Building a Budget

When you first step into the RealWorld™, you may find yourself overwhelmed by the amount of money you need to keep track of – and for the first time ever, you may find yourself needing to figure out a way to control your spending.  It can be as simple as sitting down with a pencil, some paper, and a calculator. Welcome to Budgeting 101.


Covering Your Bases

Calculating Your Budget

Sticking With It

Cutting Back

Get Help



Covering Your Bases

The first step to this is listing your costs and making a budget.  You will need to cover your basics, first.

We did learn one important thing in school: Every lifeform needs to meet certain criteria to keep living.  For humans, the most basic of basic survival comes down to:

  1. Food
  2. Water
  3. Shelter
  4. Warmth


Easiest thing to tackle first is shelter.  You’ll need to pay your rent or mortgage first every month.  The place you live in is your base of operations, and a big part of how your job, government, and society at large will interact with you.  Paychecks will be mailed out to you, and tax returns get mailed to your home, and many businesses will want to know where you live before doing business with you.  Securing a place to live is step one.

CogBullet copy Many financial planners will often suggest that the amount of money you spend on housing per month should not exceed 1/3 of your paycheck.  This is also used as a very basic criteria check if you intend on buying a home.  Most banks won’t give you a mortgage if you will have to use more than 1/3 of your take-home pay to pay for the mortgage.  There’s a higher chance you’ll default on your loan so you can continue to eat, so they deem it too risky to write a loan.


You won’t last long if you don’t have access to clean water.  Most places you will live will already have a water system set up, especially if you rent.  Some apartment complexes even include the cost of water and sewage in the monthly rent.  If not, you’ll have to look around to see if there’s a utility board that covers this, or perhaps a local water company.  You’ll have to pay them per month to both deliver fresh, potable water to your house (“potable” water means drinkable, clean water) and take the sewage away to be treated.  If you’re buying a house that’s already on the market or renting from an apartment complex, this should already be set up, and should just take someone turning on a switch.

However, on the off chance that you do not have a water company that has pipes already leading to your location, or if the water coming out of your pipes is off-colored or smells strange, you’ll have to take a few extra steps.  Depending on your area, you may want to have a well dug, or a septic tank and water collection system put in.  Each of these has pros and cons to them and is well beyond what we can cover here.  Seek the advice of a trained professional, or your county clerk’s office.  Make sure to check your local laws, as in some areas, water collection and septic tanks have specific regulations or are outlawed.

ExclaimBullet This may go without saying, but please do NOT drink water that has a strange or foul odor or is an odd color.  Call the water plant, or have a professional to check your system to make sure it does not have any cracks, holes, or other damages or dangers.  If you recently bought a house and the system is damaged but you weren’t made aware of this during the buying process, you may want to contact a lawyer to discuss the possibility of litigation against the previous owners so they can cover the cost of repair and cleaning.

Remember, the owners of this site are not lawyers and cannot suggest legal advice. Please contact the American Bar Association or a local lawyer to discuss your options.


This is critical.  You can’t perform your best at work when you’re so cold you can’t sleep at night.  You have to budget your electricity bill or your natural gas bill in.  Depending on your area and what the economy is like at the time, electricity is usually cheaper than natural gas, but this is not always true.  In some rural areas, it is cheaper to have natural gas shipped in than to pay for power lines to be put out to your house.  Alternatively, you can try having some alternative energy source put in, such as solar or wind. In some areas of the country, solar panels are being paid, in part, by your local government.  Check with your city center to see if anything like that is being offered in your area.


This is the final, most critical part of a budget – planning in enough money for food.  How much do you currently spend on groceries every time you go to the store?  How many times per week or month do you make a grocery run? Alternatively, how much money do you spend eating out?  If your answer is “more than I should” for that last one, keep reading below.  We have some tips and tricks on cutting back costs.



Calculating Your Budget

Everyone’s budget will be different, but you can break most budgets down by category to get an idea of what you have that is absolutely essential to pay, and the things that you can do without.  Gather the bills that you have received in the last month, and a copy of your checking account history or checkbook.  You’ll need to mark down on a sheet of paper or in a spreadsheet how much you are spending for each category and subcategory.  Once you map out what costs you have each month, you can then organize it and see where you can cut down, or where you need to increase your budget.

