Budgeting for Beginners: Where to Start When You Don't Know Where Your Money Goes

Start by finding out, not by cutting back. In your first week, don't set a single limit: pull last month's bank and card statements, sort every purchase into about ten plain categories, and take out the transfers between your own accounts. Those category totals are where your money goes, and they become your first budget.

Below is that first week day by day (about 2.2 hours in all), a worked example of one made-up but typical month, a simple way to organize transactions that holds up after week one, and how to do the same thing in Spense if you would rather not do it on paper.

What should I do first if I have no idea where my money goes each month?

Look backward before you plan forward. Most beginners start by writing down what they think they should spend, then feel bad when the month doesn't match. The month never matches a guess. It matches what you did last month, because most of what you spend repeats: the same rent, the same commute, roughly the same groceries.

So the first job is to measure one month, and you don't have to wait a month to do it. Your bank already has the record:

• Every account, once. Checking, savings, each credit card, cash if you use a lot of it. Write down what each one holds or owes today. That list is the edge of your budget: money outside it is money you will not see.
• Last month's statements for all of them. A purchase on a card shows up on the card statement, not on checking. Miss the card and you miss most of the eating out.
• One full calendar month. Not the last 30 days, which cut a month's bills in half. The whole of last month, from the 1st to the last day.

If you have no statements to hand, or you mostly pay cash, the alternative is to track the next 30 days as they happen. Our guide to tracking your spending for 30 days covers that route step by step.

Your First Week, Day by Day

One short job a day, 130 minutes over the week. Day two is the only long one. It works the same with a notebook, a spreadsheet or an app.

Day five's plan is just last month with your eyes open: copy each category's total, lower one flexible category you think is too high, and make sure the total is less than what you take home. Days six and seven are where it becomes a habit. Five minutes a day is enough to notice a purchase while you still remember it.

A Worked Example: One Month, Sorted

Here are days two and three for someone (an example) who takes home $3,600 a month, with one checking account and one credit card. Every outflow on both statements, sorted into nine categories:

Three things this month says that a guess would not:

• Adding up every outflow is wrong. Both statements together list $3,780 going out, more than the $3,600 that came in. But the card payment pays for purchases already counted in the categories, and the savings transfer is money kept. Real spending was $2,940, and $660 was left over.
• The fixed bills are most of it, and they are done. $1,675 of the month is bills that barely change. There is nothing to decide there each month. The budget is really about the other $1,265.
• The first change is obvious. The largest category that moves is groceries at $520. That is where one change pays most, more than cancelling a subscription.

What's the easiest way to organize my transactions if I'm new to budgeting?

Use a few broad categories and four rules, and stop there. The rules matter more than the category names:

1. Sort by what it was for, not where you bought it. Groceries from a big store that also sells clothes are still groceries. When one receipt mixes both, put it under whichever is bigger. A beginner budget does not need to split receipts.
2. Transfers are never spending. A credit card payment, a move to savings, money between your own accounts: leave them out of the categories, as in the example. This one rule fixes most of the "I spent more than I earned?" confusion.
3. Keep "Other" small. One catch-all line is fine; in the example it is 3% of spending. If it grows past about a tenth, something in it deserves its own category.
4. Decide each merchant once. The second time you see the same coffee shop, it goes where it went last time. That makes sorting quicker every week, and an app can do it for you.

A starting list that works for most people: Rent or mortgage, Utilities, Phone and internet, Groceries, Eating out, Transport, Subscriptions, Shopping, Going out, Savings, and Other. Rename them to fit your life. The list is a starting point, not a rule.

Doing It in Spense

Everything above works without an app. If you'd rather not do day two by hand, here is the same start in Spense. Setup asks two questions that matter:

• "How should we keep track?" Link my bank connects your accounts through Plaid, so transactions arrive on their own. I'll add things myself means you track by hand, with no bank login.
• "How do you want to budget?" Sort it for me (Auto) files your spending into categories for you, and you watch where it goes. Give every dollar a job (Classic) is envelope-style budgeting: you assign the money you have to categories before you spend it. Spense ticks Classic if you track by hand and Auto if you link a bank, and you can pick the other. The mode stays after setup, so pick the one you want to use. To change it later you email support. The guide to choosing between Auto and Classic walks through the question.

What happens next depends on your answers:

• Tracking by hand, either mode: you add your first account with its balance, then pick starter categories from a short list. Rent, Utilities, Phone, Internet, Groceries, Transport, Eating out, Going out and an Emergency fund come ticked, Subscriptions is there to tick, and you can add your own. Tap Create my budget and the categories are made for you. In Classic, a checking, savings or cash balance becomes your Ready to assign, the money you then give jobs to.
• Auto with a linked bank: there is no list to pick. Your transactions are sorted by the kind of purchase, so every coffee shop lands in one Coffee Shops category instead of one per shop. The Budget tab then shows what you spent this month in each category and its share of the month. That answers "where does my money go?" without day two, and from your second month most rows also show what you usually spend.
• Classic with a linked bank: your budget starts from the day you link. Past transactions aren't added, and each new one waits in Review for you to approve into a category. Once you have filed a merchant, its next transaction comes with that category already suggested.

The first-budget guide has every setup screen in order, and connecting a bank covers what the first sync brings in. Prefer to stay off bank sync for good? The guide to budgeting without linking a bank account covers the weekly routine that keeps a hand-tracked budget honest.

After the First Week

The first week gives you a starting plan. The first month tells you whether it fits. At the start of next month, set aside twenty minutes to compare the plan with what happened, find the two or three biggest gaps, and change one number. Our monthly money review is a fixed agenda for exactly that. Once the month is steady, the next step for most beginners is a small cushion: the guide to building an emergency fund starts at $500.

Frequently Asked Questions