How To Make a Budget: A Step-by-Step Guide

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If you’re not socking away cash into an emergency fund, you’ll find it much harder to handle any surprise expenses. A budget involves analyzing your bank account to assess how you allocate your net income for expenses. These include variable expenses, fixed expenses and what you put away toward your retirement plan. There are many ways you can prepare and review your budget to build one that suits you best.

How To Make a Budget in 6 Steps

When you are making a personal budget, you need one that is realistic for your needs. You may want to start with a few broad spending categories or monthly expenses and narrow them down as you learn your spending patterns. An elaborate budget may not be realistic, so start with small, short-term goals and build towards big, long-term goals. 

Even adding a small amount to emergency savings each week adds up over time. Budgeting and forecasting aren’t always easy, but knowing the way to start can help. These step-by-step instructions for how to make a budget will get you going:

  • Step 1: List all your living expenses
  • Step 2: List flexible and recurring expenses and loan payments
  • Step 3: Add up your after-tax income
  • Step 4: Set financial goals
  • Step 5: Record and track your spending
  • Step 6: Adjust and review your budget for growth

Step 1: List All Your Living Expenses 

Start with budgeting living expenses like housing, food, transportation and car payments. These are all payments you make each month or week and are considered necessities. It’s important to factor in needs versus wants when it comes to knowing what you are actually spending money on. 

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Step 2: List Flexible and Recurring Expenses and Loan Payments 

By analyzing your recurring expenses you can see what are priorities and what are not. Paying down debts such as student loans is important, but subscriptions to five different streaming services are not. Edit down what you use and what you don’t to trim some fat from where you’re spending money.

Step 3: Add Up Your After-Tax Income 

Add up your take-home income which is what you make after any taxes or deductions. Make sure to include income from your spouse or partner’s full-time jobs and any money from side hustles and other gig sources. When you know the total amount you bring in each month it makes it easier to break down your budget. 

A good way to split up your savings and expenditures is by putting them into budget percentages. For example, you could try the 50/30/20 rule. This is where you allocate 50% of your income to your needs, 30% to wants and 20% to building up savings and paying down debt.

Step 4: Set Financial Goals 

Use your priorities to set aside money for a future payoff. Your priorities for financial goals might include:

  • Overall financial stability
  • Establishing a savings or emergency fund
  • Saving for retirement
  • Paying down debt
  • Saving for a large purchase like a home, car, education or starting a business

Step 5: Record and Track Your Spending 

You can record and track your spending manually, but there are also several great tools or apps you can use to do so. If you’re a longtime user of an app or method, you have an established history that you can use to inform your decisions. If you want to try something new, make sure it has features that best inform you on your financial journey.

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Each week, touch base with other spenders in your household so you’re on the same page with your income and expenses for the week. Look at the previous month and evaluate your spending as compared to your budget. One way to do this is by:

  • Making a column for your spending budget
  • Making a column for your actual spending
  • Determining the percentage you spent in each category
  • Calculating the difference between your budget and your actual spending

Step 6: Adjust and Review Your Budget for Growth

Adjusting, reviewing and reevaluating your budget regularly should be a part of your process. Use your monthly monitoring to decide your budget percentages for the next month and allow for changes in income or expenses. Look at categories where you overspent and allocate funds or cut spending in those categories.

Over time, you’ll find out how to improve the budgeting process so that it better reflects your goals and priorities.

Types of Budgeting Methods

When it comes to how to approach budgeting, there’s an option for everyone. Here are some popular methods:

  • 50/30/20: Developed by Sen. Elizabeth Warren, this budgeting method allocates 50% of your income to your needs, 30% to wants and 20% to building up savings and paying down debt.
  • Zero-based budgeting: With zero-based budgeting, you allocate all of your income so that your income minus your expenses equals zero. Every dollar that comes in has a function.
  • Envelope method: Popularized by Dave Ramsey, this method uses cash in envelopes to control spending. Each spending category has an envelope, and once the money is gone, you stop spending.
  • Flexible budgeting: With a flexible budget, you reallocate your income and expenses as they change. This allows more flexibility, but it takes more time to manage.
  • Static budgeting: As the name indicates, a static budget stays the same even if your income increases.
  • 80/20: You focus on setting aside 20% of your income for savings. Everything else comes from the remaining 80%.
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Tips for Better Budgeting

Any budgeting method can work, but it might take some experimenting to find the right one for you. Be sure to take advantage of expert advice and tools at your disposal when available. 

