Every financial strategy is built on the foundation of budgeting. If you want to keep track of your finances, whether you're living paycheck to paycheck or earning six figures a year, you need to know where your money is going. Contrary to popular belief, budgeting isn't just about limiting your spending and eliminating all of your pleasures. It's all about figuring out how much money you have and where it goes, then how to best use those assets. Here's everything you'll need to make and stick to a budget.

How many categories should you have in your budget?

With the economy in shambles, more experts are recommending various budgeting strategies. The tendency appears to be toward straightforward advice.

You've probably heard that you should stick to a basic 20/80 budget, in which you save and invest 20% of your income while living on the remaining 80%. On the surface, this is excellent advice, but it is easier said than done in many circumstances. We prefer to provide more in-depth assistance.

Another option is to divide your income using a 20/30/50 budget, which allocates 20% of your income to savings, 50% to required living costs, and 30% to discretionary spending. We strongly advise people to avoid this system, which will be unrealistic for most individuals.

But there's a better way

1. Housing 35%
2. Debt 15%
3. Transportation 15%
4. Expenses 25%
5. Savings 10%

Groceries, mobile phone bills, entertainment, charitable donations, and other items that don't fit into the different categories make up the "Expenses" category, accounting for 25% of one's budget. This indicates that one's "wants" or discretionary spending account for only a tiny portion of the 25% of one's budget set aside for expenses. Because the numbers sum up to 100 percent, these rules are more realistic and acceptable than the 20/30/50 budget plans. They are great for fast budgeting workshops.

Here's a detailed breakdown:

1. Housing – 35-45%
2. Utilities – 8-15%
3. Food – 10-20%
4. Auto & Transportation – 15-25%
5. Medical – 8-15%
6. Clothing – 3-5%
7. Personal & Miscellaneous – 5-10%
8. Savings & Investment – 5-10%
9. Monthly Installments – 10-20%

The percentages are provided as ranges rather than set numbers. Each individual must work with their finances to build a budget that totals 100%. That means you'll have to make cuts somewhere else if you spend the entire 10% on personal and miscellaneous spending. Suppose your employer provides comprehensive medical coverage, and your medical expenses fall below the 8-15 percent threshold. In that case, you'll have more money to allocate to the remaining categories. That isn't to say you shouldn't go above and beyond! We believe it would be unwise to devote 30% of one's salary to personal and miscellaneous spending, as suggested by the 50/30/10 budget.

Want to know how to save even more?

While your monthly savings may appear insignificant, consider the lifespan of your appliances, and your savings will accumulate dramatically. The lifetime savings associated with a more energy-efficient machine are not negligible. The average household appliance lasts 10-20 years. However, you are not required to accept our word for it. Energy- and cost-savings calculators for energy-efficient products are available from the US Department of Energy, which can help you estimate your savings.

Installing a home monitoring system may be beneficial if you need assistance assessing your current energy usage. PowerX is a non-invasive, easy-to-install sensor that monitors your home's power, water, and water heater usage and provides clear and precise information on which appliances are consuming the most energy. Knowing this information can save you up to $1,000 on your annual utility expenses.