How To Make a Budget: Step-by-Step Guide for Beginners

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Building a budget is one of the smartest ways to take control of your finances. This guide will walk you through the basics of budgeting, including different methods you can use, tips for creating a plan that fits your lifestyle and a sample budget to help you get started.

How To Make a Budget: 6 Simple 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 and where you have room to save money.

Money management is not always easy, but knowing how to get started can help. These step-by-step instructions for how to make a budget will get you going:

Step 1. List Your Essential 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. 

Step 2. Identify Flexible and Recurring Costs

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. Calculate 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 job and any money from side hustles and other gigs.

When you know the total amount you bring in each month, it makes it easier to break down your budget. 

Good To Know

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 Realistic 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, such as a home, car, education or starting a business

Step 5. Track and Review 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.

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.

Here’s one way to do this:

1. Make a column for your spending budget.
2. Make a column for your actual spending.
3. Determine the percentage you spent in each category.
4. Calculate the difference between your budget and your actual spending.

6. Adjust Your Budget as You Grow

Adjusting, reviewing and reevaluating your budget regularly should be a part of your process.

• Use your weekly or 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.

Sample Budget Breakdown

Creating a simple monthly budget can help you stay on track with spending and saving. The example below is based on the 50/30/20 budgeting method, which divides your income into different categories. In this case, the total monthly income is $5,000:

Category	Amount	Percentage of Income
Needs: housing, utilities, groceries	$2,500	50%
Wants: dining out, entertainment, shopping	$1,500	30%
Savings and debt repayment	$1,000	20%

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.
• 80/20:
  • You focus on setting aside 20% of your income for savings. Everything else comes from the remaining 80%.

Budgeting Methods At a Glance

Expert Tips To Stick to Your Budget

Finding the right budgeting method might take some trial and error, but a few smart habits can help you stay on track:

• Pick a method and stick with it: Start simple with something like the 80/20 or 50/30/20 budget. Both focus on saving while covering essentials and allowing room for spending.
• Use apps and tools to stay organized: Banks often offer budgeting tools, and free apps can help track your spending and automate payments.
• Check in with your budget every week: Reviewing your numbers weekly — not just monthly — can help you spot issues early.
• Celebrate small wins: Whether its reaching a savings milestone or sticking to your grocery budget, recognizing progress keeps you motivated.

What To Watch Out For When Budgeting

Budgeting is easier when you know what to plan for. Keep an eye on these common factors:

• Irregular income: Freelance or gig workers need a flexible budget that adjusts for variable income month to month.
• Seasonal and irregular expenses: Budget for costs like holiday gifts, home repairs or medical bills before they sneak up on you.
• Shared finances: If you split expenses with a partner or family member, communication and a shared plan are key.
• Recurring expenses: Hidden automatic charges can drain your budget — review them every few months to see what’s still worth paying for.

Final Take

Budgeting money doesn’t mean buckling down and never having a latte again. It’s about giving yourself control — deciding where your money goes instead of wondering where it went.

Start small, stay consistent and choose the budgeting style that works best for your life. Even minor adjustments, like tracking expenses weekly or setting tiny savings goals, can lead to big changes over time.

The key is to keep moving forward — not to get everything perfect from the start.

Caitlyn Moorhead and Elizabeth Constantineau contributed to the reporting for this article.

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