personal finance budget assignment

Budget Planning and Budgeting Lessons

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Our Budgeting section delivers an array of educational tools. Dive into our collection that comprises lesson plans, printable worksheets, instructive videos, detailed articles, and more. Our lesson plans and printable worksheets are crafted to guide educators in imparting knowledge about the principles of budgeting and the importance of financial planning. Tailored to fit various learning environments, these resources are adaptable for both group lessons and self-paced studies. Our instructive videos provide a vibrant approach to understanding budgeting, bringing to life the nuances of financial planning with compelling animations and lucid breakdowns of intricate topics. Meanwhile, our detailed articles delve into the finer points of budgeting, offering expert commentary and profound insights into managing personal finances effectively. Whether you're a visual learner, a reading enthusiast, or someone in search of structured lessons, the Budgeting section of Money Instructor is equipped with resources to ensure you grasp the essentials of financial planning and lead a financially sound life.

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How to Budget Money in 5 Steps

Bev O'Shea is a former NerdWallet authority on consumer credit, scams and identity theft. She holds a bachelor's degree in journalism from Auburn University and a master's in education from Georgia State University. Before coming to NerdWallet, she worked for daily newspapers, MSN Money and Credit.com. Her work has appeared in The New York Times, The Washington Post, the Los Angeles Times, MarketWatch, USA Today, MSN Money and elsewhere. Twitter: @BeverlyOShea.

Lauren Schwahn is a writer at NerdWallet who covers credit scoring, debt, budgeting and money-saving strategies. She has contributed to the "Millennial Money" column for The Associated Press. Her work has also been featured by USA Today, MSN, The Washington Post and more. Lauren has a bachelor’s degree in history from the University of California, Santa Cruz. She is based in San Francisco.

Kathy Hinson leads the Core Personal Finance team at NerdWallet. Previously, she spent 18 years at The Oregonian in Portland in roles including copy desk chief and team leader for design and editing. Prior experience includes news and copy editing for several Southern California newspapers, including the Los Angeles Times. She earned a bachelor’s degree in journalism and mass communications from the University of Iowa.

Many or all of the products featured here are from our partners who compensate us. This influences which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own. Here is a list of our partners and here's how we make money .

If you have take-home pay of, say, $3,000 a month, how can you pay for housing, food, insurance, health care, debt repayment and fun without running out of money? That’s a lot to cover with a limited amount, and this is a zero-sum game.

The answer is to make a budget.

What is a budget? A budget is a plan for every dollar you have. It’s not magic, but it represents more financial freedom and a life with much less stress. Here’s how to set up and then manage your budget.

Get a custom financial plan and unlimited access to a Certified Financial Planner™

NerdWallet Advisory LLC

How to budget money

Calculate your monthly income, pick a budgeting method and monitor your progress.

Try the 50/30/20 rule as a simple budgeting framework.

Allow up to 50% of your income for needs, including debt minimums.

Leave 30% of your income for wants.

Commit 20% of your income to savings and debt repayment beyond minimums.

Track and manage your budget through regular check-ins.

It’s easy to get overwhelmed by the many details included in the budgeting process. Here are five steps to follow.

Step 1: Figure out your after-tax income : If you get a regular paycheck, the amount you receive is probably it, but if you have automatic deductions for a 401(k), savings, and health and life insurance, add those back in to give yourself a true picture of your savings and expenditures. If you have other types of income — perhaps you make money from side gigs — subtract anything that reduces it, such as taxes and business expenses.

Step 2: Choose a budgeting system : A budgeting system is a framework for how you budget. Everyone has different habits, personality types and approaches to managing money, and there are systems that can fit your lifestyle. Any budget must cover all of your needs, some of your wants and — this is key — savings for emergencies and the future. Budgeting plan examples include the envelope system and the zero-based budget, and the 50/30/20 budget, which we’ll discuss more below.

Step 3: Track your progress: Record your spending or use online budgeting and savings tools .

Step 4: Automate your savings: Automate as much as possible so the money you’ve allocated for a specific purpose gets there with minimal effort on your part. If your employer permits, set up automatic payments from your paycheck to your emergency savings , investment and retirement accounts. An accountability partner or online support group can help, so that you're held accountable for choices that blow the budget.

Step 5: Practice budget management: Your income, expenses and priorities will change over time, so actively manage your budget by revisiting it regularly, perhaps once a quarter. If you're struggling to stick with your plan, try these budgeting tips .

Try a simple budgeting plan

We recommend the popular 50/30/20 budget to maximize your money . In it, you spend roughly 50% of your after-tax dollars on necessities, including debt minimum payments. No more than 30% goes to wants, and at least 20% goes to savings and additional debt payments beyond minimums.

We like the simplicity of this plan. Over the long term, someone who follows these guidelines will have manageable debt, room to indulge occasionally, and savings to pay irregular or unexpected expenses and retire comfortably.

The 50/30/20 budget

Find out how this budgeting approach applies to your money.

Your 50/30/20 numbers:

Necessities

Savings and debt repayment

Do you know your “want” categories?

Become a NerdWallet member to track your monthly spending trends, including how much you're allocating to needs and wants.

Allow up to 50% of your income for needs

Your needs — about 50% of your after-tax income — should include:

Basic utilities.

Transportation.

Minimum loan and credit card payments. Anything beyond the minimum goes into the savings and debt repayment category.

Child care or other expenses you need so you can work.

If your absolute essentials overshoot the 50% mark, you may need to dip into the “wants” portion of your budget for a while. It’s not the end of the world, but you'll have to adjust your spending.

Even if your necessities fall under the 50% cap, revisiting these fixed expenses occasionally is smart. You may find a better cell phone plan , an opportunity to refinance your mortgage or an opportunity for less expensive car insurance . That leaves you more to work with elsewhere.

Leave 30% of your income for wants

Separating wants from needs can be difficult. In general, though, needs are essential for you to live and work. Typical wants include dinners out, gifts, travel and entertainment.

It’s not always easy to decide. Are restorative spa visits (including tips for a massage ) a want or a need? How about organic groceries? Decisions vary from person to person.

If you're eager to get out of debt as fast as you can, you may decide your wants can wait until you have some savings or your debts are under control. But your budget shouldn't be so austere that you can never buy anything just for fun.

Every budget needs wiggle room — maybe you forgot about an expense or one was bigger than you anticipated — and some money to spend as you wish. If there's no money for fun, you'll be less likely to stick with your budget.

Commit 20% of your income to savings and debt paydown

Use 20% of your after-tax income to put something away for the unexpected, save for the future and pay off debt balances (paying more than minimums). Make sure you think of the bigger financial picture; that may mean two-stepping between savings and debt repayment to accomplish your most pressing goals.

Determine priorities in your budget

When budgeting, it can be difficult to determine which items are most urgent. Should you prioritize your credit card debt, student loan repayments or retirement savings? Here is a list of potential priorities from most to least urgent.