CogBullet copy Remember that every single cent that comes out of your account is something that should be on your budget, even if you have to list buying lip balm from the gas station under “Miscellaneous Expenses” in your Monthly Spending Allowance (see below).  If it’s costing you money, you need to take it into account.

Fixed Costs

These are costs that you must pay every month, and know how much needs to be paid.  These tend to be “adult” responsibilities, such as rent, mortgage, or loan payments.  These have to be paid and are not really optional, though there may be ways to reduce the costs in this category, such as moving to a less expensive apartment or home.

Variable Required Costs

These are costs that you know you will need to pay every month, but might cost you more or less from one month to another.  These tend to catch people off guard, because although you might spend a certain amount on heating and AC in one month, it might change drastically by the next month.  This could be something as simple as spending more on heating in winter, or something as uncontrollable as a spike on gas prices for your car.  It might be a good idea to budget more than you think you’ll need here, so if the cost starts to rise, you won’t get blindsided.  This is also a good section to review every or two to see if you are sticking to your budget, or if some of these costs turned out to be higher than you anticipated.

  • Food
    • Groceries
  • Other House Goods
    • Dish Soap
    • Laundry Detergent
    • Toiletries
  • Heating
    • Electricity
    • Natural Gas
    • Firewood
  • Transportation
    • Gas (for your car)
    • Bus fees
    • Metro, train, or rapid transit fees
  • Laundry Funds
  • Child Care
  • Cell Phone Bill *

* Though this is not absolutely necessary as one can live without this service, it is so important, because if you find yourself in danger or hurt, a cell phone can mean the difference between life and death, especially in a remote area.

Optional Costs

Although you won’t die from cutting down on or eliminating these costs, they are certainly nice to have.  If you’re having trouble, take a close look at this section to see if there are cheaper alternatives that you can use or if you can cut something out altogether.

  • Other Food
    • Eating Out
    • Snacks
    • Energy Drinks, Sodas, or Bottled Water
  • Streaming or Subscription Services
    • Television
    • Internet
    • Netflix, Hulu, Amazon Prime Video, etc.
    • Spotify, Apple Music, Google Play Music, etc.
    • Magazine or Newspaper Subscriptions
    • Delivery Box Subscriptions
    • Library Card Fees
  • Exercise
    • Gym Fees
    • Recreation Facility Fees
    • Pool Passes
  • Salon / Barber Fees
  • Tobacco / Tobacco Replacement Products


You will want to set aside some amount per month just in case you run into trouble.  Having a savings account can mean the difference between keeping your house or apartment or living on the streets if you lose your job.  Once you have enough money in your savings that you can handle any trouble that comes by, you can look at spending it wisely.  Here are a few other things you might want to save up for:

  • Down payment on a house or new(er) vehicle
  • Emergency medical bills
  • Vacations
  • Emergency time off
  • Deductibles or Attorney Fees
  • Money for a wedding or proposal
  • Money to tide you over while you switch jobs or careers
  • Money for moving to a new home
  • College Funds (for yourself, your spouse, or your child)
  • Retirement
  • Increased future expenses, such as a high heating cost in winter
  • Large gifts


Investing is a kind of long-term savings where you deposit money into an account and the bank uses that money to help various companies and startups.  These companies and startups, when they increase in value, will increase the amount of money available in your account, essentially multiplying your money – IF the companies do well.  If the companies don’t do well, you can lose out on that money.  It is literally gambling, but the places you are gambling on are trying their best to get ahead.  However, there are ways to help ensure you don’t lose out entirely.  See our topic on Investing for more information.

Monthly Spending Allowance

It’s important to try to budget a little bit for yourself each month.  Even $5 per week will let you buy your kids (or yourself) a treat at the grocery store.  Sometimes, looking forward to that little treat (or the smile on your child’s face) will help you get through a rough day or week.  Here are a few things you might want to buy with a spending allowance.

