Learning how to budget might seem like a daunting task, but it doesn’t have to be! Creating a budget that works is a simple process that can change your life forever. Keep reading to learn how!

Are you struggling to save money? Have you tried to create a budget but couldn’t get it to work? Are you sick and tired of living paycheck to paycheck, spending all you earn, and digging yourself deeper into debt with each passing day.

Trust me, I know how it feels. I’ve been there. I’ve struggled and I’ve been in debt. Since I’ve learned how to budget, however, I’ve never had to worry about money again.

You can do it too! Just follow this simple guide to making a monthly budget and start building a financial future you’ll love right away.


Budgeting Tools: What You Need to Get Started

The great thing about making a budget is that it doesn’t take a bunch of equipment to get started.

All you need is a simple pen and paper.

Yep, that’s it.

Sure, there are some really great financial tools and budgeting apps available. With that said, Holly and I still use a paper and pen to this day!

Each month, we get out our spiral bound notebook, think about the month’s expenses and income, and get to work jotting it down. It only takes about 10 to 15 minutes, but it is the most important money discussion that we have each month.

Just to prove how long we’ve been doing it this way, here is a quick peek at a really old budget of ours.

Budget photo

It isn’t fancy, but it works.

Notice that I said we do this every month. Why? Because it is that important.

A budget is a living, breathing document, so you have to create a new one each month. Each time the calendar rolls over, you’ll have different expenses to account for. Your monthly budget needs to reflect this, so it is super important that you update it every month.

Alright, let’s grab that pen and paper and get to work!


How to Make a Budget in 6 Easy Steps

The system you’re about to learn is called a zero-based budget, sometimes referred to as a zero-sum budget.

The goal of a zero-based budgeting is to ensure that your income and expenses are exactly balanced (“zeroed out”). You’ll do this on a monthly basis by giving every single dollar that you earn a specific purpose.

This is extremely important, so don’t forget:

Your income and your expenses should balance to the penny!

Budgeting is about details. If you take care of your pennies, you’ll never have to worry about your dollars again!

You’re not rounding to the nearest $5. You’re not guessing that you’re gonna save about $200 this month. You are going to be specific. You are going to be exact. You are going give each and every dollar a job, tell it where to go, and take control of your financial life. You are in charge of your money, not the other way around.

Here is the simple formula you’ll use to balance your new monthly budget:


Easy peasy, right? OK, let’s get started.


Step 1: Write it Down

The first step may be the most crucial step of all. In order to create a budget that works, you need to write it down.

Let me repeat that: You need to write your budget down.

It can’t be in your head because that is a recipe for mistakes. It can’t be a guess. Guessing leaves too much room for error. You need to be exact. Your budget must be written down, clearly, so you can see it.

Now, writing it down can mean many things. You can write it down on a sheet of paper, like we do. You can use a nifty little spreadsheet from Excel or Google Drive. Or, if you’re feeling super fancy, you can even use an online app like Tiller Money to help you budget.

It doesn’t matter how you write it down. What matters is that it is written down somewhere where you can physically see it!

See Also: How to Make a Budget in Excel


Step 2: Determine Your Income

If you’re like most people, your income varies slightly from month to month. However, you want your numbers to be as exact as possible. Rather than estimate your future earnings, try using actual earnings instead!

Eventually, you want to get far enough ahead that you can use last month’s income to pay this month’s bills. This is by far the most accurate way to budget. It is also going to help you break the cycle of living paycheck to paycheck.

If you don’t have enough saved to make this happen, don’t panic. Don’t pull a number out of thin air either. Simply use your last paycheck as the basis for that month’s earnings.

See Also: How to Make a Budget for an Irregular Income

Now, if you’re really strapped, you may need to get a little creative at first – especially if you get paid twice a month. If needed, adjust your budget so that you’re creating a separate budget for each paycheck.

For instance, all of your bills that are due between the 1st-15th should come out of the paycheck you receive on the 1st. All expenses due between the 16th-31st should come out of the paycheck you receive on the 15th. To simplify things even further, contact your utility and service companies and ask if they’ll adjust your billing date. That way, you can equally distribute your bills across your paychecks.

Again, this isn’t ideal, but it can help you get started. After a few months, you should have enough saved to start paying this month’s bills with last month’s income.

Hot Tip: Create your budget immediately after getting paid. This will make it super simple for you to figure out how much money you have to spend.

So, at the top of your budget, go ahead and create a category for income. Add up all the money you made the previous month (or what you will make for the current month), and jot the number down there. Draw a line underneath it and move on to the next category.


Step 3: Pay Yourself First

Immediately below your income category, create your first expense category: Savings.

Yep, I want you to think of your savings as your very first – and most important – expense.

Before you even think about paying anybody else, try paying yourself first. This will help place your focus on saving rather than spending, and that is exactly where you want your focus to be!

If you don’t have an emergency fund, this is where you should start building one. (Saving 10% of your take home pay until you have at least $1,000 is a good place to start.) This is also the place on your budget where you’ll eventually fund cash savings, additional retirement accounts (like your Roth IRA), and college savings plans as well.

Paying yourself first can help you save more than you ever thought possible. Quick, do it now before you calculate your expenses.