Many experts recommend you try to build up several months of bare-bones living expenses. We suggest you start with an emergency fund of at least $500 — enough to cover small emergencies and repairs — and build from there.

You can’t get out of debt without a way to avoid more debt every time something unexpected happens. And you’ll sleep better knowing you have a financial cushion.

Get the easy money first. For most people, that means tax-advantaged accounts such as a 401(k). If your employer offers a match, contribute at least enough to grab the maximum. It's free money.

Why do we make capturing an employer match a higher priority than debt? Because you won’t get another chance this big at free money, tax breaks and compound interest. Ultimately, you have a better shot at building wealth by getting in the habit of regular long-term savings.

You don’t get a second chance at capturing the power of compound interest . Every $1,000 you don’t put away when you’re in your 20s could be $20,000 less you have at retirement .

Once you’ve snagged a match on a 401(k), if you have any extra cash available, go after the toxic debt in your life. High-interest credit card debt, personal and payday loans, title loans and rent-to-own payments all carry interest rates so high that you end up repaying two or three times what you borrowed.

If either of the following situations applies to you, investigate options for debt relief , which can include bankruptcy or debt management plans .

You can't repay your unsecured debt — credit cards, medical bills, personal loans — within five years, even with drastic spending cuts.

Your total unsecured debt equals half or more of your gross income.

Once you’ve knocked off any toxic debt, the next task is to get yourself on track for retirement. Aim to save 15% of your gross income; that includes your company match, if there is one.

If you’re young, consider funding a Roth individual retirement account after you capture the company match. Once you hit the contribution limit on the IRA, return to your 401(k) and maximize your contribution there.

Regular contributions can help you build up three to six months' worth of essential living expenses — not your full budget, just the must-pay basics. You shouldn’t expect steady progress because emergencies happen, and that's when you should pull money from this fund. Just focus on replacing what you use and increasing your savings over time.

These are payments beyond the minimum required to pay off your remaining debt .

If you’ve already paid off your most toxic debt, what’s left is probably lower-rate, often tax-deductible debt (such as your mortgage). Tackle these when the more-basic goals listed above are covered.

Any wiggle room you have here comes from the money available for wants or from saving on your necessities, not your emergency fund and retirement savings.

Congratulations! You’re in a great position — a really great position — if you’ve built an emergency fund, paid off toxic debt and are socking away 15% toward a retirement nest egg. You’ve built a habit of saving that gives you immense financial flexibility. Don’t give up now.Consider saving for irregular expenses that aren’t emergencies, such as a new roof or your next car. Those expenses will come no matter what, and it’s better to save for them than borrow. You may also choose to use any disposable income you have to build wealth faster by putting more money in your retirement pot.

WATCH TO LEARN MORE ABOUT BUDGETING

Start by determining your take-home (net) income, then take a pulse on your current spending. Finally, apply the 50/30/20 budget principles : 50% toward needs, 30% toward wants and 20% toward savings and debt repayment.

The key to keeping a budget is to track your spending on a regular basis so you can get an accurate picture of where your money is going and where you’d like it to go instead. Here’s how to get started: 1. Check your account statements. 2. Categorize your expenses. 3. Keep your tracking consistent. 4. Explore other options. 5. Identify room for change. Free online spreadsheets and templates can make budgeting easier.

Start with a financial self-assessment. Once you know where you stand and what you hope to accomplish, pick a budgeting system that works for you. We recommend the 50/30/20 system, which splits your income across three major categories: 50% goes to necessities, 30% to wants and 20% to savings and debt repayment.

Start by determining your take-home (net) income, then take a pulse on your current spending. Finally, apply the 50/30/20

budget principles

: 50% toward needs, 30% toward wants and 20% toward savings and debt repayment.

The key to keeping a budget is to

track your spending

on a regular basis so you can get an accurate picture of where your money is going and where you’d like it to go instead. Here’s how to get started: 1. Check your account statements. 2. Categorize your expenses. 3. Keep your tracking consistent. 4. Explore other options. 5. Identify room for change. Free

online spreadsheets and templates

can make budgeting easier.

Start with a financial self-assessment. Once you know where you stand and what you hope to accomplish, pick a

budgeting system

that works for you. We recommend the 50/30/20 system, which splits your income across three major categories: 50% goes to necessities, 30% to wants and 20% to savings and debt repayment.

» LEARN: Tips for Canadians on how to budget

on Capitalize's website

Want to talk to an expert about setting a budget?

Sign up for NerdWallet Advisors to get unlimited access to a Certified Financial Planner™ for just $30/month. Set a budget you can stick to.

Budgeting Unit

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Spin the wheel and discover an engaging activity for your class, your result:.

• INTERACTIVE: Living Paycheck to Paycheck

Unit 10: Unit Plan & Assessments

Unit assessment, budgeting strategies.

Students will be able to:

• List the different categories of expenses
• Explain how four different budgeting strategies work
• Weigh the pros and cons of each budgeting strategy

Budgeting for Rent and Food

Students will be able to

• Understand how consumers allocate their average annual budget across different spending categories
• Prioritize multiple factors when deciding where to live
• Identify ways to reduce expenses associated with renting 
• Explain how to save money when shopping at a grocery store
• Compare the unit prices of grocery items before making a spending decision 
• Create a roommate agreement to share the costs associated with living together

Budgeting for Transportation

• Compare the popularity of various transportation methods in the United States 
• Explore how access to different transportation options can vary based on geographic location 
• Identify ways to reduce their transportation costs 
• Understand the financial implications and overall tradeoffs of using different transportation options

Build Your Budget

• Create a budget on a salaried adult’s income and adjust it as required
• Research and choose appropriate budgeting apps to meet specific needs

Budgeting Basics

• Describe the purpose of a budget 
• Classify expenses as needs and wants
• Explain the difference between gross pay and net pay

Budgeting for Housing

• Prioritize many factors when deciding where to live
• List important considerations before signing a lease
• Determine whether they are prepared to purchase a home
• Factor in how utilities will affect their budget

Budgeting for Food

• Estimate the costs of buying food
• Detail strategies for lowering a dining out budget
• Explain how inflation affects one’s ability to budget for food

Budgeting Challenges

• Understand the various challenges people may face when trying to stick to their budgets
• Explain how a minimum wage is different from a living wage
• Identify ways people can budget with a limited or variable income 
• Explore government benefits offered to help people meet their basic living expenses 
• COMPARE: Find an Apartment
• COMPARE: Needs vs. Wants
• COMPARE: Select Your Utilities
• COMPARE: Select a City to Live In
• CREATE: A Salary-Based Budget
• CREATE: Prom Pitch Showdown
• ECON: Demand Shifters
• ECON: Exchange Rates
• ECON: Inflation, Spending, and Wages
• ECON: Shortages and Surpluses
• ECON: Shrinkflation
• ECON: What is the Consumer Price Index (CPI)?
• FINE PRINT: Electricity Bill
• FINE PRINT: Residential Lease
• INTERACTIVE: Money Magic
• MOVE: Build Your Budget
• MOVE: Inflation Over Time
• MOVE: Making Transportation Decisions
• MOVE: The Average American Budget
• MOVE: The Real Relationship Test
• PLAY: Budget Frenzy!
• PLAY: Organize Budget Expenses
• PLAY: The Bean Game
• PROJECT: Budgeting with Roommates
• PROJECT: Plan a Friendsgiving Dinner
• PROJECT: Plan a Spring Break Trip
• PROJECT: Rein In Your Wants
• READ: Gig Workers: How are You Managing Your Money?
• RESEARCH: Monthly Cost of Car Ownership
• RESEARCH: Online Tools and Apps

CASE STUDIES

• CASE STUDY: Budget or Bust?
• CASE STUDY: How Do I Budget?

