How to Create a Budget That Actually Works in 10 Simple Steps

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Many people do not know how to create a budget – and (spoiler alert) it’s not only a problem that plagues just the financially uneducated. Even successful people often ask me to how to create the best budget; many personal finance bloggers (myself included) struggle with sticking to one.


How to Create a Budget That Actually Works

1. Grab a pen and scratch paper.

Yeah, yeah, we’re well into the digital age. However, writing it down by hand will make it feel more real. Yes, you should do all calculations by hand when you first create a budget. It’s simple addition and subtraction, and the better you are at doing math without a calculator, the better you will be with your finances in general. Consider it practice.

Grab our free budgeting spreadsheets. Click here to subscribe for access to the best life vault and nab access to six other worksheets while you’re in there!

2. Write down how much money you take home from your job each month (& other income streams if you have them).

This will be how much money you take home after taxes. For most people, this will be the only income stream they have when they create a budget. This number is vitally important. It is how much money you have to work with. The most important aspect when you create a budget is to not have more going out than you have coming in.

This means the main number should still be greater than all the numbers in steps 3 and 4. Keep this in mind!

3. List all monthly bills

Divide the bills into three categories.

HARD: Rent/Mortgage, Any Loan Payments (Auto, Student, Personal)

These are the bills with fixed payments and people get mad if you don’t pay them. They get first priority because not paying them reflects negatively on your credit report. These should have top priority when you create a budget.

ELASTIC: Phone, Internet, Insurances, Gas, Electricity, etc.

Most of these bills fluctuate monthly depending on usage. When you create a budget, it’s better to set these expenses at the highest end of their fluctuation. They are important to pay, but only affect your credit score if the companies turn you over to a collection agency. And don't tell anyone I told you this, but even then they are fairly easy to remove once the bill has been settled so they are a lower priority than HARD bills.

Negotiating elastic bills is also my favorite way to “budget hack” and find extra money for other expenses. See how I do it here.

SOFT: Subscription Services (Netflix, Hulu, Spotify, any of those services that deliver boxes to you every month)

All of these are expendable, and should be the first to go if you need to cut expenses after you create a budget.

4. Make an educated guess on how much you spend on gas, groceries, eating out, entertainment, clothing and any other expenses you have.

You have an idea how much you spend each month, resist the urge to go back and look at old receipts. It’s better for you to track your spending the first month after you create a budget. (I like to use Learnvest to track all of my expenses and I've been using it for over five years!)

5. Now subtract the totals from 3 & 4 from number 2.

Hopefully after you creating your budget, this number will be greater than zero. This is how much money you have to put into savings and then divest to wherever you like (emergency savings, investments, savings for vacations or other large purchases, and paying down debt). However you see fit.

The best part about creating a budget is you can alter it however you like.

If this number is less than zero, revise your estimated amounts from #4 until you are at least at zero. If you created a budget that can’t be altered to where number 2 is greater than the sum of 3 and 4, look to cut your hard expenses through either refinancing, less consumption, or changing plans/coverages. Also look into creating more revenue streams through side hustles.

6. For the first month, set all this money aside as one lumped line item.

The first month after you create a budget, don’t spend this extra money. The budget you created might be off.

7. Find a budget template that works for you and transfer all the info you have collected creating a budget on scratch paper into this template.

I know most of you will skip step one and create a budget in an excel doc from the start. However, there are intangible benefits to start creating a budget on paper then transferring it to a digital document. Learn more about the Financial Best Life budget template, here.

8. Track your expenses the first month after you create budget.

It’s better for you to track your spending the first month after you create a budget than go off old receipts. This allows for margin of error, and you will be more aware of purchases as you are making them. You will be more encouraged to stick with it after you create a budget if you use estimations, as you won’t view it as failure if you over spend. It

….It was only an estimation after all.

9. At the end of the month, check how well your created budget did against all your purchases and expenses.

Hopefully, you over estimated on all your items from number 4 and have a surplus. If you underestimated the totals from 4 when you created a budget, that’s okay. That’s why we have the cushion from #6.

10. Adjust the amounts for each item in the budget you created as you see fit.

If you slotted $200 for entertainment and only spent $150, adjust the budgeted amount, or if you think it was an usually lean month of having fun for you, keep it the same.

Repeat steps 8-10 each month, honing the created budget each month until you have created a budget that fills you with immeasurable financial pride and limits that all-too-familiar money stress.

If you want, you can add more detail to your line items to really drill down to where your money goes. You can also adjust and add more detail into how you save and invest the money left over from your created budget. FLEXIBILITY IS FREEING!!

A Note about Credit Cards

It is best practice when you create a budget to not carry credit card debt from month to month. That means you pay off your credit cards in full every month. If you are carrying debt on your credit cards and you do not have 0% APR on any cards, try and consolidate your credit card debt into a personal installment loan. (We like Upstart for this.) It will provide a lower interest rate and a plan to pay off the loan in however long a period you and the bank come to. This will then become a hard item in step #3 of creating a budget.


Having a budget is one of the first steps to financial wellbeing. But do you know how to create a budget? Follow this 10-step guide and you'll be on your way to being a budget-boss.

    • Giulia Lombardo
    • March 16, 2017

    loving it Whne I started to have a budget this is been my first experiment and also now that I have a weekly budgeting day I still use it!!!

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