Step 4: Determine Your Monthly Expenses

Alright, now it’s time to determine your expenses for the month. Place this section directly below the savings section on your budget worksheet.

First, break your expenses down into two categories – fixed and variable.

Generally, your fixed expenses are those that stay the same each month. Fixed expenses may include:

  • Mortgage or rent
  • Health insurance premiums
  • Life insurance premiums
  • Cable
  • Internet
  • Phone
  • Cell phone
  • Student loan repayment
  • Car payment

It is important to understand that “fixed” expenses aren’t always necessary expenses. Expenses like cable TV and your cell phone bill are optional expenses. Nevertheless, “fixed” means that they don’t change from month to month.

Next, you’ll list variable expenses like:

  • Utilities
  • Groceries
  • Entertainment
  • Restaurant spending
  • Clothing
  • Miscellaneous

Unfortunately, you’ll need to estimate these expenses on a month-to-month basis or as the need arises. Using last month’s bill tends to help you be as accurate as possible.

When estimating variable expenses, be sure to leave a buffer. You always want to estimate a little bit high so you’re not scrambling to come up with the money later. Remember, for your new monthly budget to work properly, you must account for every single penny you spend and earn. It is better to aim a little high than to come up short.

See Also: Best Budget Templates: Free & Paid Options


Step 5: Review and Balance

Good job! You’ve created all of your budget categories, but you’re not done yet.

Now that the hard work is done, you need to make sure that your budget is balanced. Remember, with zero-based budgeting, the goal is to “spend” every penny you make into your budget categories. Here is the formula again in case you forgot it:


  • What to Do if You Have a Negative Number – If your equation balances to a negative number, you have overspent. You’ll need to make adjustments by cutting your expenses (preferable), cutting your savings (not preferable), or increasing your income by the amount you are negative. Once you’ve made the necessary adjustments, go back and run the equation again.
  • What to Do if You Have a Positive Number – If your equation balances to a positive number, you have extra money in your budget. Quick, go stash that money in your savings account before you’re tempted to spend it.

Step 6: Repeat Each Month

Congratulations! You’ve just completed your first monthly budget.

Now that you’ve got the template down pat, it will be even easier to complete it next month.

If your budget fell apart this month, don’t worry. We’ve all failed with our budget at one point or another. It usually takes some practice to get it right.

The important thing is that you know how to budget and that you have the tools to make it work. Keep at it, and you’ll work out the kinks in no time.


Budgeting Tips and Tricks

As I mentioned before, all of us have failed with our budget at one time or another. Even me.

It might take some time, but you can learn how to stick to a budget. Here are some tips and tricks to help you get there.

  1. Write it Down – If you remember nothing else from this piece, remember this: Write. It. Down.
  2. Automate Your Savings – Think of your savings as an expense, your most important expense, and pay yourself first. You can even have money automatically deducted from your paycheck and put into savings. Simply have it directly deposited into an online savings account, and you’ll see an instant difference.
  3. Reward Yourself – When you reach a certain savings goal, give yourself a pat on the back. It is OK to treat yourself sometimes, provided you plan for it in your budget.
  4. Be Kind to Yourself – If you go over budget, don’t beat yourself up. This is a marathon, not a sprint. Analyze where your mistakes were made, fix them, and give it your best shot next month.
  5. Be Honest and Realistic – Don’t fudge on your budget by underestimating or guessing at expenses. This will not work. Whenever possible, be exact. When it’s not, leave a cushion by slightly overestimating your expenses. Be honest about where your money is going, use realistic numbers, and you will see results.

Monthly Budget Accessories

Creating a budget that works is just one of the tools you need to have in your financial toolbox. Here are some other tools that will help you make the most of your money.

Expense Tracking

Now that you have a monthly budget, you need to make sure it works! Tracking your spending does just that. By tracking your spending, you’ll be able spot any holes in your budget, identify areas where you are overspending, and make budgeting adjustments as needed. Learn how to track your spending here.

Emergency Fund

The most common cause of failed budgets are unexpected expenses. Unfortunately, these are bound to happen. The only thing you can do is make sure that you’re prepared. That is why having an emergency fund is so important. An eFund helps you weather the storm and keeps your budget on track. By having money tucked away for emergencies, you can ride out any issues without destroying your savings goals. Learn how to start an emergency fund here.

Free Money Tools

Personal Capital, has some great money tools and they are totally free. Try using their “cash flow tool” to automatically track your expenses and help you stick to a budget. They also have a free retirement calculator, an investment fee analyzer, a net worth tracker and more. Check out our Personal Capital review to learn more.


How to Budget: Final Thoughts

To control your life, you must be in control of your money…and that begins with making a budget. For us, starting a budget led to getting out of debt, starting our own business, and traveling the world. Who knows where budgeting might lead you!

Now get after it, and start your first budget today!

Free Budget Spreadsheet – Need some help getting started? This free budget spreadsheet can help you get organized and seize control of your money every month! Get yours here.

A monthly budget is the key to good financial management, but learning how to budget your money doesn't have to be a chore. In just a few simple steps, you can make a budget that could change your financial life. Use this step-by-step guide to creating a personal budget that actually works!