FINCAP FRIDAYS

• Budgeting Gets Loud
• Save a Dime on Valentine's
• Prices Have Grown for Food at Home
• Food Waste Due to Expiration Dates
• Cash Flash from the Past
• Average American Budget
• Protective Parents
• Romance & Finance
• Nike Eyes Growing Feet
• Famous and Frugal

QUESTIONS OF THE DAY

• Groceries or Restaurants: Where are Americans spending more money?
• How Much Money Does The Average Person Spend On Video Games and Accessories?
• How much does the average American household spend on transportation per year?
• How much does the average consumer spend per month on subscription services?
• How much does the average pet owning household spend on their pets each year?
• How much money did Americans spend on video games in 2020?
• What are the top 3 types of products/services Gen Z is most likely to splurge on?
• What is the top-selling fast food category: Snacks, Burgers or Pizza?
• What matters most to teens when making a clothing purchase: Brand, Price or Quality?
• What percent of 18-24 year olds are currently living with their parents?
• What percent of Americans earning more than $250,000 are living paycheck to paycheck?
• What percent of high school seniors have a driver's license?
• What percent of the U.S. food supply is wasted?
• What percentage of gig-workers say they're living comfortably?
• What’s the real value of $100 in each state?

DATA CRUNCH + MATH

• DATA CRUNCH: Has Income Kept Up with the Cost of Living?
• DATA CRUNCH: How Does Spending Differ Across Generations?
• DATA CRUNCH: How Does the Minimum Wage Compare to the Living Wage?
• DATA CRUNCH: How Have Prices For Consumer Goods Changed Over the Past 20 Years?
• DATA CRUNCH: How Much Income Do You Need to be Rich?
• DATA CRUNCH: What Can You Buy With the USDA Low-Cost Food Plan?
• DATA CRUNCH: What Does The Average Household Spend Money On?
• DATA CRUNCH: What Is the Relationship Between Household Income and Food Security?
• MATH: Calculating Percentages
• MATH: Discounts and Composite Functions
• MATH: Graphing a Budget Equation
• MATH: Unit Price

Assessments and Answer Keys

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4 Budget Projects High School Students Will Have Fun Learning From

By: Author Amanda L. Grossman

Posted on Last updated: May 9, 2024

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These are budget projects high school students will get excited about – both fun and a great learning experience to understand money better.

Need a project-based way to teach your teens about managing a limited set of money?

These budget projects for high school students will help them to self-discover some pretty important money lessons, such as:

• How to prioritize and track bill payment
• How a person’s job and life choices can affect their money obligations
• How to do real-world money math in various scenarios
• How a teen can improve their budget

And I’m starting the list off with my favorite budget project!

Budget Projects for High School Students

We’re going to start off these budget projects with my very new one, a bill-paying budget project scenario.

Stick around for the other three, too!

Hint: you'll also want to check out my article on how to teach budgeting , from beginner to advanced levels.

1. Bill-Paying Budget Project

Bill-paying is not something we’re born knowing how to do.

And it can feel like a slap in the face when you hit the real world and suddenly must be able to:

• Keep track of varying bill due dates
• Manage paydays, which usually come on different dates of the month than when bills are due
• Track what was already paid, and what hasn’t been paid yet, so that you recognize if a bill is missing (bills are due regardless of whether or not they got lost in the mail)

Most teenagers never deal with a monthly bill due date until they hit the real world – and at that point, slipping up can mean late fees, services turned off, lower credit scores, etc.

Why not give them a heads-up by working on a bill-paying budget project ahead of time?

Here’s a 30-day budget project, including a printable pack I created and am giving away for free for now (yes, I have plans on charging for this in the future – so go ahead and grab a copy!).

Step #1: Assign a Job + Bills with Due Dates

At the beginning of the month, assign your high school students one of four jobs. Based on the job they get, they’ll be assigned a list of bills with due dates, and a blank monthly money calendar.

Let your students know they’ll be paying bills over the course of the next month, according to when they are due. Also, tell the students there will be two paydays for the month, and that they’ll be paid pretend money on these days (here is free printable money for kids ).

They’ll take their bills sheet, and correctly fill in their monthly money calendar with each of the due dates, plus their paydays. They are then responsible for paying each of these bills by the due date (or face a late fee).

You can choose how to keep track of everything, but I would recommend a bill pay pocket chart.

Here’s how I set mine up to test everything out:

These two items were enough for a class of 30 students:

• Pocket Chart
• Pretend Money

Step #2: Set Up a Bill Paying Station

You’ll need an area of the classroom to collect their money and to sign off on their bill-paying sheet to show they’ve paid.

The person in charge of this can be a teacher, teacher’s aide, or student treasurer (you can switch out each week who fulfills this role). 

Choose what schedule the bill-paying station will be open, and use the printable bill-pay chart to communicate times/dates.

Step #3: Run the Month-Long Simulation

Students are now in charge of paying their bills, as they become due (or ahead of time). The treasurer/banker is in charge of keeping the bill-paying station running, as well as filling in the one-sheet student ledger for when each person pays and how much they end up paying.

And someone else (perhaps the teacher) is in charge of paying the students on each of the two paydays.

At the end of the month, there is a set of reflection questions for students to fill out.  

Bonus: Tradeoffs and Prioritizing Money

To increase the “budgeting” part of this, you could come up with things that pretend money can buy.

This would mean that the students need to prioritize their money and make sure they have enough of it left to pay for each bill by its deadline.

For tight budgets, you can use privileges.

• $10 buys you 5 extra minutes on an educational computer game
• $15 buys you one late homework pass
• $XX buys you XXX
• Etc.  

Could make things more interesting!

Hint: you'll also want to check out my article on how to teach budgeting .

2. Three-Budget-Scenarios Project

Have you checked out my article on sample budgets for an 18-year-old ?

