Your budget is simply an estimate of, and a plan for, the money you have coming in (income) and the money you have going out (expenditures). Obviously, expenses can fluctuate from month to month and year to year, but a budget provides peace of mind that you know how you’re going to pay for the essentials.

You can create a budget as you work toward a financial goal—paying off credit cards, saving money for an emergency fund, tracking your expenses in an effort to reduce your spending, etc.

Budgeting helps you live within your means

With eight out of ten Americans in debt, many people are struggling to balance their income and their expenditures. Financial pitfalls can include:

• Fewer opportunities for financial education—you might not have had the chance to learn about personal finance, and this can lead to spending more than you have coming in.
• Fear Of Missing Out —it can be easy to overspend when you see trendy or high-end items that your friends or social media influencers have.
• Relying on credit —Using a credit card is the same as borrowing money. If you’re unable to pay the money back each month, interest will accrue, and your personal debt will increase very quickly.

Budgeting helps you plan for the future

Chances are you have a financial goal or dream—to purchase a home, to pay off your credit cards or student loans, or simply to put money away in an emergency fund. By making your budget and sticking to it, you are creating an important part of your financial plan to get to your goal. A budget can help you not only plan for the future, but predict when your income or expenses will fluctuate, which can reduce your overall financial stress and help keep you out of debt.

Start budgeting your personal finances on a month-to-month basis with the calculator above. Filling in the calculator can motivate you to start working toward your financial goals, especially if your goal is simply to live within your means and avoid spending more than you’re bringing in. While many of your monthly expenses will be fixed, using the Budget Calculator is a great way to get a handle on where your money goes—and generate ideas for keeping more of it.

Incomes

For many people, most of their income is earned through their full-time or part-time job, in the form of salaries or wages. The second largest source of income tends to come from investments and their capital gains. You might have other sources of income as well, such as gifts, child support, tax returns, etc.

Many people aspire to earning a higher income, which provides more flexibility when it comes to expenses. A higher income can be achieved by taking a higher-paying job or a second job, receiving degrees or certifications through higher education, developing new skills, or expanding your professional network.

A main source of income for most Americans in retirement is Social Security. You can begin receiving Social Security payments as early as age 62.

Expenses

Housing & Utilities

If you’re like most of us, rent or mortgage is the biggest item in your monthly budget. Generally, your housing costs should be no more than 30% of your monthly gross income, give or take. If your housing costs are significantly over 30% and you’re looking reduce your overall costs, you can consider any possibilities that apply to you, including refinancing your mortgage to a lower rate, downsizing your home, or relocating to less expensive town or city.

Also consider the cost of your monthly utilities. New technologies like programmable thermostats and energy-efficient lightbulbs can make your home more energy efficient as soon as they’re in place. And the installation of solar panels can bring your utility expenses down in the long term.

Other helpful calculators:

• Should I rent or buy?
• How much mortgage might I qualify for?
• How much home can I afford?

Transportation

Payments on your auto loan, if you own a vehicle, might be a significant part of your budget. Setting a budget and sticking to it when you’re ready to purchase a car is a great way to move toward your financial goals. Your monthly car payment should ideally be less than 10% of your monthly gross income. Other expenses associated with car ownership include fuel, maintenance, and insurance.

If you want to cut your transportation expenses, you may have alternative options, depending on where you live. In some places, car ownership is not an absolute necessity, and you’ll find alternative transportation options like public transportation, biking, walking, and carpooling.

To make owning a car as low-cost as possible, consider owning a more fuel-efficient vehicle, and with any car, carefully adhere to a routine maintenance Schedule. Stay current on local traffic laws to avoid fines and reduce the risk of higher auto insurance premiums.

Other helpful calculators:

• How much of a car payment can I afford?
• Is an Auto Loan or Home Equity Loan best for purchasing a car?

Other Debt & Loan Payments

Any time you use a credit card, you’re putting yourself into debt. If you pay off your full balance every month, that debt can be interest-free. But using credit cards to spend more than you can afford will catch up with you quickly and expensively—current interest rates on credit cards average around 24%.

When used responsibly, however, credit cards can be part of your budget as a way to save on purchases and even build your credit.

When creating your budget, be sure not to double report an item. For example, do not add $20 to both Credit Card and Meals Out for the same dinner. This applies to student loans, tuition and credit card balances being carried over month-to-month.

Other helpful calculators:

• How long will it take to pay off my credit card?
• How much will I need to save for a major purchase?
• How much can I afford to borrow?
• How long will it take to pay off my loan?
• How much will my loan payments be?
• Should I consolidate my loans?
• How soon can I eliminate my debts?

Living Expenses

While the expenses associated with daily living may seem insignificant when compared to the other categories, they can add up quickly. On the Budget Calculator, you’ll notice that “Food” and “Meals Out” are two different line items within the living expenses section. Seeing them broken out separately surprises many people when they see just how much they spend on take out, delivery, and restaurant meals each month. If you’re looking save money in your budget, this is a great place to start. Cooking your own meals is less expensive—and most often healthier—than eating out. Total food expenses should be less than 15% of your monthly gross income.

Healthcare

In the US, annual healthcare costs average about $10,000 per person. This expense tends to have little flexibility, but you can take measures to potentially reduce your healthcare costs:

• Use in-network doctors, hospitals, and facilities
• Use tax-advantaged accounts that are created for healthcare spending—a Health Savings Account (HSA)
• Buy generic drugs when possible
• Regularly reassess health insurance needs
• Focus on eating healthy foods, and exercising; don’t smoke, and get the right amount of sleep for you each night
• If you’re a senior citizen, get help arranging your home and property to reduce the risks of falling; falls are among the most common generators of large healthcare bills for seniors

Children & Education

Statistics show a strong correlation between higher education degrees and higher income levels. Education is an investment, so this category is less about scaling back, and more about planning ahead—one of the key benefits of budgeting. Explore all your options for financial aid, particularly grants and scholarships. If you’re carrying multiple high-interest student loans, consider consolidating them into one loan with a lower interest rate—even a slightly lower rate can make a helpful difference in your monthly payments, and potentially a big difference in your total payment over the life of the loan

When starting a family, it’s helpful to prepare and plan financially, to make the transition to parenting smoother.

Savings & Investments

When you have unspent money in your budget, you can allocate it toward an emergency fund or other savings, investments, retirement funds, or college savings. Having an emergency fund might sound a little boring, but when an unexpected and unavoidable expense comes up, your emergency fund could help keep you out of debt.

Conscientious savings and wise investing can mean that even with an average income, you may be able to retire earlier. It’s recommended to put 15% of your monthly gross income into savings and investments. Also consider the cost of your monthly utilities. New technologies like programmable thermostats and energy-efficient lightbulbs can make your home more energy efficient as soon as they’re in place. And the installation of solar panels can bring your utility expenses down in the long term.

Other helpful calculators:

• Retirement Calculators
• Investment Calculators

Miscellaneous Expenses

This section can vary a great deal from month to month. And while pets must be cared for and going to the gym is a healthy habit, other items in this section, such as “Entertainment and Tickets” and “Travel and Vacation” are not necessarily needs, strictly speaking, and can quickly add up to large expenses. These categories can make the difference between ending the year with a comfortable emergency fund in the bank, or with uncomfortably high credit card balances. Also pay close attention to “Other Expenses,” and scrutinize the purchases that make up this category for you.