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6 Steps to Creating a Budget: Tips, Tricks, and More

A successful budget could help you achieve the financial future you want while also giving you the freedom to have fun with your money.

Emily Guy Birken Emily Guy Birken Edited by Ashley Harrison Updated October 13, 2021

Our goal is to give you the tools and confidence you need to improve your finances. Although we receive compensation from our partner lenders, whom we will always identify, all opinions are our own. Credible Operations, Inc. NMLS # 1681276, is referred to here as "Credible."

Creating a sustainable budget can be a great way to reach your financial goals while avoiding stress over money. Anyone who deals with money — which is most of us — could benefit from budgeting.

To get started, click the image below to download and print your own monthly budget sheet to fill out as we go through the steps:

Here’s how to create a monthly budget in six steps:

  1. Set your financial goals
  2. Know your monthly income
  3. Calculate your expenses
  4. Plan around your goals
  5. Factor in your “fun” money
  6. Stick to your budget and adjust as needed

1. Set your financial goals

Your budget starts with what you want your financial future to look like. For example, maybe your goals include retiring early to eighty-sixing your student loan debt ahead of schedule. Or perhaps you want to buy a home and finally take that trip to Machu Picchu you’ve always dreamed about.

Starting with your goals can help motivate you to turn your hopes into an actual plan. With your goals in mind, look at your income and expenses to see how you could achieve them. Ultimately, having a dream to work toward might make budgeting more fulfilling overall.

Tip: You don’t need to have a hard plan to begin budgeting. Even one small goal could help you get started — and maybe help you realize other aspirations along the way.

2. Know your monthly income

If you have a traditional income, it should be easy to calculate — you’ll just need to take a look at your most recent pay stub, then multiply the amount by the number of times you’re paid per month.

For example, a weekly paycheck would be multiplied by four and a biweekly paycheck by two.

Tip: Don’t forget other potential sources of income, too! For instance, if you’re earning money from a renter or a side hustle or you have another source of passive income, be sure to include it in your monthly calculations.

Since these kinds of income sources can be variable, it’s a good idea to calculate the average amount of income you earn each month. This way, you can see how much money you might generally expect to get.

Check Out: Debt Snowball Method

3. Calculate your expenses

To determine how much you spend each month, start by adding all of your expenses. These might include:

  • Rent or mortgage payments
  • Utilities
  • Car payments
  • Student loan payments
  • Credit card payments
  • Groceries and food
  • Healthcare
  • Entertainment

Once you have the amount you spend each month, subtract it from your monthly income. This will show you how much extra room you have in your budget.

Tip: If any of your expenses vary wildly from month to month, consider calculating the average from a few months. This can give you a better estimate to add to your overall monthly costs.

Learn More: Using the Debt Avalanche Method to Pay Off Debt

4. Plan around your goals

Now that you know your monthly income and incomes, you can begin planning your budget. Start by figuring out how much money you need to set aside each month to reach your financial goals.

For example: If you want to save $20,000 to use as a down payment for a home within five years, you’ll need to set aside about $334 per month.

If your income only covers your expenses with nothing left over, then you’ll need to either increase your income or lower your expenses to achieve your goals. You might also decide to tweak your goal date or amount based on whether your savings plan is realistic or not.

Tip: It’s a good idea to treat your goals like another bill. For example, instead of waiting until the end of the month to set funds aside, you could set up automatic transfers into a high-yield savings account when you get paid so you don’t accidentally fritter away the goal money.

Seeing your savings grow each month can also help you stay motivated to stick to your budget.

Find Out: What Is APR?

5. Factor in your “fun” money

A common mistake made by new budgeters is forgetting to include fun stuff in their financial plan. It’s easy to get caught up in the excitement of organizing around a big future goal and assume it will be easy to pass up any splurges — like seeing a movie, going out with friends, or buying new clothes.

But a budget that doesn’t leave room for fun purchases is unsustainable. It’s important to set aside some money for fun as a line item in your budget so you can enjoy your money right now, too.

Take a look at how much you’ve spent on nonessential purchases in past months, then use that to calculate a reasonable budget for entertainment.

Tip: Including room in your financial plan for entertainment, dining out, shopping, and other treats will likely make it easier for you to stick to your budget for the long term.

Otherwise, you might find yourself going on a rebellious spending binge because you’ve denied yourself any fun for too long.

Learn More: Find Your Personal Loan

6. Stick to your budget and adjust as needed

Once you’ve created your budget, you can start following the plan you’ve put together.

Keep in mind that you’ll need to sit down with your budget on a regular basis to compare it with your actual income and spending. Some questions you might ask yourself include:

  • Has my income remained the same?
  • Have any of my expenses gone up or down?
  • Do I treat my goals like a bill?
  • Am I keeping my entertainment spending within my budget, or have I been tempted to overspend?

Revisiting your budget and analyzing your actual spending will help you make any needed adjustments.

For example, if you realize you’re overspending, you can examine where you might be able to trim your expenses to stick to your budget. Or if you have additional income you didn’t budget for, you could use the extra money to pay off existing debt faster.

Tip: Remember that a budget isn’t set in stone — you’ll likely have to make adjustments as your life and needs shift.

It’s a good idea to check in with your budget at least once a month to help you not only stay on track financially but also to identify any minor problems before they become major emergencies.

Check Out: Refinancing Your Mortgage

Budgeting tips everyone should know

Everyone’s budget will be different since each of us has different needs and goals. This also means there’s no one right way to build yours.

But there are several tips and tricks that could help make budgeting easier for almost anyone:

  • Build an emergency fund. This will help ensure that your financial progress won’t be derailed by a minor mishap like a blown tire. A good rule of thumb is to set aside enough money to cover three to six months’ worth of expenses. Creating this fund could also be a good first financial goal for your budget.
  • Sign up for autopay. Setting up automatic payments for your bills is a good way to avoid missing any due dates. Plus, some lenders offer autopay discounts, which could help you save more money.
  • Consider refinancing. If you’re paying high interest charges, refinancing your student loans or mortgage could reduce your rate and help you save money. Or you could opt for a longer repayment term to lower your monthly payment and lessen the strain on your budget. Just keep in mind that a longer repayment term means paying more in interest over time.
  • Take advantage of online and mobile tools. There are a ton of various apps, websites, and tools that could make it much easier to track your spending and stick to your budget. Many of them are also free to use. For example, you might utilize Excel spreadsheets or an app like Mint to make tracking a snap.
  • Only carry cash. Restricting yourself to spending only with cash is a time-tested method for staying on budget, especially if you’re struggling to rein in credit card spending. Consider carrying only cash so you can’t spend more than you have.

Budgeting could help you reach a wide variety of financial goals. Just make sure to set yourself up for success.

For example, if you decide to refinance your student loans, be sure to consider as many refinancing lenders as possible to find the right loan for you. Credible makes this easy — you can compare your prequalified rates from multiple lenders in two minutes.

About the author
Emily Guy Birken
Emily Guy Birken

Emily Guy Birken is a Credible authority on student loans and personal finance. Her work has been featured by Forbes, Kiplinger’s, Huffington Post, MSN Money, and The Washington Post online.

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