  • Choose a budgeting method: The 80/20 budget is a good starting point since its goal is to help you build up your savings. The 50/30/20 budget is another beginner-friendly option. It helps you focus on what’s important: covering essential expenses, saving and paying down debt.
  • Use tools and budgeting apps: Many banks offer tools to automate recurring payments and analyze your spending. You can also look at the many budgeting apps out there. Check user reviews and forums to see what might work best and what’s reliable.
  • Avoid fads: Financial gurus are constantly offering what seems like new and exciting budgeting advice. While it might be tempting to go with a new method, it’s best to stick with what works for you.

What To Consider When Making a Budget

Income and expenses might vary month by month. Preparation is key to riding them out while sticking to your budget. Consider the following factors that could affect your budget.

  • Irregular income: Budgeting can become an issue for self-employed and commission-based workers. It could also come into play with a side business. Once all monthly budget items are covered, this money can go to faster debt payoff, wants or savings.
  • Irregular expenses: These expenses are predictable but infrequent. Property taxes and periodic car maintenance are examples. You can budget the amount in a specific month. Or, if you have less flexibility, a monthly contribution toward that eventual expense might work better.
  • Emergencies: These are irregular expenses that you can’t predict, such as a hospital visit or storm damage to your home. Create an emergency fund for these items by setting aside a percentage of your income or maintaining a fixed amount in your savings account.
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Final Take To GO

Though you should reflect on budget mistakes, don’t let them hold you back. Regroup and keep going so you can meet your financial goals. Learning how to make a budget is an ever-evolving learning process so stick with what works and edit what doesn’t. 

Budgeting money doesn’t mean buckling down and never having a latte again. When it comes to how budgeting helps, it means:

  • You know how much money is coming in and how much is going out. Based on your priorities, you decide how much you want to spend on flexible expenses.
  • You have a road map to your short- and long-term financial goals. After budgeting living expenses, you find money for other goals, like saving and paying down debt.
  • You understand what your income and expenses are. You avoid getting to the end of a month and wondering what happened to your money.


Here are the answers to some of the most frequently asked questions about making budgets.
  • How do you create a budget for beginners?
    • To begin your budgeting journey start with these six steps:
      • 1. List all your living expenses
      • 2. List flexible and recurring expenses and loan payments
      • 3. Add up your after-tax income
      • 4. Set financial goals
      • 5. Record and track your spending
      • 6. Adjust and review your budget for growth
  • What is the 60/30/10 rule for budgeting?
    • Slightly different than the 50/30/20 rule, the 60/30/10 budget rule is where you allocate 60% of your paycheck to savings, 30% to needs and 10% to wants.
  • What is the 50/30/20 budget rule?
    • The 50/30/20 budget rule is when you divide your after-tax income into different categories. 50% of your income is put towards needs, 30% is put towards wants and 20% goes towards savings.
  • How do I make a simple monthly budget?
    • You can make a simple monthly budget by listing all of your expenses. This would include all recurring expenses, living expenses and debt payments. Next, calculate your after-tax income. From there you can set up financial goals and track your spending.
  • How do you budget when you make $1,000 a month?
    • When you make $1,000 a month, a budget is very important to keep you on track and help you stretch every dollar. A good option to consider is the 50/30/20 budget. For this budget rule, 50% of your after-tax income goes to needs, 30% is for wants and 20% is for savings. You can also tweak the percentages to fit your lifestyle. If, for example, you don't have 20% for savings, you can lower that category percentage to 10% or even 5%.
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Caitlyn Moorhead contributed to the reporting for this article.


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