7 Money Management Tips That Help You Build a Beginner Budget

Why do two households with similar jobs and similar pay end up with very different amounts of savings? That’s the question economists John Ameriks, Andrew Caplin, and John Leahy asked in a 2003 paper in the Quarterly Journal of Economics.

They surveyed roughly 2,000 people and measured what they called a “propensity to plan,” which is how much a person tends to sit down and work out a financial plan. People with a higher propensity to plan spent more time developing financial plans, and more planning went along with more wealth. The habit didn’t line up with how patient people said they were or how much they wanted to leave to their families. The researchers also found a very strong link between planning and how carefully people watched their spending, and they suggested that watching spending may be part of why planners save more.

The authors describe planning as a mix of attitudes and skills, which sounds learnable to me. You don’t have to be born good with money. You have to sit down and do it.

Two cautions. This was survey research, so it shows that planning and wealth go together, and it can’t prove that planning causes wealth on its own. The study also doesn’t say what kind of budget to build. So the 7 tips below are about the first step, a simple beginner budget, and most of the details are my own. I’ll flag what comes from the study and what comes from me.

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1. Put one planning hour on your calendar and treat it like an appointment

In the study, people who spent more time on financial planning tended to have more wealth. So the first tip is about time. Set aside one real hour, with a date and a start time, and protect it like a doctor’s visit.

When I first tried to make a budget, I kept waiting until I “felt ready.” That day never came. The budget finally happened when I wrote “money hour, Sunday 4 p.m.” on my calendar. The idea of scheduling it is mine, and it worked better than good intentions.

Try this: Pick a day and time this week for a one-hour money session and add it to your calendar now.

2. Start with what actually comes in each month

Before you think about spending, find out what you have to work with. List every source of income, using what lands in your account after taxes. Include side income and anything that shows up only some months.

If your income changes from month to month, use a low-but-realistic number for your first budget. It’s better to be pleasantly surprised than caught short. That rule of thumb is my own.

Try this: Write down the total that hit your account last month, and the lowest month from the past year if you can find it.

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3. List what goes out, starting with the bills you can’t skip

Next, write down what you spend. Start with fixed bills like rent or a mortgage, utilities, insurance, phone, loan payments, and groceries. Then look at last month’s statements to see where the rest went.

Early on, I guessed at my bills and missed two of them. The guess felt fine until the month ended. Real numbers from real statements are worth the extra twenty minutes.

Try this: Open last month’s bank statement and list every recurring bill with its amount.

A budget starts with an hour you set aside on purpose.

4. Make the plan add up by giving every dollar a job

Take what comes in and subtract what goes out. If something is left over, decide where it goes: savings, extra debt payments, or fun. If you come up short, find something to trim before the month begins, not after.

Some people call this a zero-based budget, and it’s a popular way to start. The study doesn’t say it’s the best one. I like it because it leaves no money floating around unplanned.

Try this: Subtract your spending from your income and write one job next to any money left over.

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5. Keep your first budget simple

A beginner budget doesn’t need thirty categories. Five to seven is plenty: housing, food, transportation, bills, fun, and savings. You can split a category later if you need to.

I’ve noticed that an overly detailed budget tends to get dropped by week three. A rough budget you actually use beats a perfect one you abandon. That’s my experience, not a study result.

Try this: Choose five to seven categories and sort last month’s spending into them.

6. Watch how it goes for a month, then adjust

The researchers found a strong link between planning and careful monitoring of spending. So don’t just make the plan. Check it. Once a week, compare what you’ve spent with what you planned.

One month, I found that eating out was double what I’d planned. Nothing dramatic had happened. It was just a pile of small meals. Seeing it let me adjust the plan the next month. Your first budget is a draft, so expect to change it.

Try this: Look at your spending once a week this month and note any category that’s off.

7. Come back for a planning hour every month

One good hour won’t last forever. Set a monthly money hour, even a shorter one. Look at how the month went, and plan the next. The study linked more time spent planning with more wealth, so this habit puts that finding to work.

Keep it light. Put on music or make tea. The point is to keep showing up, not to make it a chore.

Try this: Schedule your next three monthly money hours right now.

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