5 Easy Steps To Create Your First Budget, According to Rachel Cruze

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Starting the year out on the right financial foot means getting organized and taking responsibility. The best way to put yourself in a position to improve your financial health is to make a budget. While it may seem intimidating, budgeting doesn’t have to be complicated. 

Top financial institutions highly recommend using budgets as a tool to keep your finances on track. Personal finance expert Rachel Cruze agrees and knows the best way to create and stick to a budget. In a recent video on her YouTube channel, she broke down the budgeting process into five steps. If you want help getting started, here’s what she suggesed you do.

Step 1: List Your Income

Your income is the foundation of all of your spending, so it’s essential to know exactly how much you have coming in. List all of your monthly income streams, which may include your career salary, part-time wages, side hustles, child support and freelance work. Cruze said you should also include your partner’s income streams if that applies to your situation. 

Once you have your income information listed, add everything together to get the base you’ll use for your budget. 

Step 2: Determine Your Expenses

You’ll also need to determine your regular monthly expenses. Cruze recommended listing them in order of importance. Start with fixed costs such as your rent or mortgage, utilities, insurance and car payments. Don’t forget to put some of your money toward savings goals and investments. Once you’ve accounted for these big categories, you’ll want to determine what else you spend money on, like subscriptions, clothes and restaurants. Cruze also suggested making a category for miscellaneous and unplanned spending.

Step 3: Do the Math

For this step, you may need to break out a calculator. When you subtract your expenses from your income, it should equal zero. Cruze explained this is because every dollar coming in should be assigned to a category. If you’ve got money left over, add it to other categories or put more into your savings and investments. 

Sometimes, this equation leaves people with a negative number, which means they’re spending more than they’re earning each month. Consistently spending more than you earn will leave you in debt, which is why this step is so important. A 2024 survey by Debt.com reports that 89% of people surveyed stated budgeting has helped them get out of debt or maintain a debt-free lifestyle. If you do the math and find you’re in the red, you’ll need to review your spending and make adjustments. Usually, you can’t change your essential categories, so you’ll have to cancel some subscriptions and reduce things like your restaurant budget until you get to zero. 

Budgeting isn’t always a straightforward process. When you make your initial budget, Cruze said it may take a couple of months of adjustments until you find your sweet spot. Even when you have come up with a plan that works consistently, you may still need to tweak your budget to account for holidays, events and lifestyle changes. 

Step 4: Stay on Course

Taking the time to make a budget isn’t going to help you unless you follow it. Tracking your spending will enable you to stay on budget and reach your financial goals over time. It will also make you more aware of where your money is going and how much is spent on certain areas. 

There are multiple ways to keep track of your spending. Downloading a budgeting app may be the easiest. Budgeting apps like You Need A Budget (YNAB) and PocketGuard can connect to your credit cards and bank accounts, automatically figuring new transactions into your budget and doing most of the heavy lifting for you. Cruze recommended this over manually updating your budget because you’ll be able to see where your money is going in real time and make changes as needed.

Step 5: Look To the Future

Every month is different. You’ll need to account for events like birthdays and holidays, but the amount of income you have coming in may vary as well. Planning out your next month is an excellent way to prepare for the peaks and valleys that come with personal finances. To make things easy, Cruze suggested duplicating your budget each month and then fine-tuning it to account for the challenges of the upcoming month rather than starting from scratch each time. After a few months of planning, budgeting will become easier, and you’ll reap the benefits of stable finances with less time and effort devoted to it.

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