How to Make a Budget: Step by Step

Step 1: Make a List.

List out every monthly payment you have.


  • Rent $500
  • Electricity $75
  • Cable $75
  • Grocery $300
  • Car Gas $100
  • Car Insurance $75
  • Student Loan $300 (Debt)
  • Car Payment $250 (Debt)

 Step 2: Add it up.

Add up the monthly payments and compare it to your income.

A. If your income in more than your monthly payments…CONGRATULATIONS! See Step 3.

B. If your income is less than your monthly payments, you need to find ways to cut some    monthly costs.

  • Get rid of extra cable. Enjoy Netflix or Hulu Plus instead.
  • Big car payment? Sell it and by something inexpensive but will be reliable for a year or two while you bail yourself out.
  • Big rent/mortgage payment? Move!

Other ways to increase your income:

Step 3: Spending Money

This depends on how much extra you have leftover and how much you’re looking to put toward debt or in savings. Personally, I contribute $240/month ($120 per pay period) toward extra spending money.

Things that you buy with “Spending Money”:

  • Restaurants
  • Bars
  • Trips to target
  • Clothes shopping
  • Anything you buy that doesn’t fall into a budgeted category

If your income doesn’t add up to more than your living expenses AFTER you cut out some extras, you’ll need to find a way to make more income. Of course, you can’t live life without having some spending money, so put something small, like $60-$100/month toward your spending.

Step 4: Get Organized.

Mark your monthly payments in your phone and/or written calendar. I get paid on the 15th and the last day of the month. Make sure that your expenses that fall under each pay period can be covered by that pay period. For example, if rent, utilities, and your loan payments are to be paid in the first half of the month and your paycheck doesn’t cover those expenses, make sure that you save some extra from your second half of the month’s paycheck.

Step 5: Don’t Forget!

Those extra expenses need to be accounted for somewhere in your budget. For example, flea meds for pets, vet visits, oil changes, new tires, work clothes. I have a column in my budget for vet and flea meds. That means, I know when those expenses are going to come and I’m sure to save for it over the months leading up to it.

Step 6: Debt and Savings

Debt: If you’re paying off debt, every extra penny that’s not needed for your living expenses should be thrown at your target debt.

Savings: If you’re saving, decide how much money you want to put away every month and stick to it.

*Emergency Fund: If you don’t already have one, be sure that your initial excess monthly income goes toward building a small $1,000 emergency fund. This fund covers emergencies ONLY! An emergency is anything that happens unexpectedly such as your car breaking down. New tires or an oil change is not an emergency and should be accounted for in your budget since these are expenses that you KNOW are coming at some point.

Visit our Getting Started tab and Materials tab on the toolbar for a FREE budget spreadsheet!

Make it Rain Pic

Good luck! Being on a budget helps you feel FREE from financial stress instead of causing financial stress.

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