How To Make a Budget in 9 Steps

Ever wonder where your money is going? A monthly budget might provide an answer. 

A budget is a blueprint of your income and expenses. It can help you to reach your financial goals and take control of your finances by tracking how you spend – and save. You don’t have to be a finance whiz to make a budget. All you’ll need is to set aside a small window of time to work on your finances each month.

We’ve broken down budgeting into nine easy-to-follow steps to help you get started.

1. Collect Your Documents

Be as honest as possible when you’re creating a budget and gather all the information that relates to your income and expenses. As you’re gathering your financial documents, include:

  • All sources of income
  • Bills on autopay
  • Electronic bills

Once all your documents are ready, separate them into two categories: income and expenses. Then print, scan or download your documents and file them in either your income folder or your expenses folder.

We’ve put together a detailed list of the kinds of documents you’ll file in your folders: 


You will need W-2s, pay stubs and/or 1099s. If it applies, include public benefits, alimony, child support and annual dividends from investments to help calculate your average monthly income.

Bank statements

Your bank statements can help you keep track of your monthly spending, including how much you withdraw each month, your deposits, any bank account fees you pay or interest you accrue.

Investment accounts 

Do you buy crypto or invest money in the stock market? Download the most recent copy of your investments for the past year to get a monthly estimate of your expenses. It’s best not to consider the income you have on paper as “real income” unless you receive dividends from your investment accounts.

Housing expenses

Use your rental agreement to determine any additional expenses you may have such as lawn, pest control or repairs. If you own a home with a mortgage, use your monthly statement to know your exact monthly mortgage payment. Estimate how much it costs to maintain your home. If you own a home without a mortgage, figure out how much your annual property taxes and insurance policy cost.


Add your cable, internet, cellphone, water, electricity, gas and security system to your monthly budget.

Auto expenses

Your auto loan statement will tell you what you’re paying for your car every month. Don’t forget to include car maintenance, your car wash membership, car registration, gas, parking, tolls and car insurance.

Food and groceries

This category includes food subscriptions, takeout and meals with co-workers or friends.

Self-care expenses

Include personal care items and trips to the salon or barbershop. Add in any clothing costs for new outfits. If you hire a tailor or seamstress to alter your clothes, include their services in the expenses folder. Don’t forget to include gym memberships or other health- or  fitness-related expenses.

Insurance expenses

If you pay out of pocket for your health, dental, vision or other insurance policies, add the bills to your expenses folder. Don’t forget to include additional expenses, such as legal aid and life insurance policies.

Records related to copays, annual deductibles, eyeglasses, contact lens prescriptions, medicine or supplements will detail what you spend on your health and wellness. If you don’t have this information handy, reach out to your medical providers and request an annual printout.

Credit card bills

Your credit card bills can be a valuable tracking tool that will likely offer a lot of insight into your spending habits.

Pet expenses

Include receipts for pet food and insurance expenses, vet visits and medication. And don’t forget to include treats, training, gifts or grooming.

Travel and entertainment

Love to travel? Make sure you include travel and entertainment.

Child care-related expenses

Have little ones? Child care, school tuition, meals, preschool, private school, uniforms, books and materials, field trips and babysitting should be included in your budget. If you pay child support, include that as an expense. If you receive child support, that goes in the income folder.

Education expenses

Any money you spend on education and personal development should be factored into your budget. If you are paying student loans, include them into your expenses as well.

Charitable contributions

If you tithe or donate – pat yourself on the back – then add your charitable gifts to your expenses folder.

Birthdays and holiday gifts

Make a list of the family and friends you usually buy gifts for. Check your bank account and credit card statements if you don’t know how much you typically spend.

Miscellaneous and daily incidental expenses

Don’t forget to add receipts for random purchases such as small impulse buys or those days when lunch is on you.

2. Calculate Your Income

Once you have gathered all your documents, deal with your income folder first. Calculate how much money you’re bringing in every month. 

If you’re a salaried employee, base your budget on your net income (or take home pay) from all your sources of income. 

If you are a freelancer, work off commissions or your income changes month to month, total your net income from each job for the last 6 months then divide the result by six to calculate your average monthly income.

