The Ultimate Guide To Budgeting In Your 20s: Budgeting Basics 101

Learn the ultimate guide to budgeting in your 20s. From tracking your income to building an emergency fund, this budgeting guide covers all the basics you need to know.

Budgeting does not necessarily mean giving up on your favorite things, like monthly dinners with your girlfriends or the skin care products that are finally working.

It simply means reasonably looking after your money so you can sleep better and enjoy life more.

As this is such a broad topic, today, we will focus only on the budgeting basics, so you have a rough idea of what and how to start budgeting.

What is Budgeting?

In this guide to budgeting, budgeting simply means tracking the money you receive, spend, and save over a specific period. Yes, it might not be the most thrilling activity, but you’d be surprised by where your money goes each month. Understanding this is the first step toward financial freedom.

Setting Up Your Basic Budget: Your Guide to Budgeting

Ready to start? Here’s a straightforward guide to budgeting 101:

1. Record Your Monthly Income

The first step in this guide to budgeting is to note your monthly take-home pay. Include all income sources—your main job, side gigs, or freelance work. For example, if you make $3,000 from your primary job and an extra $500 from a side hustle, that’s $3,500 total.

2. Track the amount of money you’re spending monthly

Next, outline every single bill you have to pay. Start with the large expenses, such as your rent, groceries, school fees, loans, etc. Pro tip: Divide these into “fixed” (the same every month) and “variable” (can change) expenses. This gives you a clearer picture of where you might be able to cut back.

For this to truly work, especially at the start, you’ll need to list down to the last dollar of what you spend daily.

This is a simplified breakdown of what that would look like in a month:

Rent: $1,000
Groceries: $400
Car payment: $300
Student loan: $200
Phone bill: $80

Don’t forget the smaller expenses:

Netflix: $15
Gym membership: $50
Coffee runs: $60

3. Outline how you’ll manage your money.

There are plenty of budgeting methods you can use, but in this article, we’ll go for the 50/30/20 rule because it’s super simple for budgeting beginners.

50% for needs (like rent and groceries)
30% for wants (vacation, hobbies, entertainment, etc. )
20% for debt and savings (you can divide savings into retirement, emergency fund, etc.)

Using the $3,500 example, here’s what our budget would look like using the 50/30/20 rule.

Needs: $1,750
Wants: $1,050
Debt and savings: $700

4. Review and adjust

Set aside time each month to review your budget. Did you overspend on eating out? Try to cut back next month. Did you save more than expected? Great job— consider putting that extra into your emergency fund or towards a financial goal. Regular check-ins will help you stay on track and adjust your budget as your life changes.

5. Building your emergency fund

Life is not predictable, and it’s best to be prepared when that unpredictability happens—like losing your job. This is where an emergency fund comes in. Generally, you want to have at least 3-6 months of living expenses saved.

If you spend $2,500 a month, your emergency fund goal would be $7,500 to $15,000. You can use a high-yield savings account to help your money grow while still ensuring it’s still accessible when needed for an emergency.

Budgeting Basics: Making your budget work for you

A budget needs to fit you just right for it to be effective for you. Use these tips to make budgeting work for your lifestyle:

Use apps: Try budgeting apps like Mint or YNAB to track your spending easily. Mint will easily connect to your bank accounts, credit cards, and even retirement accounts. It will then automatically track your income, purchases, and savings to help you get a real-time view of your financial health. Mint also suggests budget goals based on your spending habits. You can tweak these goals or add new ones as you go along.
Cash envelope system: If you struggle with overspending, try the cash envelope method. Here’s how it works: At the start of each month, withdraw cash for different spending categories (like groceries, entertainment, or shopping). Put the cash for each category in separate envelopes. Once an envelope is empty, that’s it – no more spending in that category until next month. It’s a tangible way to stick to your budget and avoid the “swipe now, worry later” mindset that can come with credit cards. You can use plain old envelopes or grab a money envelope from Amazon.
Treat yourself: Include some fun money in your budget. Life is still too short not to enjoy it, even just a little.