a couple making a budget together

How to Make a Budget in 5 Simple Steps

June 1, 2023

Learn how to make a budget that works with this simple monthly budget planner. Personalize this budget worksheet to see how a successful budget can work.

One of the first steps to any personal finance journey is learning how to make a budget that actually works. Using a monthly budget planner is one of those ways. 

By learning how to make a budget, you can track all your sources of income to see your take home pay and monitor your net income. This helps track your spending so you can make important savings goals. 

But not all budgets work for everyone. 

That’s why, rather than trying to recreate any specific budget examples, it’s a good idea to first learn the fundamentals of how to make a budget template of your own. 

When you know how to make a budget, you’ll be able to make a personalized month to month budget that will actually work for you. 

Use a Prepaid Debit Card to Control You Spending.

What is a Budget?

what is a budget definition

Before you start, you need to learn the answer to, what is a budget? This is a foundational step to knowing how to make a budget that actually works for you.

A budget is a financial plan for your income and expenses. 

When looking at budget examples, you'll find they come in many shapes and forms. Some monthly budgeting systems use an envelope system while others use a budget sheet.

But at the end of the day, they all do the same thing, just in different ways: 

They organize and outline income and how you spend your money so you can save money and reach your financial goals. It's also easy to teach children about budgeting!

How to Make a Budget

The very first thing you need to understand in order to know how to make a budget is the basic structure of one. To create a budget, you need to take the following 5 steps:

Step 1: List Income 

income examples

The first thing you need to do is to list all your sources of income.

This includes the paychecks from your job, but also any extra money you make from any side hustle. 

In this list, you can decide whether you want to monitor your income as gross income, adjusted gross income, or net income (take home pay). 

Many people like to use take home pay when organizing their finances, because this amount is what actually ends up in your bank account. 

Once you have all your sources of income listed, add them all together to get your total monthly income. 

Step 2: List Fixed Expenses 

fixed expenses examples

The second step is to list all your fixed expenses.

Fixed expenses are the expenses you have each month that don’t fluctuate in amount. 

Everyone’s list is going to look different depending on what expenses do and don’t apply to you, but here is a list of some fixed expense examples:

  • Rent or Mortgage
  • Insurance
  • Debts
  • Loans 
  • Student loans 
  • Credit card payments 
  • Streaming services like Netflix, Hulu, and Spotify 
  • Phone bill
  • Medication you pay for each month 
  • Child support 
  • Education 
  • Car payments

After you've made this list, add your fixed expenses together to get your total monthly fixed expenses.

Subtract this amount from your total monthly income, and that’s what you have left to spend on variable expenses for the month.

Step 3: List Variable Expenses

variable expenses examples

The third step is to make a list of all your variable expenses. 

Everyone’s list of variable expenses is going to look different depending on what expenses do and don’t apply to them.

Variable expenses are any expenses that fluctuate in amount month to month. These expenses can also sometimes include luxury expenses that aren't entirely necessary.

Here is a list of some variable expense examples you might need to consider when creating your own monthly budget template:

  • Groceries
  • Eating out 
  • Entertainment 
  • Gas and transportation 
  • Recreation 
  • Clothes
  • College textbooks

Another way to accurately track your spending on variable expenses is to look at your transaction history from month to month and see how much you were spending on variable expenses that month and what those variable expenses were on.

Do this for a couple months to get a more realistic idea of how you spend your money on variable expenses month to month. 

Step 4: Make Savings Plans 

savings plan

The fourth step is to set aside money for a savings account. 

Get a savings account if you don’t have one already and set aside a portion of what’s left over after monthly fixed expenses.

It's always a good idea to put money aside to be saved each month, even if you don't have a specific plan for that money yet.

It's also a good idea to take this opportunity to set aside money to be saved each month in an emergency fund for unexpected expenses. Building an emergency fund will protect you financially in case of an emergency. 

Any amount you can afford to put away into a savings account each month will set you up for success in the long term, even if it’s only $5 to $10 a month. It’s important to make budgeting plans for the long term and the short term. 

Step 5: Make Plans for Fixed and Variable Expenses 

monthly budget example

The fifth and final step to how to make a budget is to adjust your spending and total expenses. This step may include things like switching to more energy efficient utilities to reduce the cost of monthly bills. It could also include making plans to avoid overdraft fees by reducing unnecessary variable expenses and keeping more money in your checking account. 

Try the 50/30/20 Rule

50/30/20 rule

The 50/30/20 rule is a budgeting strategy that offers a guideline for how to separate your expenses.

It suggests that 50% of your monthly budget should go toward needs, 30% should go toward wants, and 20% should go toward your savings account and paying off debts. 

Once you have these plans made, and have adjusted your spending, you have a personalized budget! 

Use a Monthly Budget Planner

monthly budget planner
Download a Monthly Budget Planner.

Learning how to make a budget is all about organizing all your monthly income and monthly expenses to take control of your personal financial situation.

Creating a personalized monthly budget template can really help your personal finance goals be successful. 

Start by downloading our free monthly budget planner and adjust your plans month to month until you're happy with your budget goals.