How To Make A Budget In 6 Easy Steps (Step-By-Step Guide For Beginners)

How to make a budget for beginners step by step
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People often associate “budgeting” with restrictive spending, tedious chores, and severe limitations. I personally see budgeting as a roadmap to financial success.

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“A budget isn’t about restricting what you can spend. It gives you permission to spend without guilt or regret.” – Dave Ramsey

A simple budget plan can help you manage your money effectively and make better financial decisions in life.

According to a new survey from, 80 percent of Americans said they have a budget and most people who budget stay out of debt. 62% of people are budgeting for holidays and special occasions ahead of time.

Americans are paying more attention to their everyday finances than ever.

That said, the budget-making process does NOT have to be complicated and time-consuming. Today you will learn how to make your own budget that you can stick to in six simple steps.

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How to make a budget for yourself

Why Make A Personal Budget Plan

Financial uncertainty is not sexy.

Making a budget plan could help you easily plan, track, and monitor where your money goes and how much you have saved each month.

Then you can better understand your earning and spending habits.

The same survey from also shows why people start budgeting in the first place.

37%: Increase my wealth and savings
32%: Debt
17%: Retirement
9%: Lost my job or income
5%: Divorce or lost my spouse

If you want to live a financially balanced life, budgeting is the basis.

Who Should Budget?

Everyone who wants to manage money effectively should budget.

Budgeting is for you whether you are earning a limited income, having lots of debt, or making six figures.

Six Steps On How To Create A Budget

Now let’s look at the six simple steps to creating a budget.

Steps on how to make a personal budget for beginners

Step 1: Define Your Financial Goals BeforeCreating A Budget

Regardless of short-term or long-term financial goals, you need to know what you want to achieve with a budget.

Do you want to save $200 each month for an emergency fund and have $2400 in the savings account within a year? 

Are you planning to save up for a vacation or a down payment on your first home?

Do you consider having a child’s college fund?

With the ambitions in mind, you will be more likely to budget.

And you will learn how to embrace delayed gratification by postponing your wish list items (like your dream bag or car).

Step 2: Calculate Your Monthly Income

Now you can calculate your net income.

The net income is how much money you take home after taxes and all other deductions (such as 401(k) deposits or health insurance tied to your employer).

It is a no-brain task if you are a salaried employee with a fixed income.

Simply check how much ends up in your bank account every month and use the take-home pay as your net income.

Or, if you have multiple income streams (e.g., full-time wage, side gigs earnings, and rental income), subtract the relevant expenses (such as tax and business expenses) from the revenues, then add them to your monthly income.

However, if you are a freelancer or seasonal worker with irregular income, you will need to do a little bit more calculation. To play safe financially, when your income fluctuates, you can use the income from your lowest-earning month in the previous year as a reference when making a personal budget.

Step 3: Create A Monthly Expenses List

After figuring out your net income, it’s essential to know every dime that goes out of your bank account.

If you are unsure about your monthly expenses, check the relevant financial statements (e.g., online bank statements, credit card statements, and printed or e-receipts).

And remember to check your PayPal account as well if you have one. 

After going through all the related documents for the past three months, you should have a solid idea of your spending habits and patterns. 

Then you can create a list of your monthly expenses.

Monthly expenses are usually divided into two parts (fixed expenses and variable expenses).

Fixed Expenses

These are the bills you usually pay a fixed amount before the due date. Note that essential expenses don’t change often.

Here is a list of examples of necessary expenses.

  • Rent or mortgage payments
  • Car/health/life insurance
  • Fixed loan payments of all sorts (like student loans and auto loans)
  • Cable/internet service
  • Phone service
  • Savings (such as an emergency fund or seed money for future investment)

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💡 Pro Tip: Don’t forget to add quarterly or yearly expenses (such as insurance of all forms or registration fees) to the fixed expenses. They usually are set fees. 

Unexpected Expenses

Unexpected expenses areemergency bills like medical emergencies, sudden unemployment, or car repairs.

You never know when you need to pay for these bills, but life happens.

You want to have enough savings to pay for the surprise expenses when the time comes.

An emergency fund is like a financial cushion to prepare for the unprepared. 

This part should go to your fixed expenses once you have decided how much you would allocate for your savings account.

Variable Expenses

As the name implies, these expenses vary from month to month. 

Some examples in this category are: 

  • Utility bills (e.g., electricity, water, and gas for heating and cooking)
  • Grocery shopping
  • Personal care (like beauty treatments and clothing)
  • Household items
  • Entertainment: Don’t forget to add the holiday (like Christmas) events and activities to this section.
  • Transportation 
  • Traveling
  • Gifts
  • Child care: All children-related expenses will fall into this section (if you have kids).
  • And other miscellaneous spendings or little things (like vending machines or coffee shop runs)

Step 4: Evaluate Your Spending Habits

Once you have figured out your total monthly income and expenses, it’s time to look at your spending habits.

Does newly arrived designer clothing often tempt you to spend more than you should?

Do you usually overspend on food and drinks?

Have you forgotten to cancel the free trials?

Knowing the poor spending habits that could suck you dry before creating a personal budget is essential.

You might find out some problematic spending patterns that you need to work on.

You can do a simple calculation here.


If it’s a surplus, that’s great! You are better off than you think.

However, if you consistently spend more than you earn, you are living beyond your means.

When you learn how to budget your money, always aim for a budget surplus.

“A penny saved is a penny earned.” – Benjamin Franklin

You could save more money by creating a budget with the extra dollar amount.

💡 Pro Tip: Always, always prioritize savings OVER expenses. Put a certain amount of your income into your savings account before spending it. And automating all your savings accounts will significantly improve efficiency and productivity. But do review the automated bills every month to ensure the number is correct.

Want to improve your financial health?