One of the things I stress is a teen should create a budget for more than one scenario for their next step in life since an older teen’s life opportunities can change so quickly.

Hint: you could show one of these free financial literacy movies for students as to why they need backup plans.

You can take your own high school students through this, as a project.

Step #1: Download a Teen Budget Worksheet

Choose a teen budget worksheet for your students (you can get mine, for free, below), and print out three copies each.

Step #2: Brainstorm Next-Step Scenarios in Teen’s Lives

Get your students to help you brainstorm some common (and not-so-common) next steps that can happen in a teen’s life.

• Getting a first apartment alone
• Getting a first apartment with a roommate
• Going to college
• Going to a trade school
• Living with parents with new money responsibilities (like paying rent)
• Taking a gap year/traveling for a while

Step #3: Pick 3 Scenarios to Create a Budget Around

Either pick three scenarios from the brainstormed list that every student in your entire class will work on, or let your students pick three different scenarios they’re thinking about living out after they graduate.

Hint: one of the scenarios can be to create a teen budget for their life right now. Then, they can choose their ideal scenario to budget around, and finally, their backup plan scenario to budget around.

Help your students to first brainstorm the budget line items for each scenario.

For example, for a first-apartment scenario, they would want to include:

• Utilities (water, electricity, natural gas, trash pick-up, etc.)
• Transportation costs

Step #4: Compare and Discuss Pros/Cons

Ultimately, you want your teen students to see how much they’ll need to earn in order to survive on each of three different scenarios.

You’ll then want to guide discussion on the pros and cons, from a financial perspective to each of the three different paths post-high school.

3. End-of-Year Class Party Budget Project

Decide to throw an end-of-year party for your class, and let them not only handle most of the logistics but also handle the budgeting for it.

You’ll need to have a budget for this, which can be gained from fundraising, donations, etc.

Have each student in the class be in charge of something, perhaps broken up into groups. Then, have the entire class be in charge of the big budget decisions.

Budget decisions to be made:

• How to raise the money (if it’s not provided)
• What percentage of money to spend in each category (food, decorations, entertainment, etc.)
• Any rules or limitations when spending the money, as well as basic party setup (also great for teachers to provide their own rules and limitations – but you already knew that!)
• This or That scenario, where the class must decide on budgeting priorities (for example, would they rather have decorations or more money spent on the food?)

There are also some great budgeting decisions that need to be made at the group level.

Group budget decisions to be made:

• Specific items to purchase with the overall budget
• Amount of money to spend on each item
• Research the cost of an item online vs. in-store, and weigh which one is better to purchase (take into consideration the cost of gas and cost of shipping to get the item, whether or not you can find an online coupon or regular coupon to use, quality of product and how many times it’ll get used, etc.)

4. Fun Budgeting Simulation

Did you know I have a free, fun budget activity PDF for high school students?

Students use a fun fortune teller to be assigned one of 4 avatars, with a backstory that includes:

• Career stage
• Lifestyle stage
• Salary info
• Budgeting info

They’re asked to fill in a budget worksheet based on their brief. Then, they’re thrown a few budgeting scenarios where they need to think on their feet (based on the budget info they filled out) about how to handle it.

Things like:

• New job/lost job
• Hurricane soaks your belongings

It’s pretty fun!

Psst: you'll also want to check out these personal finance project examples .

I hope I’ve shown you some budget projects high school students can really get behind because they’re at least a bit fun, they teach real-life information, and they’ll make them think. I’d love to hear from you as far as how it goes!  

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10 Simple Steps for Making a Budget in Excel [Free Template]

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A budget is the foundation of your financial health. Want to know if you can afford a vacation? How much you can save for retirement? How you can pay off your mortgage faster ? These questions can all be answered if you have a budget.

And one of the most popular ways to create your own budget is building a budget spreadsheet in Microsoft Excel.

This article will explain how to make a budget in Excel in 10 simple, easy-to-understand steps. And to help get you started, we’ll even include a free budget spreadsheet template in Excel. 

Budgeting Apps to Consider—Top Picks

What Is a Budget?

What is a budget? A budget is a listing of your actual income and the amount you can afford to spend on your expenses and put into savings.

Income typically includes your wages, though it can also include things such as investment returns.

Expenses include every dollar you spend, from housing costs and income taxes to food and fun stuff like vacations, sporting events, and going out for a nice dinner and drinks.

You’ll also want to include line items in your budget for different types of saving: emergencies, specific large purchases, and long-term/retirement.

To be clear: The budgeting process is to your financial health what cleaning your bathroom is to your physical health. Most people don’t find creating and sticking to a budget to be a lot of fun.

But the longer you put it off, the harder it is to do. And if you don’t do it regularly, you can end up with a problem that’s really difficult to overcome.

However, if you make a budget and review it regularly, you’ll make better financial decisions and have more confidence in your finances. You will be less likely to run up more debt than you can afford to repay. And you’ll be more likely to be able to retire in the fashion you desire.

How to Create a Budget Spreadsheet in Excel

To make this easier on you, we have created a free budget template . You can sign up in the box below and quickly receive the budget template in your inbox.

Use it to follow along with the steps outlined below to make sure you are learning how to create a budget in Excel that works for you.

(If you’re reading this in Reader View, you can visit the form here .)

As an overview, here are the steps necessary to create a budget in Excel:

1. Identify Your Financial Goals

In my case, my primary financial goal is to make sure I enjoy my retirement. Your goal might be the same. But other popular goals include saving for down payments on houses , refinancing student loans, affording college for your children, and funding retirement.

2. Determine Your Budget Period

The most common time periods for a budget are monthly and annually. If you budget for a month, it is critical to remember to add expenses that you don’t pay every month. That’s because you’ll need to set aside money in short-term savings so you have the money when those expenses become due.

3. Calculate Your Total Income

Figure out how much Form W-2 or Form 1099 income you’re going to earn during your budgeting period ( 1099 vs. W-2 can result in different tax situations).

4. Begin Creating Your Excel Budget

Build a personal budget worksheet for tracking your expenses. You can use a host of budget templates, but we suggest using the free Excel budget template provided above.

5. Enter All Cash, Debit and Check Transactions Into the Budget Spreadsheet

Enter all of the checks, debit card , and cash transactions from your checkbook or online bank account into the Excel spreadsheet. Identify the types of expenses.

6. Enter All Credit Transactions

Enter all of the transactions on your credit cards into the same Excel spreadsheet, identifying the types of expenses. (Important note: Don’t double-count the credit card payments from your checkbook with the details of the expenses from your credit card bills.)

7. Calculate Total Expenses From All Sources

Add up all of the expenses in Steps 5 and 6 by type of expense. Apart, they tell you where you’ve been spending money; together, they show you how much you’ve spent in total.

8. Run a Comparison of Income to Expenses

Compare your expense budget to your income. If your projected expenses and target savings exceed your budgeted income, you need to figure out how to get more income (take a second job or, in my case, take on a consulting assignment in my retirement?).

