The Best Budgeting Process for Frugal Living

A well-planned budget can help you achieve your goals to live frugally, spend less, and pay down debt.

Creating a Budgeting Process For Frugal Living

The budgeting process for frugal living doesn’t need to be complicated. When starting the budgeting process for frugal living, you need a list of bills, a tally of your income, a calculator, and pen and paper or a computer program to keep track of everything.

  1. Assess Monthly Expenses

      Make a list of monthly expenses, as well as any money you spend on fun things, such as hobbies. Also include the minimum payments you make toward debt.


  2. Total Earnings

      Calculate how much you are making after taxes and other deductions. Include the money you receive from residual income and investments.


  3. Subtract Expenses from Earnings

      Test how effective your current money habits are by subtracting expenses from your earnings. This can show you how much you have left at the end of the month.


  4. Rework the Budget

      If the budget comes out negative, now is the time to make some cuts and do some number crunching. Go back over each expense you have listed and see if it’s possible to make some adjustments.


  5. Don't Forget Debt Reduction

      If you have debts then you already need to be including the minimum payments you make each month. You should also look for more money to pay down those debts. See where you can make sacrifices to get out of debt.


  6. Build-in Investments and Savings

      While you may be doing the budgeting process for frugal living, you also want to build in your financial goals, such as retirement, investments, and emergency funds. If you have a lot of debt then you may want to skip this step for a while and that’s okay.

Benefits Of Having a Budget

Now that we’ve discussed how to begin the budgeting process for frugal living, you should know about all the benefits that come along with having a budget and why you need a budget.

19 reasons to create a budget

Gives You Control of Money

A budget is the best way to be intentional about how you are spending and saving your money. With a budget, you control your money and the money isn’t controlling you. Budgeting can help save you the stress of having to adjust to a lack of funds because you didn’t plan ahead.

Helps Keep You Focused on Money Goals

You can avoid spending unnecessarily on services and items that don’t contribute to your goals. If you are working with some limited resources then having a budget can make it easier to make ends meet.

Be Aware of What’s Going on with Your Money

With a budget, it’s easier to be clear about where your money is going. Budgeting saves you from wondering where your money went every month.

You can have a plan to know exactly what you can afford, take advantage of investment opportunities, and have a plan to reduce debt. It can also tell you what is important based on where you allocate your funds.

Enables You to Communicate with Significant Others

If you are sharing money with a spouse or other family member then a budget helps you communicate how you are using the money as a group. This can promote teamwork and help you work toward common financial goals. It can also help you avoid conflict about how money is being spent.

Provides You with Early Warning

When you budget and see a big-picture view then it’s easier to see potential money problems in advance so you are able to make changes before you have a problem.

Helps You See if You Can Take on Debt

Sometimes, taking on debt is not a bad thing if the debt is necessary and you can afford it. A budget shows you how much debt you can take on and pay back without being stressed.

Enables You to Produce Money

With a budget, you can eliminate unnecessary spending on things like interest, penalties, and fees. These small savings really do add up over time.

Types Of Budgets

When working on the budget process for frugal living, there are different budget types to consider.

50/20/30 Budget

With this budget type, you spend 50% on your income needs, 20% on savings, and 30% on wants. It’s easy to maintain. Needs consist of things such as mortgage, utilities, groceries, gas, and healthcare. These are the things you can’t live without. Savings should consist of retirement goals, debt repayment, and growing your emergency fund. Your wants are anything else, such as dining out, Internet, cable TV, or vacations.

With this method, you don’t have a budget for every category. If you are turned off by traditional methods of budgeting for every line item then this could work for you. However, overspending can be a problem since you aren't budgeting for every category. Have some wiggle room or overestimate.

Cash Only Budget

This is when you use extra cash and allocate your money into separate categories. Then you get cash from your bank account and put the cash in envelopes to match categories. If you are struggling with overspending and want a budgeting process for frugal living, this can be helpful. Once the cash is gone, you can’t get more. When dealing with cash, you want to make sure that you don’t lose it.

Zero Based Budgeting

With this budget, you have the money you make match exactly what is going out of your account. It doesn’t mean that you are spending all your money, it just means that you deposit money in your savings, 401k, or IRA and the money is being accounted for. This is the ultimate type of budget for someone who wants complete control of his or her money.

You decide in advance where every single dollar gets spent. You won’t spend any money unless you plan for it. It can be time-consuming, depending on how much tracking and planning is involved. If you don’t have the time to keep up this may not be the best option. If you want to commit to a budgeting process for frugal living, with this you can have the most control over your money.

60% Solution

With this method, you use a percentage of the finances to manage expenses instead of specific dollar amounts. With this method, 60% of your income goes to committed expenses, such as your food, car payments, and mortgage. Then the needs category includes all of your bills, including wants that include your cell phone plan and TV.

The remaining 40% of your income is divided into four categories: retirement, long-term savings, short-term savings, and fun money. Long-term savings are your standard stocks and emergency fund. Short-term savings are things used for vacations, irregular expenses, and other bigger expenses that have come up over the course of the year. By allowing only 60% of your income to be used for bills, you have the ability to save more than normal.

Working with percentages can give you the temptation to no longer track expenses but it’s still important to do so. It can also be challenging to get to the point where you can use this budget since you need enough income to get to this point or limit your expenses.

