written check

How to Make a Budget

Almost as important as knowing how to budget, is knowing how to make a budget that is personally customized to your financial situation and lifestyle.

You can know all about how to budget money and still get nowhere if you don't first learn how to make a budget. 

The structure of your budget, the budgeting tools you use, and the budgeting methods you pick are all essential to making your budget actually work. 

If you really want to take your personal finances to the next level, you need to learn the science behind what makes a good budget. First you'll want to pick a budgeting method, then make a personal financial plan, and then start creating a personalized budget template. 

Pick a Budgeting Method 

The first step on your journey to create the perfect budget should be to research existing budget methods. One of these methods might be perfect for you or lead you to create your own budget strategy. 

Zero-Based Budget

A zero-based budget (ZBB) is a budget that doesn't use previous data to fill out the current budget. Instead you start with zero, or rather, create a brand new budget completely from scratch. 

For Example:

With this method, throw out all your old budgeting templates, methods, and data and start all over again from scratch. Build your budget back up again, scrutinizing every single budget section and subsection. 

Pay-Yourself-First Budget

The pay-yourself-first budget is the idea that you should be paid first whenever your monthly income comes in. Instead of paying bills first, you pay yourself. 

This strategy is all about prioritizing paying yourself by putting money toward something personal first like your savings account, emergency fund, retirement fund, or something else you want to save for. 

For Example:

Pay yourself by depositing money into a savings account or emergency fund first before putting money toward anything else in your budget. 

Envelope System Budget

The cash envelope system is a way to budget using envelopes and cash. Get yourself some envelopes and write the names of each finance category you have on an envelope. Then put the money you want to spend in those areas in each envelope. 

For Example:

Maybe you have an envelope that says, "Weekly Groceries" and another that says, "Monthly Bills." These envelopes become the wallet you take to pay bills or buy groceries. Now you can only use the cash available in those envelopes to make those payments and purchases. 

50/30/20 Budget

Do you have trouble knowing how much money you should allocate to each budget section? If yes, then this budget is for you. 

The 50/30/20 budget (also sometimes shown as 50/20/30) provides a basic suggestion for how much of your monthly income after taxes should go toward each section of your budget. 

It suggests that 50% should go toward needs and essentials, 20% should go toward savings and debts, and 30% should go toward everything else. 

For Example:

50% of your monthly finances might go toward rent, groceries, gas, and bills, 20% toward a savings account and debt repayments, and 30% toward entertainment, clothes, and other miscellaneous items. 

The "No" Budget

The no-budget budget is for people who hate budgeting. It is by far the most simple budgeting strategy. 

Instead of creating templates and making all kinds of calculations, simply write down how much you have coming in and the things you have to pay each month. A great way to enact the no-budget budget is to set up your finances so your financial commitments get paid first after each paycheck. Then what you have left is free for you to spend as you want or need. 

For Example:

You might have rent, utilities, student loans, a credit card payment, a phone bill, and a car payment to pay each month. 

If you get paid on a biweekly basis, then you can plan to pay rent, utilities, and your phone bill the day your first paycheck drops, and then pay your student loan bill, credit card payment, and car insurance bill the day your second paycheck drops. 

The rest of each paycheck can then be used toward everything else like groceries, gas, or a new pair of shoes. 

Incremental Budget

Incremental budgeting is a cyclical budgeting practice. Create a budget, use the budget, review the budget, make necessary adjustments, use the adjusted budget, and continue this cycle again and again. 

For Example:

You might create a monthly budget and then review that budget on a monthly basis to make any necessary changes or adjustments for the next month's budget. This could also be done on a yearly or weekly basis. 

This cyclical practice can help you create your own system that is tailored exactly to your needs and wants. 

Activity Based Budget

An activity based budget (ABB) is a common financial system used by companies and businesses. This budget is divided up into sections that represent the activities that incur costs. 

This is a great system to use for a personal budget if you have trouble figuring out how your money is being spent and where it's all going. Take a second look at all your activities and the costs of each one. This will help you make the necessary lifestyle decisions you need to manage your money better. 

For Example:

You might have activities like work, personal, and recreation. 

Work activities and costs might include things like driving to work, eating lunch at work, clothes for work, and so on. 

Personal activities and costs might include things like your housing costs, your phone bills, and getting regular haircuts. 

Recreational activities and costs might include your favorite pastimes and hobbies and the money it costs you to pursue those hobbies. 

Value Proposition Budget 

Do you feel like you aren't getting enough out of your budget? If so, then this tactic might help you out. 

Value proposition is a financial mindset that can be very useful for small businesses and individuals alike. This mindset focuses on making sure each item in the budget delivers value to the business (or individual). 

For Example:

Sit down and look at your expenses to organize your expenditures into two categories: necessary and unnecessary. Then work on avoiding costs you've deemed unnecessary to get more personal value out of what you do spend each month. 

Make Financial Plans with a Budget Planner

Regardless of the personal financial strategy you choose, you'll need to weigh your income and expenses with a good budgeting plan. Create a space somewhere to make financial plans with a budget planner. 

You can make this planner with Google Sheets, Excel Spreadsheets, a free budget template online, budget apps, or a notebook. 

First, ask yourself the following questions: 

  • What are my financial goals? 
  • What are my financial plans? 
  • What are my financial priorities?
  • What financial tasks do I have? 
  • What are my budget must-haves?

Second, make a simple outline of your income and expenses. Divide your expenses between variable expenses and fixed expenses. 

These two steps are the basic things you'll need to do to start making any household budget. 

Make a Monthly Budget Template

Budget Worksheet Download
Download a Budget Worksheet.

Once you've picked your budgeting method, asked yourself the basic financial questions listed above, and outlined income and expenses, you can start creating a personal budget template. 

This template can be adjusted on a regular basis as you practice budgeting and figure out what does and doesn't work for you. 

Use a Budget Spreadsheet

Excel Budget Spreadsheet Download
Download an Excel Budget Template.

There are also existing templates to help get you started. You can take these budget spreadsheet templates to practice different budgeting methods and find the best method for your household. 

You might even end up creating your own personalized template crafted to your own financial situation, preferences, and goals. 

In Conclusion,

Don't feel down about budgeting. It takes many rounds of trying, failing, and readjusting before most people are able to find the method that works best for them. 

The finances of each household are entirely unique, which is why it's so important that you learn how to make a budget that's tailored to your needs and desires.