  • New clothes
  • Makeup or Beauty products
  • Hair products
  • Massages
  • Entertainment
    • Movie or Concert tickets
    • Fair or Amusement Park tickets
    • Video Games
    • Gambling
  • Going out
    • Clubbing
    • Bar Hopping
  • Treats
    • Sweets
    • Toys
  • Nearly anything else that does not fall into one of the categories above
CogBullet copy Some people might be deterred by the word “allowance”.  It sounds childish; it’s what you give to your 5-year old son to make him feel important.  However, if you think about it and cut it down to the definition, an “allowance” is the amount you “allow” yourself to spend per month.  That’s all it means.  Call it pocket money, if you want, but make sure you budget it.



Sticking to Your Budget

Making a budget is easy.  It’s staying within your budget that’s the hard part.  Here, willpower is everything.  The area that people most often break their budget in is the Monthly Spending Allowance (though people are now spending more money on Fixed and Variable Required Costs than ever before).  Many people will see something outside of their budgeted allowance and will want it so much that they say to themselves, “Well, I’ll just borrow from next month’s funds.”  That’s a dangerous trap, because if you keep borrowing from next month, you will wind up depleting the month’s budget before you even get there.

Deter Yourself from Impulse Buying

A good way to deter yourself from this is to stay conscious of what you’re buying, and really think about the item you want to purchase.  If it is going to go over your monthly allowance, consider if you will get enough joy out of the item that you won’t buy anything next month at all.  If you bought something similar in the past (for example, a cute new jacket), think, do you still wear that item from before? How long did you wind up wearing it? Do you really think that the temporary joy you might get from the item in front of you now will last you two months? If this becomes a repetitive problem, you may want to add a section for that specific vice, such as “clothes”.  It’s your budget; you have to decide if this item is worth breaking or altering your budget for, but remember: your budget is an agreement with yourself to help better your life.  If you can at all avoid it, don’t break that promise.

Envelope Method

Another method for staying within your budget is to use the Envelope Method.  This requires that your entire budget be kept in cash, but most places don’t mind you paying in cash, no matter what the grumbling customer behind you might think.  This also has the added effect of saving you money on debit card fees.  Essentially, you get a bunch of envelopes and mark each one of them with the amount you budgeted for them for that month, and put that amount of cash inside each envelope.  That way, every time you make a purchase, it is a physical thing leaving your hands, and you can see the envelope getting thinner with each purchase you make.  This can be especially helpful in controlling your Monthly Spending Allowance.  Once the money in the envelope is gone for that month, that’s it. It’s done. It’s gone.  And with little to nothing in your checking account, you’ll be less inclined to make those impromptu purchases.

Get An App

It’s the age of technology. There are many apps that can help you track your spending, but figuring out which ones are reliable and safe to use is the key.  Remember that the information you let your app have access to may be kept on their servers which could be hacked at any time.  On the other hand, the clarity of how much you are spending each month, and in what category, might be what you need to see to help you keep on track.  Some of the most popular and reliable apps are listed below:

  • | Free
    Website, IOS, Android, Windows Phone
    Mint connects to your bank accounts digitally once you give them permission, then endeavors to categorize your spending.  When you spend more than you budgeted for a certain category, such as “Food” or “Shopping”, Mint will send you an email or notification to let you know you’ve overstepped your budget.
  • GoodBudget | Free
    IOS, Android
    This is essentially a digital version of the Envelope Method mentioned above.  You set an amount you want to spend per month for a category and if you cross over that amount, it highlights in red.
  • Mvelopes | Free
    This app helps you decide on a budget by asking you a few questions about your spending goals, and then, like a mix between and GoodBudget, it connects to your bank account digitally and will help you visualize how much you have spent and on what.
  • HomeBudget | $5 – $6 one time fee
    IOS, Android
    A color-coded, easy to use and understand app where your expenses are divided into 6 distinct categories, each with a corresponding color.  It can then show you how much you’ve spent in each category over time, how much of your budget you’ve eaten through this month, and more.
  • You Need A Budget (YNAB)| $5 per month / $50 if you pay for 1 year up front
    Desktop App, IOS, Android
    An in-depth budgeting software tool with an enthusiastic community.  You’ll have access to the forums where you can get help with the app or other questions you have about money.  You’ll also get access to finance classes, tutorials, tools and budgeting tips.
  • BudgetSimple | Freemium ($5 per month for mobile app access, free for website access only)
    Website, IOS, Android
    A simple, easy-to-understand budgeting app that tries to help you hammer out a budget that works for you.  It will analyze your bank account, help you see where you’re spending and where you might be able to cut back.
ExclaimBullet Please note that these are not advertisements or paid promotions.  These are just some apps and services that have been useful to many.  The owners of this site are not being paid or compensated in any way for mentioning these apps and services, and we cannot guarantee that these apps will continue to remain safe and unhacked.  We will always be straightforward with you if something is a paid promotion, though we strive to only recommend products and services that will be useful to you.



