How to set budget amounts when you have no idea what you spend

Set the first version of your budget from what you already spend, not from what you think you should spend. Average the last three months of each category and use that as the amount, rounded to a figure you will remember. A budget built this way is accurate on day one, which is what makes it possible to improve later. A budget built on good intentions is wrong on day one, shows every category red by the third week, and gets abandoned. The trimming comes in month two, one category at a time.

Why guessed amounts produce a budget you abandon

Guesses are aspirations. Asked what they spend on dining out, most people name the figure they would like to spend, which is a third to a half below the real one. The first month then ends with the honest categories over, the budget looking broken, and the natural conclusion that budgeting doesn't work for you.

Nothing was wrong with you. The amounts were wrong, and the month was spent finding that out the slow way. A first budget has one job, which is to measure, and three months of statements measure faster than one month of trying.

Gather three months of history

1. Pull three full calendar months of transactions from every account you spend from: checking, every credit card, and any payment app.
2. Take out the movements. Credit card payments and transfers between your own accounts are not spending, and leaving them in doubles the totals.
3. Put each transaction in one of about a dozen categories. Housing, utilities, groceries, dining out, transportation, insurance, subscriptions, shopping, health, personal care, gifts, and debt payments cover most people. See How to see where your money goes each month for the full method.
4. Total each category for each month. Three numbers per category is the raw material.

Turn the history into amounts

1. Average the three months for each category.
2. Round to a number you will remember. The nearest $10 for small categories, the nearest $25 or $50 for large ones. A budget of $583.33 for groceries is a spreadsheet artifact; $580 is an amount.
3. Give fixed bills their exact amounts, not averages. Rent, insurance, the car payment, and the phone bill are known figures, and averaging a bill that changed in month two produces a number that was never true.
4. Convert bills that aren't monthly into a monthly share by dividing by the months between payments. See How to budget for bills that aren't monthly.
5. Add everything up and set it beside take-home pay. If the total is below income, the difference is what the plan leaves over. If it is above income, the history has shown you the gap, and the flexible categories are where it closes.

A worked example

Three months of history for the flexible categories, averaged and rounded.

The fixed bills are rent at $1,500, utilities at $190, insurance at $140, and a car payment at $250, which is $2,080 at their exact amounts. The whole budget comes to $3,460. Against take-home pay of $3,600, that leaves $140, and the first month's job is to confirm the amounts fit.

If take-home pay were $3,300 instead, the plan would be $160 short, and the history says where: shopping's month 2 held a single $300 purchase, and dining out is the largest flexible line. Trimming dining out to $220, shopping to $160, and entertainment to $40 closes the $160 exactly, and each cut is a decision about a specific category rather than a wish about the total.

Adjust from month two, one category at a time

• Month one is a measurement. Spend as you normally do and see which categories fit. A category that goes over by 5% has the right amount. A category that goes over by 40% has a wrong amount or a story worth knowing.
• Month two, trim one or two categories by 10% to 15%, not every category at once. A single trimmed category is a habit to build; six trimmed categories is a diet, and diets end.
• Leave fixed bills at their actual amounts until the bill itself changes.
• Rebuild the averages every three months, because the real figures drift, and the budget should follow them rather than the other way around.
• Watch the one number that summarizes the plan: income minus the total of every amount. When it goes negative, the budget has promised more than the month brings in.

Common mistakes

• Setting amounts from what you would like to spend. That is a goal, not a budget, and it is where the abandoned budgets come from.
• Using one month of history. Every month has something unusual in it, and one month can't tell you which thing that was.
• Averaging in a one-off without noticing. The $410 shopping month above had a $300 purchase in it. Either decide shopping is lumpy and let the amount accumulate, or take the outlier out of the average.
• Forgetting the bills that aren't monthly. Three months of history can miss an annual renewal entirely.
• Too many categories. Forty categories give forty small averages and no picture. A dozen is enough to start.
• Cutting everything at once in month one. The budget then measures nothing except how long you can hold your breath.

Common questions

How many months of history do I need? Three is enough to see the shape of each category and to smooth out one odd month. One month is too few. Twelve months is better for finding bills that come once a year, and it is worth scanning that far back for those even if the averages use three.

What if my spending is more than my income? Then the budget's first version will show it, which is the point of building it from history. The gap closes in the flexible categories, one at a time, starting with the largest. Fixed bills change only by changing the bill, which is a separate and slower project.

Should I round up or down? Round to the nearest memorable figure. Rounding a flexible category down by a few percent is a gentle first trim; rounding a fixed bill in either direction is an error, because its amount is known.

What if I have no history because I've only just started tracking? Budget only the fixed bills for the first month, let everything else run without an amount, and use that month as the first of the three. A budget with only fixed amounts is still a budget, and it is honest.

Where does saving fit? If you want it in the plan, treat it as a fixed line that moves on payday, and set the flexible amounts from what is left. A savings amount set after the flexible categories are filled in is the first thing the month runs out of.

How Zypper handles this

Zypper builds the first draft for you. Auto set on the budget page reads the last three months of your transactions, or as much of that as you have, extended to whole billing cycles for categories that don't recur monthly, and proposes an amount for each income and spending category from the averages. It keeps the plan achievable the way the example above does by hand: when your non-critical categories average more than your income leaves after your savings budget and critical categories, those amounts are scaled down to fit, while critical categories are set to their full averages. Nothing is written until you have seen it. The confirmation lists every category with its current and proposed amount, changed rows first, names the month the amounts apply from, and shows what Left to budget would be afterward, which is your expected income minus everything you have budgeted. Every amount stays editable, and while you edit one, a History panel shows what you Spent last month and your Monthly average with a chart of the last four months, either of which you can click to use as the amount. See Auto set and Creating your budget for the details, or get started with Zypper to have the first draft set from your own history.