Of course, most people can’t just create income out of thin air, so the other option is to cut expenses.

9. Identify Areas for Expense Reduction

Make a first pass at the expense part of your budget by looking at how much you’ve spent. Review to see if there are any expenses you can reduce. You likely won’t find many opportunities for savings with utilities and other vital bills like for cell-phone service—maybe you can be a little more energy-conscious or pick a slightly cheaper phone plan. Typically, people find more savings on “discretionary” spending (think wants, not needs) like going to restaurants or frivolous shopping.

Occasionally, harder decisions have to be made. It might be downsizing to a smaller home, going from two cars to one.

10. Be Diligent With Your Budget

Monitor your actual expenses to make sure you are not overspending your budget.

Do I Need a Budget Spreadsheet? I’m Already Saving Some Money.

If you have been working for several years and are able to put money in savings, you might wonder why you need to create a budget. The biggest reason to make a budget at this stage of your life is to make sure you are putting enough money into savings.

I think of savings in three components:

Emergency Savings

Emergency savings is money that will cover either your living expenses if you find yourself without an income, facing a medical emergency, or needing to cover travel expenses because of the death of a close family member. Most people recommend that you target three to six months of basic living expenses for your emergency savings.

• It is critical to distinguish between what is an emergency and what is not. For example, a funeral is an emergency; a wedding is not.
• If you want to be able to go to someone’s wedding, the costs should already be in your budget or come from savings specifically designated for attending weddings.

Designated Savings

Designated savings is money to fund large purchases you want to make in the future. Think of creating designated savings as budgeting over several years.

• You will need to replace your car every so often. You might have a few “dream” vacations you’d like to take. Maybe you want to make a down payment on a condo vs. apartment -renting or to fund your children’s education.
• Unless you make so much money that you can fit the full cost of these items in one year’s budget, you’ll need to fund them over several years.

Long-Term or Retirement Savings

Long-term or retirement savings is money that allows you to live when you are no longer working.

By creating a budget that includes all three components of savings, you’ll be more confident that you will have the cash flow to tackle your monthly expenses, but also be able to navigate emergencies and still realize your dreams.

The amounts you need to include in your budget for emergency and designated savings are pretty straightforward. Determine how much you need and the date by which you want to have those amounts available and do the arithmetic.

Retirement savings, however, might be a little more complicated.

Check Out Our Top IRA Accounts

How Much Retirement Savings Should I Budget For?

When you go to figure out how much to budget each year for retirement savings , you have to consider a number of factors:

• How much you’ve already saved.
• How much money you want to spend each year when you retire.
• How much risk you are willing to take with your retirement savings.
• Whether the amounts you set aside are before or after-tax (i.e., in health savings accounts [HSAs] , traditional or Roth IRAs and 401(k)s ).
• Your current age.
• Your target retirement age .
• How long you expect to live.
• Whether any of your employers provide you with a defined benefit pension plan.
• How much you’ll get from Social Security.
• Expected inflation rates between now and the time you die.
• Tax rates on any non-Roth savings when you retire.

To provide you with some insights on how much to save, I’ve created a very simple example:

• You want to retire at age 60.
• You want to be able to spend an amount equal to 80% of your current after-tax salary, adjusted for future inflation. Federal, state, and Social Security taxes currently total 40% of your salary, so the equivalent percentage of your pre-tax salary is 48%. The math: (Percent of after-tax salary desired * [1 – your total combined rate for federal, state, and Social Security taxes] = equivalent percentage of your pre-tax salary). So here, the math would be (80% * [100% – 40%] = 48%)
• You are willing to take the risk of the overall stock market, so we will assume you average 9% return on your investments.
• Inflation is 4% per year until you die at age 90. Your salary increases with inflation plus 1 percentage point for merit raises and promotions.
• You put all of your retirement savings in Roth accounts , so future taxes aren’t an issue.
• You don’t have any retirement savings yet.
• You don’t have or plan to get money from any defined benefit plans and, for conservatism, I will assume you get nothing from Social Security.

The chart below shows you what percentage of your salary you need to put in a Roth IRA and/or Roth 401(k) to meet these goals based on your current age.

This chart shows that, if you start saving at age 25 under the assumptions above, you need to save “only” 11% of your pre-tax salary in a Roth IRA or 401(k) every year until you retire.

On the other hand, if you are 45, have the characteristics above and use those assumptions, you’ll need to save 42% of your salary every year just for retirement. (But remember: Your employer’s matching 401(k) contributions help reduce the amount you need to contribute.)

All of the values in this chart scale proportionally, so you can increase or reduce the salary percentages if your retirement needs are more or less than are assumed in the illustration.

Also, please note that retirement plan limits have increased for 2024. Take advantage of them if you can when creating a budget in Excel and be sure to put as much in your retirement plan as you can afford.

You Need a Budget

The amounts you need to set aside for emergency, designated, and retirement savings often take up a large percentage of your salary.

That means you need to be disciplined with the remainder to ensure you can meet your current day-to-day needs and realize your long-term dreams.

A budget is a critical tool in helping you maintain that discipline. By tracking your income, expenses, and financial goals across time, you’ll be better able to find additional room for savings in your budget.

But no matter how much (or little) money you make, you can take more control of your financial future by following the steps above and creating a budget in Excel.

Budgeting Apps That Can Help

Budgeting apps can help take you from a simple Excel spreadsheet to a big next step in organizing your finances. Here, we explore three budgeting apps of note:

1. You Need a Budget (the App)

• Available: Sign up here
• Price: Free 34-day trial, then $14.99/mo. if paid monthly or $99/yr. if paid annually

Consider pairing You Need a Budget (YNAB) with your new Excel budget to gain full visibility into your personal finances.

YNAB determines how much money you have and tracks your monthly income, and it also helps you determine what your expenses are and when they need to be paid. It can track fixed expenses and allows you to budget for less frequent variable expenses.

In addition to keeping track of expenses, it can help you establish goals and plan for saving money.

You can try YNAB for free for 34 days ; after that, it costs $99 per year if paid annually or $14.99 per month if paid monthly.

• You Need a Budget (YNAB) is an award-winning software platform which uses a proven method to teach you how to manage your money and get ahead.
• Budgets update automatically and in real time, and can be accessed on your computer, phone, or tablet.
• Customizable
• Allows for multiple budgets
• Difficult for beginners
• No bill tracking or bill pay
• No investment tracking features

Related: Best Kids Savings Accounts [Bank Accounts for Kids]

2. Quicken Simplifi

• Price: $24/yr.*

Quicken Simplifi is a useful budgeting app that can help you progress toward your financial goals with confidence.