Hello, Trim

This personal finance robot can help track your spending and send you spending alerts. So you can easily spot your shopping patterns. Maybe you have unused subscriptions and expensive cable bills that charge you hundreds of bucks monthly.

Did I mention Trim can also help you cancel unwanted subscriptions and negotiate your bills (e.g., cable, phone, and internet) for you?

With the help of this cute little robot, you can learn how to stop buying things you don’t need and live below your means.

In the meantime, starting a side hustle to increase your revenue is a great option.

🌟 One of my best ways to increase revenue is to start a blog.

Before starting this blog you are visiting, I was looking for the best ways to increase income like you.

If you want to learn more, feel free to check out my step-by-step guide on starting a blog for absolute beginners.

Step 5: Choose A Budgeting Method That Works For You

How To Make A Budget That Works

Like a workout plan, there is NOT a one-size-fits-all budgeting method.

What works for others might not work for you. The best way to create a budget is the way that you feel most comfortable with, so you are willing to stick to it.

Also read: Which Payment Type Can Help You Stick To A Budget?

Here are the four most popular budgeting methods that you could try.

Zero-Based Budgeting (Zero-Sum Budget)

Dave Ramsey made this budgeting method famous. 

The idea is to assign every dollar you earn to a specific task (like saving for a rainy day or paying off debt), so no money is left in theory by the end of the month.

Since every dollar has its value and a job to fill, you are more likely to avoid those spur-of-the-moment purchases that don’t fit into your budget.

Note: In reality, you won’t have zero dollars left in your bank account as you will allocate a portion to your savings account. 

This strategy is pretty cool for planners who want to know how money works and have better relationships with money. 

The Envelope System 

This budgeting system is simple yet powerful.

You put a certain amount of cash (yes, cash only) into separate envelopes.

Each envelope represents a spending category in your budget.

Once the cash in an envelope is gone, it means you have reached your spending limit in the particular category this month. 

Then you stop spending. No more impulse shopping.

You can’t spend money that is out of sight.

The goal here is to keep your expenses equal to or less than the allocated amount of cash.

This traditional budgeting method is perfect for people who are not disciplined with their hard-earned money and wish to cut back on frivolous spending.

Also read: How To Stop Living Paycheck To Paycheck

The 50/30/20 Budget Rule

The 50/30/20 budget rule allows you to make room to indulge yourself occasionally with guilt-free.

Having a personal budget should NOT starve or deprive yourself of ‘fun.’

So, how does this budgeting method work?

Your spending will be divided into three broad categories based on the 50/30/20 rule.

50% of your net income should account for your needs and essentials, whereas your wants and nonessentials should make up 30% of your total earnings.

And the final 20% of your monthly income goes to your debt repayments and savings.

Related: How To Get Out Of Debt Fast (Even On A Low Income)

👉 Note: You don’t need to follow the percentage breakouts (50/30/20) strictly. Setting the percentages that work for you (like the 70/20/10 budget or the 60/30/10 budget) is the start of a successful budget. 

This budget rule is best suited for people who are looking for a balanced budget.

The Pay Yourself First System – Never Forget To “TREAT YO’ SELF”!

This budgeting method puts savings as its top priority before any other expenses when receiving your paychecks, so your future self will have financial stability and security. 

The system works best for planners who are struggling with delaying gratification and preparing seed money for the future. 

Prioritizing savings in your simple monthly budget provides you with more financial flexibility.  

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🌟 Pro Tip: Creating your savings account with a bank that offers incentives and charges no monthly fees.

Note that creating a monthly budget for your everyday finances might take some time and practice.

But eventually, you will get there.

Whether you want to save some money for big purchases or make a fairly good-sized nest egg for retirement, you can set up more than one savings account.

Keep reading:

Why Saving Money Is More Important Than Ever

Should You Save Or Pay Down Debt?

How To Save Money Fast

Reasons You’re Bad with Money (and How to Fix Them)

Cool Piggy Banks: Fun Ways To Keep Your Spare Money

How To Save More Money With A No-Spend Challenge 

How To Save $5,050 In 100 Days


When it comes to household budget creation, you can choose the easiest way to document your financial activities. 

For example, you can 

  • go for the old-school budgeting style – use a pen and a piece of paper/printable budget binder to make your own budget.
  • use the help of a budget app or a personal finance app to set up a budget. Once you link your bank accounts to the app, every business transaction will be recorded automatically.
  • create a budget spreadsheet in Excel or use Google sheets to make a budget so that you can make changes on the go. 

Related Posts On Budgeting And Saving: How To Stop Buying Things That You Think You Need, But You Don’t

Step 6: Make Adjustments Based On Your Financial Goals

Your personal budget is not set in stone.

Ideally, you should monitor and evaluate your budget every week/month to review the progress and spot any negative spending patterns. Then make tweaks accordingly.

A personal budget is a financial plan to help you better manage your money (spending, saving, and investing) and plan for your future self.

The only thing that doesn’t change in life is change itself. No matter who said this, it’s SO true.

Life changes over time (e.g., plan a wedding and welcome a new baby to the family), so do your financial goals and personal budget. 

If the current spending habits don’t align with your financial goals, something has to change.

🌟 Your Budget, Your Life.

Final Thoughts On How To Create A Budget

A balanced budget is a financial plan that helps relieve money worries, improve financial security, and buy financial freedom.

Now you know creating your own budget is neither scary nor overwhelming. 

🌟 Remember, a successful personal budget MUST serve you instead of the other way around. 

An effective budget would breed good financial habits (such as encouraging saving and curbing spending) and help you get out of the red and into the black.

One Last Tip: Never stop improving your financial literacy and gradually build your wealth. 

I hope these simple budgeting tips can help you make a monthly budget and become financially FIT. 😊

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How to make a budget for beginners

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