3. List Your Monthly Expenses

To get a clear picture of your spending, make a running list of your monthly expenses. Use the information to adjust your spending habits, especially if you discover you spend more than you make. 

4. Separate Fixed Expenses From Variable Expenses 

Fixed expenses are regularly scheduled and cost the same each month. Your rent or mortgage payment typically falls under this category.

Variable expenses are periodic and usually unpredictable such as an unexpected doctor’s visit or getting a flat fixed. They can also include money you spend dining out, utilities or your credit card bill.

To get a handle on your variable expenses, establish an estimate of your spending for at least the last 6 months. Divide your result by 6 to get a rough monthly average.

5. Compare Your Monthly Income and Expenses

Now that you know your monthly income and expenses, it’s time to see how the two numbers compare. In an ideal world, your income will be higher than what you spend each month. And if that’s not the case, this is the moment to figure out why.

That’s where the 50/20/30 or 70/20/10 budgeting rules can come into play. (But more on that later.)

6. Set a Goal

Creating a personal budget is the first step – sticking to it takes time and practice. Ever been on a diet and unknowingly (or knowingly) added in a cheat day or two, like when you were paleo but had some cake? Fortunately, you can always revisit your diet … budget and make adjustments as you go.

Set a goal. Your first goal can be to pay off debt or create an emergency fund. If you don’t have money in savings, start with a savings goal. Aim to save $1,000 within a year for your emergency fund. And when there is an emergency, you can use cash instead of a high-interest credit card.

Once the emergency is taken care of, don’t forget to update your budget. Adjust your spending to allocate more money toward savings until your emergency fund is replenished.

The important thing is to strike the right balance between spending and saving while avoiding unnecessary debt. Once you have your emergency savings, start to pay off debt.

7. Choose a Budgeting Plan

With your annual income and spending staring back at you, it’s easier to see which variable or fixed expenses you can eliminate or adjust. For example, if you have a home mortgage, you could consider refinancing your mortgage to reduce your monthly mortgage payment. 

If rent is high where you live, there’s not much you can do about that. But you can control choosing between takeout, dining out or dining in. More home-cooked meals could slash your monthly food bill and provide extra cash you could use to pay off debts or spend on other living expenses.

There are two popular budgeting rules you can use as a guide to help manage your money better: the 50/20/30 rule or the 70/20/10 rule.

The 50/20/30 rule:

The 50/20/30 rule divides spending into essentials, savings and wants – it works well if you are new to budgeting.

  • Essentials: Apply 50% of your income to expenses like your mortgage, food, utilities, etc.
  • Savings: Use 20% to save money. This includes investments, 401(k) contributions, personal savings and an emergency fund.
  • Wants: Dedicate 30% to going out with friends, bowling or buying video games.

The 70/20/10 rule:

The 70/20/10 rule divides your income into three categories: spending, saving and giving, which works best if you have existing debt or want to donate money.

  • Spending: Allocate 70% of your net income to all your expenses, from auto loans and housing to pet(s) expenses. 
  • Saving: Funnel 20% into your savings accounts, including retirement planning, an emergency fund and personal savings. 
  • Giving: Use the remaining 10% to either pay off debt and/or donate to a charity or charitable cause.

8. Track Your Progress

Track your activity until it becomes a habit – maybe even a daily habit. You can use apps to streamline your budget tracking.

Compare your credit card and bank statements to your personal budget goals at least once a week on the same day to avoid overspending. Create a budget spreadsheet to keep track of your finances and stay committed and accountable.

9. Adjust Your Goals as Needed

Treat your budget like a living document that can change as your circumstances change. If you want to make a lifestyle change, consult your budget to see how to make your plans a reality. And stay vigilant on ways to cut back on expenses, including strategies like speaking to credit card companies to reduce your interest rate.

If you learn about a low interest rate promotion, see out if you qualify, especially if you’ve been a loyal customer. 

Small adjustments can make a big difference in your financial well-being. As you reduce your spending, you can increase savings in other areas, including investments, retirement planning or a vacation fund. 

Budgeting Gets Easier

Before you know it, you’ll be an expert at budgeting. 

Knowing where and how you spend your money will give you the confidence you’ll need to improve your financial outlook and live your best (financial) life.

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