Simplifi allows you to build monthly budgets yourself, or it will create customized budgets generated automatically based on your income, expenses, and savings. It also provides budget suggestions, and it helps you track progress toward saving goals. The app provides a comprehensive view of your finances, too, syncing up with your bank accounts , credit cards , brokerage and retirement accounts, mortgages, even private investments.

If all of this makes Simplifi seem like a lighter version of Quicken … well that’s because it pretty much is. Quicken literally markets the service right alongside Classic Deluxe, Classic Premier, and Classic Business & Personal, and Simplifi is both cheaper and features fewer options than all three programs.

That said, Simplifi does have a few perks of its own that keep it from truly feeling like “Quicken Lite.” For one, it has a dedicated mobile app—one of my biggest gripes about Quicken is that it only has a “mobile companion app” that syncs up with the desktop versions. Simplifi can also automatically detect bills and identify subscriptions, and, unlike Quicken, it can separate those categories.

Try out Simplifi to see if it’s the budgeting app you need.

• Simplifi allows you to see all your finances in one place by connecting your bank accounts, credit cards, loans, 401(k), and other investments in a single dashboard.
• Save more money and plan better through goal setting.
• Know where your money goes through insight into spending across categories, tracking upcoming bills and building a projected cash flow.
• Get an automatically generated spending plan customizable to your needs.
• Wide range of compatible accounts
• Intuitive dashboard
• Robust budgeting tools
• Savings goals
• Comprehensive, easy-to-read reports
• No free version/free trial
• No credit score

Related: Best Prepaid Debit Cards for Kids and Teens

• Price: Free

Empower is best known for helping more than 3 million users put their retirement on track by putting its tools and/or advisory services to work for them.

You can use Empower’s free tools to understand your full financial picture by taking control of your saving, spending and investing. The tool easily tracks all of your accounts in one place, offering ways to uncover areas to improve your financial situation.

Whole the tool falls short as a pure-play budgeting app, it does offer effective tracking across several accounts and actionable insights based on transaction history pulled into the app. Further, you can use it inform the best ways to build your portfolio with additional tools built into the app.

And if you need more personalized financial advice? Empower offers a full-service Wealth Management account. Empower will create a recommended portfolio spanning six asset classes, then help you implement your plans by giving you access to financial advisors who can guide you through retirement planning, college savings, workplace stock options, and more.

Regardless of how much money you bring to the table, if you sign up , you will be given the option to schedule an initial 30-minute financial consultation with an Empower advisor.

• Empower (formerly Personal Capital) offers both a free set of portfolio, net worth, and cash flow tracking tools, as well as paid asset management service.
• Link Empower to your bank and investing accounts, credit cards, and more to see a single view of useful information and data, including your net worth.
• Empower Wealth Management offers unlimited advice and retirement planning help, as well as managed ETF portfolios, for accounts with between $100,000 and $250,000 in assets. Higher asset tiers include access to dedicated financial advisors, retirement specialists, and more investment options (including stocks, options, real estate, and private equity).
• Free portfolio tracker
• Free net worth, cash flow, and investment reporting tools
• Dedicated investment advisor
• Free tax-loss harvesting
• Dividend reinvestment
• Automatic rebalancing
• 5-day-a-week live customer support, 24/7 email support
• High minimum for investment management ($100k)
• High investment management fee (0.89% AUM)

• 60 Personal Finance Statistics You Might Not Know [But Should!]
• How to Invest Money: 5 Steps to Start Investing With Little Money
• How to Invest as a Teenager or Minor [Start Investing Under 18 Years Old]

About the Author

Riley Adams is the Founder and CEO of Young and the Invested . He is a licensed CPA who worked at Google as a Senior Financial Analyst overseeing advertising incentive programs for the company’s largest advertising partners and agencies. Previously, he worked as a utility regulatory strategy analyst at Entergy Corporation for six years in New Orleans.

His work has appeared in major publications like Kiplinger, MarketWatch, MSN, TurboTax, Nasdaq, Yahoo! Finance, The Globe and Mail, and CNBC’s Acorns. Riley currently holds areas of expertise in investing, taxes, real estate, cryptocurrencies and personal finance where he has been cited as an authoritative source in outlets like CNBC, Time, NBC News, APM’s Marketplace, HuffPost, Business Insider, Slate, NerdWallet, Investopedia, The Balance and Fast Company.

Riley holds a Masters of Science in Applied Economics and Demography from Pennsylvania State University and a Bachelor of Arts in Economics and Bachelor of Science in Business Administration and Finance from Centenary College of Louisiana.

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The content on https://youngandtheinvested.com is for informational and educational purposes only and should not be construed as professional financial advice. Should you need such advice, consult a licensed financial or tax advisor. References to products, offers, and rates from third party sites often change. While we do our best to keep these updated, numbers stated on this site may differ from actual numbers. We may have financial relationships with some of the companies mentioned on this website. Among other things, we may receive free products, services, and/or monetary compensation in exchange for featured placement of sponsored products or services. We strive to write accurate and genuine reviews and articles, and all views and opinions expressed are solely those of the authors.

© 2024, Young and the Invested is a wholly owned subsidiary of YATI Media, LLC. All Rights Reserved.

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Personalized financial planning explained step-by-step

Create a personalized financial plan, start-to-finish, for all your financial goals, with tools and resources to help you succeed, including tips on investing beyond your 401(k).

When it comes to life's biggest moments, you probably had a plan. Your family vacation, for example, followed a timeline, a budget—even if you busted it with that fancy dinner on your final evening—and involved compromise and conversation. Smart financial planning follows the same logic.

What are the basics of financial planning? Which steps should you take first in financial planning? Our information and how-to articles (linked below) can help. They take you step-by-step through what you need to know to create a personal financial plan and help get your money in order. From the groceries you need, to the retirement you want, and the car repair bill that’s looming, these ideas help you balance long-term dreams with short-term wants, plus those unexpected events that happen along the way.

This list offers a nice framework you can build on and adjust throughout your life.

It’s OK if you’ve started on some of these tasks. It’s also OK if you haven’t. Just start with one and keep going. (Or tackle the whole thing on a long, rainy weekend with a big pot of coffee and the dog at your feet.)

Let’s get started.

1. Set financial goals.

Goals are crucial to a financial plan. Before calculating how to get somewhere, you need to decide where you’re headed and why. Developing a savings plan based on specific financial goals throughout your life can help you use your money wisely. Do you want to:

• Save toward a down payment on a new home?
• Establish a college education fund for your children?
• Pay down or minimize existing debt?
• Launch a small business?
• Accelerate your retirement investing and savings?

Once you take time to envision the sort of life you want live a few years or many years from now, you can organize your financial goals into three general time horizons:

• Short-term goals (six months to five years): This phase may include many of the initial steps outlined on this list, including budgeting, paying down debt, and building an emergency fund.
• Mid-term goals (five to 10 years): Buying insurance or expanding your investment approach may be part of the mid-term goal planning.
• Long-term goals (10+ years): This is where you dig into detailed retirement planning to combine your best thinking around what you truly value in life with expertise from trusted sources of financial education and insight.

