make a budget

How to make a budget: Your Step-by-Step Guide

make a budget

Therefore, it’s perhaps more important than ever to learn how to make a budget in order to help you ensure that all your expenses are covered, and that you are able to pay off debts, build

savings, and perhaps have a little extra set aside for a few “wants!

Every day it seems like our basic needs and necessities get more and more expensive.

And with a constant barrage of subscriptions, streaming services, and other things we

either need or want, it’s so easy to see your money just disappear and not really have

any idea where it’s going.

But what if you don’t know how to make a budget? 

Stick with us through this article and you will see that with a few simple steps, you can set up the perfect budget for you and your family to meet all your financial goals and have some security.

Related: Budgeting 101

What is a budget?

At its most basic, a budget is a plan you put together to decide exactly how you will

spend your money. 

Many people choose to build a monthly budget, since that is the

most common cycle for both paychecks and various bills like rent or mortgage, utilities,

cell phone and Internet, and credit cards.

 However, you can certainly narrow this down to weekly or daily budgets to keep an even closer eye on your spending, or expand it to yearly or multi-year budgets to help you plan ahead for big purchases and financial


Depending on the size of your family and how many members contribute to the

family income, you may also want to create both personal and household budgets. 

If you have children, this can also be an important tool in helping them learn how to

manage money as they get older.

The main purpose, though, of a budget, is to ensure you have enough money to cover

all of your expenses, and to set aside for a rainy day or bigger plans down the line.

Without a proper budget, you may struggle to keep up with your bills as they come in,

and may even find yourself running out of money before you have more coming in from

your next paycheck or other source of income.

When you’re building a budget, you’ll need to make decisions about how much money

you will devote to particular needs or wants. 

Then figure out where you may need to cut back or even set aside a little more money. 

Creating the right budget for your needs may be a little bit like putting together a puzzle. 

Sometimes it takes a while to figure out where a particular piece fits, but once you get all the pieces where they belong, you will see a beautiful picture of your financial future!

With all that said, it’s time to get started on creating the perfect budget. 

What you’ll need are all your important financial statements from the last 6-12 months, including bank statements, pay stubs, tax forms, bills and statements, receipts, and any other record of income or expenses that you might have.

 Then, find a budget spreadsheet online or simply sit down with a pen and paper and get going! 

For the sake of this article, we will focus on creating a monthly budget, as that is the standard for most people.

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Record all sources of income

First of all, you’ll need to calculate all sources of income that you have coming in each


If you receive a regular paycheck from an employer, be sure to record your net

income, or the pay you actually receive after taxes are deducted. 

If you are self-employed, you will need to ensure that you calculate how much you typically pay in taxes to determine what your take-home pay is.

Be sure to include any additional sources of income. 

Today, we live in what’s known as a “gig economy,” where even people with standard part-time or full-time employment often supplement their income with various “side hustles.” 

This may include something such as driving for a ride-share or food delivery service; or perhaps you have built a small business through selling handmade goods or flipping thrifted items. 

You may also have government income, such as disability, Social Security, or child support payments, so be sure to include all of these sources of income as well. 

If any of your income sources tend to be variable, it may be best to use your lowest-earning month as the baseline while you create a budget, so that you can be sure you’ll always have enough for expenses. 

Also, be sure to deduct taxes from any of your side hustles, seasonal, or supplemental income.

If you are creating a budget for your family, include all contributors to the household in

calculating the total income. 

For instance, perhaps both parents in your family work full- time jobs, and you have two teenagers, one of whom works a part-time retail job and the other who sells handmade goods and does babysitting jobs. 

If your children contribute any of their income to the household budget, you can include that amount, and help them create a personal budget for whatever they have left over so they can learn to manage their money.

Total your monthly income and monthly expenses

Once you know your total monthly income, it’s time to figure out exactly how much you

have going out each month. This is where those receipts, bank and credit card

statements will come in handy, as they can help you figure out patterns of how you

spend your money.

First, figure out your fixed monthly expenses. These are the bills that get paid every

month and more or less stay the same amount. 

Typically, fixed expenses include rent or mortgage, car payments, insurance premiums, student loan payments, internet service or cell phone bills, and anything else with a set fee that doesn’t change from month to month. 

These expenses should be fairly easy to calculate, since they are the same

every time you pay them. 

