pulls from my checking but I like the idea of keeping everything separate to stay on task.