Set a more specific target date for each your financial goals. For instance, if you’re the parent of a toddler who may head to college in the 2040s, that gives you a deadline for your college savings goal .

Organize your goals between needs and wants. Layer in the current state of your savings to see how you can adjust your pace of savings to meet your target dates. Do you have money in a 401(k) ,  403(b) , Roth IRA , or  IRA (individual retirement account)? If so, log those numbers as you plan your retirement-related goals .

You can weigh all these options and your financial data at a glance by committing your plan to paper with our financial goals worksheet (PDF) .

2. Follow a budget.

Instead of thinking of a budget as way to restrict your spending, use it as a tool to organize your monthly cash flow to help you pay yourself first (savings/investing) and still have room for the fun stuff. Seeing all your sources of income and spending in detail is important to assess your financial options both now (those short-term wants) and for your distant future (long-term dreams). Your budgeting will include both fixed expenses (think housing, transportation, debt, etc.) and discretionary expenses (restaurants, entertainment, gifts, etc.).

Keep in mind the wide variety of digital apps and tools available to help you make and maintain a budget in your daily life. Depending on your preferences and comfort with mobile apps, you can link financial accounts or set alerts to help categorize and monitor your spending. (As a Principal customer you can link accounts and explore budgeting features as part of your personal financial dashboard when you log in through principal.com or our mobile app.)

For the basics, learn how to create a budget that works for you—not against you (downloadable budgeting sheet included).

3. Build an emergency fund.

All the planning in the world won’t help if life throws you a curveball and you’re not prepared financially. That’s where emergency savings comes in handy.

• First, calculate how much emergency savings you may need: The minimum recommended emergency savings tends to start at three months of living expenses—with six months or a year providing a more realistic buffer to regroup after a setback. The flexibility of your cash flow helps determine your ultimate target for an emergency fund and how quickly you can reach it. If you’re self-employed, your emergency savings should be even larger due to your generally greater financial risk (income volatility, unplanned business expenses, etc.).
• Second, pick a tactic that works for your financial habits: Do you want to automate your savings—for instance, divert a small sum from your regular paycheck so it’s deposited into a savings account instead of your checking? Or will you transfer a significant sum—say, a work bonus or tax refund—to kick-start your emergency fund?
• Choose an account: You want a liquid, accessible account for your fund, but not one that’s too tempting for impulsive withdrawals. For instance, a high-yield savings account with a minimum balance may be a good fit. ( Compare online bank savings and money market rates .)
• Set parameters for yourself and always replenish the fund: Is the expense unexpected, unavoidable, and urgent? The more your expense meets all three of those criteria, the more it’s likely suited to be covered by your fund. Once you dip into the fund, build it back up as soon as possible.

4. Manage debt.

Understanding and managing debt is a key part of creating a financial plan. Building a positive credit history can help improve your credit score and, in turn, help you qualify for lower interest rates on loans as part of a comprehensive strategy to maximize your incremental savings. It’s important to remember that not all debt is bad: A home mortgage giving you the ability to use the interest paid for a tax deduction can be beneficial. However, a revolving credit card with a high interest rate and ballooning balance doesn’t help your financial plan.

You have multiple ways to help tackle debt: The “snowball method” prioritizes paying smaller loans first to help buoy your spirits with tangible progress in shortening your debt list. Or you can focus on paying off the loans with the highest interest rates so you pay less overall, even if you maintain more loans for longer.

Learn how to pay off the debt you owe now and build a long-term debt-management strategy (worksheet and calculator included).

5. Protect with insurance.

The routines and norms of your daily life can change in an instant. People with a good financial plan hope for the best but always try to plan for the unexpected. Insurance helps with that. You may not realize the flexibility of life insurance as a financial tool to protect you and your dependents in the wake of a tragedy. Or maybe you haven’t been introduced to how short- or long-term disability insurance can help maintain your lifestyle by protecting your income. Here are two key questions to ask yourself:

• Do you have disability and life insurance at work? Your HR or benefits administrator should be able to help you determine your coverage and basic features such as an “elimination period” (how long you would wait to receive benefits if you do become disabled).
• How much coverage do you have vs. how much you may need? Long-term disability insurance typically replaces about 60% of your income—sometimes less than half after taxes. So, you may want to bundle that coverage with an additional private pay policy, depending on your budget, priorities, and risk tolerance. (Try our disability income calculator .) Your life insurance at work may be a flat rate based on your income, or you may have special benefits such as business travel insurance, advance payments for a terminal illness, or access to life insurance in retirement.

If you buy more voluntary or supplemental insurance through work, premiums often cost less through your employer and can be deducted from your paycheck. (You also may be able to avoid medical underwriting to start coverage, as well as take the policy with you if you leave your job. However, if you buy the insurance on your own, you may be able to buy more coverage and better customize it to your specific needs.)

6. Plan for taxes.

Paying taxes is part of your inevitable financial routine. First, know your tax bracket and how that may evolve throughout your life.

Integrate a more targeted and year-round tax strategy into your financial plan to better allocate your money according to your priorities. Know the difference between deductions and credits and how your plan will incorporate both. You may spot simple deductions or credits you overlooked in previous years. You can learn the importance of tax sheltering through tax-deferred accounts such as employer retirement plans, IRAs, Roth IRAs, health savings accounts (HSAs), and more. You may pursue more specialized moves such as tax-loss harvesting .

If you have access to a benefit such as a HSA and expect to use it to pay for out-of-pocket medical costs, that could help reduce your overall tax burden. If you’re age 50 or older, you may be able to make catch-up contributions with your retirement savings.

Explore ways to save on your taxes next year, using our tax planning worksheet to think through potential income tax credits and deductions. For even more resources, visit our tax center on principal.com .

7. Plan for retirement.

Even if it’s a long way off, think about what you want your money to do for you when you retire. You’ve probably heard the basic recommendation to try to save aggressively for retirement early in your career, so every dollar works harder by compounding for many more years. Or you know the general rule to aim to replace 80% of your income in retirement. But rules of thumb are no match for a direct, specific interrogation of your personal finances and life goals to build a retirement plan right for you.

There are numerous details that depend on your unique circumstances. Will you pay off your home mortgage before retiring? What will be your sources of retirement income? Have you considered the impact of inflation? Have you factored in the costs of long-term care or a nursing home ?

As you near retirement, evaluate what will be taxable when you remove money from an account such as a 401(k) vs. what could be tax-free, such as a Roth IRA after a certain number of years. Strategies such as Roth conversions are one way of managing the tax implications over time, so you have a balance of retirement income sources. If you have significant 401(k) savings you may want to consider rolling it over into an IRA to help provide more investment options. Learn how to start a rollover IRA .