Values-Based Budget

This is a budget that may be better suited for those with a higher level of income. The method relies on self-discovery because you have to name your values. The goal is to spend money based on your values, instead of worrying about how much you are spending in certain categories. For example, if you love to travel and value travel then write this down. Whatever isn’t on your list are items you wouldn’t be spending money on.

This budget can be a good choice for those who are already frugal and are disciplined with their spending. It helps if you naturally enjoying saving. One of the benefits of this budget is that you don’t have to track every dollar and this can be freeing for many people. If you aren’t disciplined enough to save your money then this may not be the best budget for you.

Choosing a Budget Plan

You can also choose to create your budget plan and it’s a combination of several different budgets. You can use portions of the different methods outlined above. In order to choose the right one and to create your own, you need to do some research to know what budgeting methods are available to you. You want to ask yourself what you want out of your budget. Knowing your options can give you the best start in creating your own budget.

Should You Not Have a Budget?

If you want to live frugally, you need a budget. However, there is a “no budget” budget. This is just how it sounds and you only pay attention to your bank account balance. There is no tracking of your expenses. This actually does work for some people and it overlaps with the 60% solution. Ideally, someone following this budget would want to automate paying the bills and make them as regularly as possible.

“No-Budget” Budget Is Also a Type of Budget

This is a budget for people who really don’t like to budget. It doesn’t require a lot of work or time or tracking. However, this method may be best for those with a higher income level. If you want to start living frugally, it’s recommended that you start with the budgeting process for frugal living and combine different budgets that work for you, and then at some point, you can get to this type of method.

Steps To Live On a Frugal Budget

These six steps will help you learn about living on a budget.

1. Create a Budget

The first step in the budgeting process for frugal living is to actually create a budget. There are a number of different ways to create a budget and you can find the right one for you depending on your needs.

2. Separate Your Budget into Savings Fixed and Variable Expenses

Once you have a budget, it helps to divide your budget into three different categories. Learning how to separate your budget into savings, fixed, and variable expenses can help you organize your bank accounts to make budgeting easier.

3. Organize Bank Accounts

With your budget split into three categories, it’s much easier to organize bank accounts. Separate the money that is meant for spending, the bills, and savings. This way, you have enough spending money, enough to pay bills, and you are saving for emergencies and those budget breakers that come up.

4. Begin Living Your Budget

Now start taking the budget off the paper and put it into action. Create a timeline to make sure your bills are being paid on time, you are spending as necessary, and you save for any emergencies.

5. Continue Tracking Expenses

At the beginning of the process and throughout, you want to keep track of where your money is going. This will let you know if the plan is working. Tracking your expenses doesn’t need to be complicated and overwhelming. You should find a tool to use to make sure your budget is working for your family.

6. Review the Progress

When you begin to live on a budget, you may feel better. You can sleep better and have less stress about money worries. Take the time to recognize the difference in how you feel when you manage your money compared to the way you felt when you first started. Check in to see how the plan is going.

How can you make adjustments to make your life even easier? Look at some unexpected expenses that came up over the past few months. How did you handle those? Is there something you should change to deal with these expenses in the future?

Frugal Living Mistakes

When working on the budgeting process for frugal living, you want to make sure you aren’t making these frugal living mistakes that can cost you more money.

Buying Low-Quality Products

You want the things you are buying to last. If not then frugality can cost you more money since you are then spending more on replacement products. When you are overly focused on price instead of quality, you spend more in the long run. Clothing is one big category where this comes into play but it can also cost you more with kitchenware or electronics.

Overlooking Debit Card and Credit Rewards

Those who want to focus on frugal living may avoid credit cards. Credit cards may have rewards and these can help you reduce expenses and save more than you would if you paid with cash. If you are smart with your credit cards and can make the payments then using credit cards is not always a bad thing.

Cutting Corners on Health

If you skip medical appointments or delay treatments then this can really be bad. A lot of people neglect regular dental cleanings or checkups. Even if you don’t have coverage and are paying out of pocket, the cost can be much lower than a medical emergency. Work health items into your budget, no matter how frugal you are trying to be, so you don’t end up paying more due to emergencies.

Sticking with DIY

If you enjoy a DIY project and can actually do it then it’s great. However, when it impacts productivity and quality, it can be costly. If you own a home, you may need to have a separate line item in your budget for home repairs depending on what type of budgeting method you are using. When you have a DIY situation, think if you have the skills to do the job and have time to do it.

If you bring in a professional, there are still ways to save by only paying for labor and getting the materials yourself. Remember that using the cheapest professional may not benefit you much either so do your research and in certain cases, it’s worth spending the extra money.

Being Inefficient with Time

Being frugal can cost you your time if you are spending too much time trying to save money. It may not be worth it to spend hours of your time bargain hunting. While it can save you money, the time lost can be significant and it can impact the quality of your life.


Build Your Budget. A Store to Manage Your Income, Savings and Much More.


To Sum Up

The budgeting process for frugal living will depend on your goals. The first step is to create a budget. There are different types of budget options that you can stick to. Some may work better than others for your needs.

When you create a budget, stick to it by checking in periodically with your budget. Remember that budgets are not supposed to be that rigid and may need flexibility from time to time. You may find that what worked for you in the past is no longer working for you and you need to make some adjustments.

When budgeting for frugal living, it can be easy to cut out some items but you want to make sure you aren’t making some common frugal living mistakes and you are budgeting for the items you need to include in order to not be stressed about money.