How to Create a Budget

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Step 1: Note your net income

You should have an estimate of what you have in each category at all times. If you sit down for a few minutes each day you will find that you spend less time then you would if you put it all off until the end of the month. Tracking your expenses each day will allow you to know when to stop spending. You can also switch to the envelope system and use cash so that you know to stop spending when you run out of cash.

You may have an emergency car repair. You can move money from your clothing category to help cover the cost of the repair. As you move money around make sure that you do so in your budget. This is the key to making your budget work. After you have followed your budget for a month, you may find that you can cut back in a few areas, while you need more money in others.

You should keep tweaking your budget until it works for you. You can evaluate at the end of every month and make changes according to the expenses in the upcoming month as well.

You should evaluate your budget every month going forward. This will help you adjust your spending as your life changes and your spending increases in different areas.

A Step-by-Step Guide to Make a Budget

The Balance uses cookies to provide you with a great user experience. By using The Balance, you accept our. Basics Budgeting. By Miriam Caldwell. When you are working on commission, you will need to follow a slightly different plan you should work with it as a variable budget, but be aggressive in saving to help you cover times when the market is slow.

For hourly employees or those who work in a business where income may rise and fall unpredictably, this can be much more difficult.

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The most important consideration, regardless of how you earn your monthly income, is to determine the average monthly amount of income that you receive. A good way to do this, if you receive irregular income , is to average out the last 6 to 12 months of recurring income and use that figure. If you want to be extra conservative, you can choose the lowest monthly amount you have earned in the last year, which will hopefully provide you with a worst case scenario. Know What You Owe Determining your monthly recurring debt payments should be your next step. This should be fairly simple to do, as long as you have stopped incurring additional debt in the short term.

To find out what your monthly recurring debt payments are, calculate the total amount owed on each debt account as well as the minimum monthly payment. This includes car loans , mortgages, credit card debt, student loans , and all other debt that your family pays on a monthly basis.

This will provide you with the first few line items in your budget, and will allow you to determine your net worth. Pro Tip : Are you currently paying off student loans? If so, you might be able to reduce your interest rate by refinancing with Credible. Determine Your Net Worth Once you know how much money you have and how much you owe, you can easily determine your net worth.

7 Steps to a Budget Made Easy

Just subtract what you owe from what you have, and you will derive a number. This number will tell you the value of your financial resources. For me, this number was an eye opener.

When I built my first budget, I had a negative net worth. I assume this is fairly common in America, especially for young people just starting out. Pro tip : When you sign up for Personal Capital you can connect all your financial account and they will automatically calculate your net worth. The best way to determine your monthly expenses is to make a stack of household expenses for a month.

Keep your receipts, your utility bills , and any other expense that arises during a one month period, and divide these bills into categories.

Budgeting How to Create a Budget - NerdWallet

The categories can be as general or as specific as you want them to be. Either way works well, as long as you determine an average amount of expenses for each category. Enter this Information into a Database It used to be, if you had a budget, you had an old school paper ledger.


Things have changed for the better for all of us new budgeters. I use Microsoft Excel for my own personal budget, because it allows a greater deal of flexibility than sites like Mint. However, many people swear by online budgeting sites, and whichever path you choose will ultimately help you build greater wealth and greatly help keep you out of financial trouble.

Pro tip : If you want the convenience of an online budgeting tool but like the simplicity of an Excel document, you might want to try Tiller. Tiller will automatically update a Google Sheet or Excel with your daily transactions. Look at the Bottom Line After entering all of the above information, you will discover the most important number in your budgeting process — the bottom line. This number will tell you whether you are overspending or underspending. Ideally, during this step you will find that you are living within your means, and maybe will even have a little left over on a monthly basis.

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On the flip side, you may determine you must make adjustments to your monthly expenses in order to live within your means. You will probably also want to refresh your budget when there are significant changes to your income or expenses, like getting or losing a job, buying or selling a car or house, the extra cost of expanding your family or managing illness.

The best way to save is to put money into a separate savings account as soon as you're paid and before you get the chance to spend it. When you receive a pay rise, bonus, special payment or tax refund put the money straight into your savings account or superannuation to give it a boost.

This is not the end of the world but you do need to take action to fix this. Check your budget to make sure you've got all the amounts right and look at your expenses to see if there are any you could reduce. What could you cut out or cut back? If you're still in the red or are finding it hard to work out what to cut, read the section on managing debts.

Or talk to a financial counsellor - they are free and can help you take control of your money. If you are on a low income or have never done a budget before, starting a budget may be pretty tough. You will find that it does get easier though. The first budget is the hardest but you will get better at it as you go along.

There are also people who can help you with budgeting such as financial counsellors. Beware of budget plans sold by high-pressure selling. Unfortunately, these budgets can be totally unrealistic and involve all sorts of sacrifices that no-one could live with. The 'monitoring service' may also be a waste of money.

The best way to do a budget is to have a go yourself. If you can, get help from a trusted friend who is good with money. Budgeting is a skill that anyone can learn. The more you do it, the easier it will be to stay on top of your money.

How to Create a Budget How to Create a Budget
How to Create a Budget How to Create a Budget
How to Create a Budget How to Create a Budget
How to Create a Budget How to Create a Budget
How to Create a Budget How to Create a Budget
How to Create a Budget How to Create a Budget
How to Create a Budget How to Create a Budget
How to Create a Budget How to Create a Budget

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