Making a budget might sound boring, but it’s actually a superpower for your money! If you’ve ever reached the end of the month and wondered where all of your money went, a budget will help you find the answer! Let’s break it down step by step so you can build a budget that works for your life.
Step 1: Know Your Income
Before you can decide how to spend your money, you need to know how much you actually have. Look at your paycheck after taxes (your take-home pay) and add up any extra income you get, like side gigs or bonuses.
Tip: If your income changes each month, use the lowest amount you typically earn so you don't overcommit.
Step 2: Track Your Spending
To make a good budget, you need to know where your money is going. Look at your bank statements or use a budgeting app to track your spending for a month. This is a perfect place to start budgeting for beginners. We recommend EveryDollar and Rocket Money.
Break it into categories:
- Housing
- Utilities (electric, water, internet)
- Food (Groceries, restaurants, snacks at the gas station, etc.)
- Transportation
- Insurance
- Debt payments (credit cards, student loans, etc.)
- Medical/Health
- Clothing
- Charity/Gifts
- Retirement Contribution
- Personal (hygiene products, makeup, etc.)
- Recreation
- Savings & investments
Tip: Most people spend more than they think on small things like coffee and dining out. Pay attention to those little expenses.
Step 3: Budgeting for Beginners, Set Spending Limits
Now that you know where your money is going, decide how much you want to spend in each category. Make sure your expenses don’t add up to more than your income.
The Four Walls Approach (cover these essentials first):
- Food: Groceries and basic household essentials.
- Utilities: Electricity, water, and necessary bills.
- Shelter: Rent or mortgage.
- Transportation: Fuel, car payments, and necessary travel expenses.
Once these are covered, you can allocate money toward debt, savings, and other expenses.
Wondering how much to allocate to each expense category? Check out our free Personal Monthly Budget Calculator.
Tip: If you have debt, use the Debt Snowball method. List your debts smallest to largest and attack the smallest first. Learn about the Debt Snowball here.
Step 4: Build Your Emergency Fund
Before focusing on big savings goals, set aside money for financial security.
Where should your savings go?
- Step 1: Save $1,000 for emergencies. We recommend you keep this in a regular checking or savings account.
- Step 2: Pay off your debts from smallest to largest
- Step 3: Save 3 to 6 months of expenses. We recommend you keep this in a high yield savings or money market account.
- Step 4: Start investing 15% of your gross, pre-tax income into retirement.
Tip: Automate your savings so money moves into your emergency fund without you having to think about it.
Step 5: Cut Unnecessary Expenses
Look for areas where you can trim down spending. Can you cook at home more? Cancel unused subscriptions? Shop for better insurance rates? Our coaches help clients save $1000 per month on average in expenses without noticing a quality of life difference.
A few easy swaps:
- Bring coffee from home instead of buying it daily, and save $100 or more a month.
- Cut back on eating out by one meal a week, and save $200 or more a month.
- Shop around for car insurance, and save $500 or more a year.
Tip: Small changes add up fast.
Step 6: Stick to Your Budget
A budget only works if you work it. Review your spending weekly and adjust if needed.
Use tools to stay on track:
- Budgeting apps like EveryDollar or Rocket Money
- Spreadsheets for tracking expenses
- Envelope system (use cash for certain spending categories)
Tip: Give yourself grace. If you mess up one month, just adjust and keep going. It usually takes about 2 to 3 months to dial in a budget.
Step 7: Review and Adjust Monthly
Your budget isn’t set in stone! Life changes, and so will your budget. At the end of each month, check what worked and what didn’t. We recommend budgeting for the next month at the end of the current month. Remember, a budget is a plan, not a report!
Ask yourself:
- Did I overspend in any category?
- Can I save more next month?
- Did I meet my financial goals?
Tip: Reward yourself for sticking to your budget. Even small wins are worth celebrating.
Final Thoughts
Budgeting isn’t about giving up fun. It’s about freeing yourself to spend on the things that matter to you. With a plan in place, you’ll feel more confident and more in control of your money. Start this month and see how it feels.
Want help making a budget that works for you?
Schedule your free Financial Freedom Assessment with a financial coach today.
What’s one change you can make this month to improve your budget?