A budget is not a punishment, and it is not a list of things you can’t have.
It’s simply a way to see where your money goes so you can decide where it should go.
When you know your numbers, saving gets easier, and money stress starts to fizzle away (nice, right?)
Ready to build one?
You can follow along with our free Monthly Budget Planner to organize your numbers as you go. Get it here!
Here are four simple steps to a working personal budget.
Step 1: Calculate Your Net Income
Everything starts with knowing how much money you actually have to work with.
- Check your recent pay stubs. Look for your take-home pay, which is the amount that lands in your account after taxes and deductions.
- Add up every source of income. Include side jobs, freelance work, child support, or any other regular money that comes in.
- Use net income as your spending limit. Gross pay is not what you get to spend, so build your budget around the amount left after taxes.
Step 2: List Your Fixed Expenses
Fixed expenses are the bills that stay about the same every month. They’re the easiest to list, so they make a good starting point.
- Write down the costs that don’t change. Grab your statements and note what you owe and when.
- Include the big ones. Rent or mortgage, car payments, and insurance usually top the list.
- Treat your savings goal like a bill. Give it a line in your budget and pay it first, so you don’t save only if there’s money left over.
Step 3: Estimate Your Variable Costs
Variable expenses are the ones that move around, which makes them a little trickier. This is also where most of the savings hide.
- Look back at your bank statements. Two or three months of history will show what you really spend, which is often different from what you think you spend.
- Add up the costs that change. Groceries, gas, and utilities are the usual suspects.
- Check entertainment and dining out. Look for the spots where a small trim would not hurt, and where a bigger one might be worth it.
Once you have your numbers, you need a place to keep them. You can get a free tracking sheet here.
Step 4: Subtract Expenses From Income
Now for the moment of truth. Take your total monthly income and subtract all of your expenses, fixed and variable.
- Aim for zero or a positive number. A zero-based budget means every dollar has a job, whether that’s a bill, savings, or a little fun money.
- Cut back if you land in the negative. If your expenses are higher than your income, go back to your variable costs and find what you can trim.
Here’s a quick example:
Say your take-home pay is $3,200. Your fixed expenses (including a $200 savings goal) total $1,700, and your variable costs total $950. That leaves $550. Give it a job, like an extra debt payment, a bigger emergency fund, or a small buffer for surprises, and you have a budget that works.
Different Methods Work for Different People
There’s no single right way to budget. The best method is the one you’ll keep using, so it’s worth thinking about two things:
- Your preferred budgeting method. Some people love the simple split of the 50/30/20 rule, while others like the hands-on control of zero-based budgeting.
Here are different budgeting methods you can try:
- Whether you prefer an app or a spreadsheet. Apps are quick and automatic, and spreadsheets or printables give you a clear picture and full control.
Try one for a month. If it feels clunky, switch. Adjusting your budget isn’t failing at it; it’s how you find your fit.
Start Where You Are
Your first budget doesn’t have to be perfect. It only has to be honest.
Grab the free Monthly Budget Planner, plug in your income and expenses, and see what your numbers tell you.
You may be surprised by how much control a single page can give you.