Cutting Back

This is often the most stressful part of budgeting.  You’ve figured out how much you want to spend, but you don’t make enough to cover that.  You need to cut back on your spending so you don’t wind up going bankrupt – or worse, hungry or homeless.  If you have a specific bill or cost that is out of control, check below to see ways to cut down.

Monthly Spending Allowance

If you have no space, you should consider reducing or eliminating your spending allowance.  You may not be able to buy yourself a treat, but you’ll survive and that’s the goal.  Similarly, consider cancelling your gym membership or hair appointment.  Try doing it yourself by looking up how-to videos or websites.  In this regard, Pinterest can be a lifesaver.

Optional Expenses

They are called “optional” for a reason.  Like we said before, you won’t die if you cancel your Spotify subscription, but it could save you enough money to get some food.  Likewise, you can consider cutting out large expenses in this section and finding cheap alternatives instead (such as cutting out a $75/month TV bill and replacing it with a $10/month Netflix account).  Consider looking around for new internet providers, as well.  Cutting down on your costs will help, and sometimes, a little here and a little there is all you needed.

CogBullet copy If you have an addiction to cigarettes (or anything else for that matter), consider getting help.  Kicking your addiction may be the key to getting your money – and your life – back on track.

Saving & Investing

If you are tight on money, you can stop putting money in your savings account for a few months at a time, just until you get back on your feet.  Try not to dip into your savings unless you absolutely must.  If you knew that your budget would get tight in winter, for example, due to heating and had saved money up for it, that would be the time to use that money.  Remember, the more money you have in your savings account, the more money your account will generate.  The same goes for Investing.  You can remove money from the account, but it will generate less in the long run.  It’s up to you how to handle that.

Refinancing Loans

Refinancing loans can be a good, if risky, way to get your funds back on track.  Consider consolidating your student loans, or refinancing your house.  Make sure, however, you don’t fall into one of the common pitfalls of refinancing.


This is often seen as the easiest part of a budget to regulate – all you have to do is eat less, right?  The problem with this mentality is that you can’t perform your best at your job (or at an interview) on a hungry stomach.  Science has proven a lack of energy can make you a sluggish thinker with slow reactions.  In some jobs, this can even be dangerous.

However, there are still ways to cut back on your spending.  For example, if you currently spend $100 on food every week, but another $75 eating out, consider getting rid of the eating out altogether.  Spending another $25 on groceries will taste better and be easier on your wallet than that $75 at the fast food place on the corner.  Also, spending $75 for a cooking class now might save you hundreds of dollars in fast food later; if you can cook food at home that is healthy and delicious, you will be less likely to stop at the corner store to buy a burrito. Again.  You could also look up lessons on YouTube or borrow a cook book from the local library.

Additionally, you can look at shopping at a different store, looking for discount stores, or starting to coupon.  If done correctly, couponing can save the average family a significant amount of money.  On the other hand, it does take a decent amount of time and effort.

QuestionBullet What’s a Discount Store?

Have you ever noticed that food at the grocery store tends to keep for about a month before going bad?  That’s because regular grocery stores keep an eye on the expiration and best by/sell by dates of their products.  When an expiration/sell by date gets too close, the store will throw out the product or return it to the distributor.  They do the same for items where the box is considered “damaged”, even if the food inside of the box is just fine.