In the bigger picture, get started creating your own custom retirement plan to help you take a more holistic approach to retirement . You also can consult our Retirement Wellness Planner to build a more detailed plan based on your specific finances. Even better, work on your retirement planning with a trusted financial professional.

8. Invest beyond your 401(k).

To reach your mid- and long-term goals, take your savings strategy and put an engine behind it. That’s what investing can do. Does your timeline and risk tolerance favor a more conservative approach, with options such as government bonds or certificates of deposit? Or do you prefer more aggressive investing in stocks and private equity? Regardless, diversifying your investments can help you generate more consistent returns over time to withstand volatility. A thoughtful, diversified approach—including regularly rebalancing your portfolio to account for market shifts and life stages—is within reach (especially if you take advantage of the expertise of a financial professional ).

Get started broadening your investments with these three steps.

9. Create an estate plan.

You don’t have to be wealthy, old, married, or a parent to need an estate plan, which also lays out who makes financial and health care decisions for you if you can’t make them yourself. An estate plan, ideally including a will (to avoid extra legal costs and confusion among your beneficiaries), enables you to clearly articulate your intentions for your assets after you’re gone. Who will wield power of attorney on your behalf? Will you include a living will in case you’re incapacitated and unable to communicate your wishes?

Learn the basics of estate planning and options for creating one.

Congratulations on working through the steps!

Here’s when to review your financial plan.

Take a fresh look at least once a year or after a big life change, such as:

• Significant change in income
• Change in family dynamics like having a baby or adopting, getting married, divorce, or losing a spouse/partner
• Selling or buying a home
• Inheritance
• Unexpected debt
• Change in financial goals

What’s next?

Log in to your Principal account to see how you’re doing. Don’t have an employer-sponsored retirement account or want to save even more in addition to a 401(k)? We can help you set up your own IRA or Roth IRA . If you don’t already work with a trusted financial professional, we can help find one near you .

7 doable steps to help you create a will

A list of assets and an executor are just two of the things you need to help you create a will. 

What will Social Security look like when you retire?

Planning for retirement includes lots of considerations, including how Social Security may change over time.

Retirement planning for millennials: How to get started and make progress

There are hurdles for millennials to save for retirement, but there are also steps that can help ensure retirement savings for people in their 30s and 40s becomes a habit.

Investing involves risk, including possible loss of principal.

Asset allocation and diversification do not ensure a profit or protect against a loss.

The subject matter in this communication is educational only and provided with the understanding that Principal ® is not rendering legal, accounting, investment advice or tax advice. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, investment or accounting obligations and requirements.

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• Term life insurance vs whole life insurance

When term life insurance is a good fit

When whole life insurance is a good fit, how to choose between term and whole life insurance, term vs. whole life insurance: a side-by-side comparison.

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• Term life offers temporary coverage, while whole life offers lifelong coverage.
• Term life premiums are initially cheaper, but whole life may be more cost-effective in the long run. 
• Whole life offers a cash value component, while term doesn't.
• Compare life insurance quotes with Policygenius .

If you're considering buying life insurance, you might debate your options between term life insurance and permanent life insurance. Permanent life insurance comes in a few variations, the most popular being whole life insurance . This policy is a hybrid between a savings vehicle and an insurance policy. Deciding which insurance is right for you depends on your coverage needs, budget, and financial goals. 

Term life insurance vs whole life insurance key features

Coverage period .

Term life insurance lasts for a fixed period of time, usually 10, 20, or 30 years. While permanent life insurance provides coverage for your entire life. 

Since term life coverage eventually expires, insurance companies sell it at a significantly cheaper premium than whole life insurance. The average monthly cost of insurance for a 20-year term life policy with a $500,000 death benefit is $26 (for a 30-year-old male and female with a few health conditions). Meanwhile, the average monthly cost of a $500,000 whole life policy is about $451 per month (for a 30-year-old male and female in good health). 

Keep in mind that if you want long-term protection, renewing your term may be more expensive than purchasing a whole life insurance policy from the start.

Unlike term life insurance, whole life insurance has a cash value component . With this feature, a portion of your premium goes towards keeping your insurance coverage active. The other portion goes toward your cash value, which grows your policy based on a set interest rate. 

Eventually, you can withdraw or take out a loan on your cash value . However, you can only use those funds during your lifetime, as your insurer won't pass it on to your insurance beneficiaries . 

Death benefit

Both term and whole life insurance pay out a death benefit to your beneficiaries. However, if you outlive your term policy, your beneficiaries won't get a death benefit. You must renew your policy if you want continued coverage. Unfortunately, a Penn State University study found that 99% of term policies never pay out. 

Flexibility

Term life insurance is generally more flexible than whole life insurance. This is because you can choose the term length and coverage amount, allowing you to customize how much you pay. 

Limited budget

The cost of a whole life insurance isn't feasible for many people, especially those on a tight budget. Term life is the optimal choice for most shoppers because of its affordability. 

Temporary needs

Term life coverage may suffice if you anticipate only needing coverage for a certain amount of time. For example, you may want enough coverage to support your family while your children are young or while you still have a mortgage. 

Maximizing death benefit 

Passing away can cause financial hardship to your loved ones, especially if your dependents rely on income for a significant amount of time. If you need a large death benefit to maintain your family's current lifestyle, term life offers significant coverage at an affordable rate.

Lifelong coverage

Whole life insurance may be worth considering if you need coverage for your entire life . This is especially important if you have lifelong dependents. 

As mentioned, term life policies aren't guaranteed to pay out. Many companies may refuse to convert policies if you have major health concerns at the time of application. Additionally, qualifying for a new policy may be impossible or significantly costly, given your age, health conditions, and other factors. 

If you think you'll need coverage for longer than 30 years (some companies offer 40-year terms), it's important to weigh the risks of opting for a temporary policy over whole life insurance. 

Cash value accumulation 

If you'd like to pay a bit more to have your premiums earn interest, consider whole life insurance. You can borrow from or withdraw your cash value policy to fund your financial goals, provide income during retirement, pay your premiums, or increase your death benefit through certain riders.

Choosing between term and whole life insurance depends on your individual needs and financial goals. Term life is more affordable and flexible for temporary needs, while whole life offers lifelong coverage and a cash value component. Consult with a financial advisor to determine the best option for you.

Term vs. whole life insurance FAQs

Term life insurance is generally much cheaper than whole life for the same amount of coverage. However, if you anticipate needing coverage for more than 30 years, it's important to compare the cost of starting with a whole life policy versus renewing your term life policy. Insurers may raise your rates or deny coverage depending on your age and health status. 

Yes, you can convert a term life insurance policy to whole life. However, this will likely increase your premiums. 

Yes, ou can cash out of a whole life insurance policy by surrendering or canceling your policy. However, you'll lose your life insurance coverage and may incur taxes and surrender fees.

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