If you plan to devote a specific amount of your income to paying off debts or putting in savings each month, you can also include that amount in your fixed expenses so that it doesn’t sneak up on you later.

Next, you’ll need to look at your variable expenses, many of which are still necessities, but may change from month to month. 

These expenses include utilities that may be higher or lower based on the season, groceries and other food expenses, and gasoline.

You will also want to include more “want” based expenses in this category, such as any

entertainment costs, going out to eat, gifts, or “fun” spending.

By looking at a few months’ worth of bank statements or receipts, you can begin to get

an idea of how much, on average, you tend to spend on these variable expenses each


 Once you have averages in place, add them to your fixed monthly expenses to

get an idea of exactly how much money you are spending every month.

Now it’s time to get into the actual budgeting part of this project. 

Take a look at your monthly income side-by-side with your monthly expenses, both fixed and variable. 

This will give you an idea of what changes you need to make and what goals you can start setting.

If you find that you are bringing in more that you’re spending, that’s great news! That

means you are off to a good start in reaching your financial goals. 

If your income is greater than your expenses, you may even be able to put more of your funds toward paying off debt, building savings, or planning for retirement. 

Financial experts recommend that people who have more income than expenses follow

the 50-30-20 budgeting philosophy. 

If you choose to do this, you would aim to keep all of your essential expenses, both fixed and variable, to about half of your budget. 

Then, 30% can be put toward things you desire to spend money on, such as travel or


The final 20% would then be devoted to debt repayment and savings.

If you find that you are spending more than you’re bringing in, you’ll need to make a few

adjustments to your expenses to get your budget back on track. 

Start by looking at your variable expenses, since this will be the easiest category in which to make cuts to your spending. 

For example, you may be able to cut down the number of times each month

that you go out to eat or order takeout, and perhaps use coupons, sale flyers, and store

rewards programs to cut down on grocery expenses. 

If you tend to spend a lot of money each month on clothing for yourself or your family, you could examine whether all of that is really necessary, or if you could cut back or shop secondhand stores to get the needed items.

 Perhaps you have expenses that you simply don’t need or use often,

such as premium cable packages, gym memberships, or streaming entertainment

services, that you could cancel and eliminate from your budget.

If making these cuts still doesn’t quite do it, you may need to look at places where you

can trim your fixed expenses. 

Perhaps refinancing your home or car could make your monthly payments cheaper, or you could trade in your car for a less expensive one. 

You could reach out to creditors to see if you can negotiate lower interest rates or minimum monthly payments. 

Shop around for better prices on car insurance, internet services,

and cell phone plans. 

You may also need to look for ways to increase your income, perhaps by picking up some work on the side, increasing your hours if you work part- time, or asking your employer for a raise. 

It can be daunting, but with some determination, you can achieve balance in your budget!

make a budget

Set Realistic Goals

The main goal at the end of your budgeting efforts is to have your income and expense

columns be equal. 

That means that all of your money is accounted for and you are able to work toward your specific financial goals. In order to keep making progress, though, it’s important to not only stick to your budget, but to reexamine it periodically. 

After all, things change; you may change jobs or get that raise you asked for, you could move, you could either have children or find yourself with an empty nest. 

Prices on all of your expenses may fluctuate with the economy as well, making it very important to keep checking your budget to ensure it’s still working for you.

As you’re setting your monthly budget, though, be sure to think about both your short-

and long-term financial goals; after all, the whole purpose of building a budget is to

make it easier to achieve those.

You’ll want to keep your goals realistic, and be willing to be flexible on them so that you

can adjust as your circumstances change; however, setting goals can act as a good

motivator to keep you on budget. 

Short-term goals may include things like paying off credit card debt or a car or home loan, setting up an emergency fund to help you cover unexpected expenses, or even just saving up for a great vacation; typically these types of goals take just a few years or less. 

Long-term goals may include bigger things like saving for a down payment on a home, preparing for retirement, or saving for your child’s education, and may take several years or even decades to achieve. 

Be honest with yourself and your family when setting these goals and you’re sure to achieve them!

As you can see, creating a budget is incredibly important. 

It can certainly seem like a daunting task, but by making it a priority, you’ll find yourself better equipped to make the most of the money you have, and build a secure future for yourself and your family.


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