5 Simple Steps To Start A Personal Budget

Creating a budget can be anxiety-provoking and difficult. When I created my first budget, it was overwhelming to look at the numbers in black and white. My spending habits were not positively serving me, and I needed to gain control of my money in order to reach my financial goals. However, I needed to figure out a method that worked best for me. After getting my budget together, I’d like to share a few steps to help you start your personal budget.

A budget is a financial plan created to keep track of income and expenses, which may or may not include savings and debt payments. Budgeting is one of the primary methods for managing money.

Improving your relationship with money can have many benefits. Here are some tips to help you create a budget that works for you and supports your financial journey.

5 Simple Steps To Start A Personal Budget

1. Determine the End Goal

If you don’t have a clear goal, then you are likely aimlessly floating in the world. You’re likely reading this post because you want to better manage your money – but why? Why do you want to better manage your money? What is motivating you to start budgeting? How will budgeting improve your financial situation?

Proper money management can uncover “extra” money that you could use toward your goals. Not everyone is budgeting for the same purpose. I started budgeting to get out of debt, but you may be budgeting to save money for a down payment on your first house. Start by getting clear on the financial goal(s) you are striving to accomplish.

Some financial goals are:
• Paying off debt
• Buying a house
• Saving for vacations
• Building a college fund
• Saving for retirement

2. Find Your Net Income

Before we can decide where to allocate money, you will need to look at your income. How much money is coming into the household? There is gross income and net income. For the purposes of this post, we will focus on net income. Calculate your total after-tax income from all sources. Net income is the amount that is deposited into your bank account – how much money gets in your hands on payday. This income is how much money is left after federal, state, and withholding taxes. Ideally, the net income will be more than the total amount for expenses.

3. List Your Expenses

Now, figure out where your money is going. You will create a comprehensive list of all expenses you pay for each month. These expenses will be subtracted from your net income.

Here are some common monthly expenses:

  • Rent/mortgage
  • Utility bills
  • Transportation
  • Insurance payments (i.e. health insurance, car insurance, life insurance)
  • Groceries
  • Debt payments
  • Savings

Use your utility bills, credit card bills, bank statements, and any other financial documents to compile this list. When listing your debt expenses, make sure you are listing the monthly payment and not the overall balance. Also, consider your savings as a necessary expense.

4. Choose a Budgeting Method

Generally speaking, the first step to budgeting is calculating income, tracking your expenses, and removing debts. However, there are various methods for creating budgets.

Zero-Based Budget: Zero-based budgeting means your income and expenses will be summed up to equal zero. By the end of the month, there is no extra money left. Every penny has a job, and all the money is put to work.

The 50/30/20 Method: With this method, you allocate a percentage of your after-tax income into three categories. You will portion 50% for your needs, 30% for your wants, and 20% for savings. Fifty-percent of your net income will be used to cover your necessities, such as house and utilities. Your wants are limited to 30%. You’ll determine how much you should spend on those things you desire but can live without. The remaining 20% would be used for savings and debt payments.

The Pay Yourself First Budget: This budget prioritizes saving. You will pay yourself first by setting aside money for your traditional savings account, emergency fund, and/or sinking funds.

5. Monitor your spending

To hold yourself accountable, you should check your spending habits and determine areas that need to be improved. Monitor your money by tracking and adjusting your spending.

Track your income and expenses in order to maintain your budget. Find a tracking method that works for you. You may like to write everything down on paper, or you may enjoy digital tracking with spreadsheets or budgeting apps. Also, get detailed and categorize where your money is going. This will help you stay on track with your budget.

Routinely evaluate your spending. While monitoring your spending, you may realize that you need to adjust your spending. Small purchases can potentially have a large impact on your budget. You may discover that you don’t have enough money to cover all of your expenses. If you discover that you spend more than you earn, you can cut down on some optional spending. You will need to decide to reduce your expenses or earn more money to cover everything.


Budgeting is a great financial habit that could lead to financial freedom and the end of living paycheck to paycheck. A well-maintained budget lets you stay ahead of your bills, save more money, and pay off debt. Commit yourself to developing the habit of proper money management so you can improve your financial health and achieve your goals. These simple steps should help you start your personal budget.

Remember, your budget is not a fun-killer – it’s a money hack for better living.

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