Discount stores, like United Grocery Outlet here in the south-east USA, will go to a regular grocery store and ask if they have any products that they’ve taken off the shelves, but are not quite yet bad.  The regular grocery store will then sell the product to the discount grocery store at rock-bottom prices; they figure it’s better to make a tiny profit than no profit at all.  The discount grocery store then takes the product and puts it on their shelves at a lower cost than you would see at the regular grocery store.  The expiration date is closer, but it’s still good for a little while, and if you’re going to just cook the food later that night, it won’t matter.  So, the regular grocery store gets a little profit, the discount store gets a little profit, and you get some discount good


If you own a home or are ready to move, consider looking for a roommate.  You can contact and interview people through the newspaper, or through a social site like Craigslist.  You can also consider renting out either a room or an entire property on AirBnB (but check your local laws first; this was recently restricted in New Orleans and a few other places).  If you need a bed for just a few days and have something lined up afterwards, you can also consider staying at a hostel or Couchsurfing.  If you are moving because of an emergency, you might be able to take shelter at a local church or shelter if you meet their criteria and get there before they fill up.

Heating & Electricity

Many people see their heating and electric bills skyrocket in the winter.  Though unpleasant, you can cut back on these.  Treat it like a camping trip, and it will help the mental toll that it might take.

  • Keep your lights off.  Use candles and flashlights if necessary.
  • Keep your electronics off and unplugged as much as possible.  Many items draw power even if they’re “off”, usually to power an internal clock.  Cable boxes are notorious for this.
  • Add Insulation.  If you own your home, you can add insulation to the walls or attic to keep warmth inside your house or change your windows to keep heat out.  If you rent, pinning up a blanket to the wall or installing window-insulating kits (also known as winterizing kits) can help keep the heat in your apartment.  Stacking furniture or storage boxes against the outer walls of your apartment can also help.
  • Turn off or lower Air Conditioning or Heating.  This is not recommended.  If you keep your AC very cold in the summer or the heat very high in the winter, it might help to get a fan or some extra socks and a sweater instead of just blasting your AC system.  Turning it down or off will lower your electricity bill; however, if it gets under 68 degrees or above 90 , we recommend you keep the AC/heating on.  Temperatures can get dangerous past those two extremes.
  • Unplug your fridge or set it on a timer. This is not recommended.  The refrigerator is actually one of the highest power-consuming items the regular person owns. This is risky, because you don’t know if your food will go bad.  Like during a power outage, the best practices are to keep your fridge shut at all possible times.  Make sure to plug it in every few hours to make sure it can keep cold.  We suggest you get rid of or cut down on perishables before you do this.


Many household items can actually be made at home, or replaced by something reusable.  For example, you could create your own homemade laundry detergent, or make some potpourri instead of using Febreeze.  You could also make your own wet wipes out of paper towels, or better yet, use a cloth towel instead.  Consider getting a soda stream and making your own soda combinations instead of buying another 24-pack of coke.  Grow your own fruits, herbs, and veggies instead of buying them at the store.  Go the whole 9 yards and start a tiny-house homestead with an aquaponics system.  These hobbies can even turn into extra money, if you wind up with a large excess or if you start selling to friends and online.



Get Help

If you’ve done everything you can and you still are spending too much money, consider applying for assistance with the Government.  The assistance is there for people who can’t make ends meet.  Keeping a roof over your head and food in your stomach (or your kids’ stomachs) is more important than your pride.  There are many programs to help families in need (Supplemental Nutrition Assistance Program (SNAP), Temporary Assistance for Needy Families (TANF), Women, Infants and Children (WIC)  to name a few).  Additionally, there are many nonprofits who can help with individual costs, such as mortgage assistance, food banks, and more.  Some churches also offer monetary help to families, as well as free dinners for those in need.

Asking for help is hard for everyone.  However, if you can get through this – and you will, if you want to – you can get back on your feet and repay those who helped you, or pay it forward to someone else in need.  If you need help, get help.