How to Make a Budget: Step-By-Step Guide

Updated December 3, 2019 . AmFam Team

Budgeting is never easy, but our tips can help make it a breeze! Learn how to budget your money to increase your savings and meet your goals.

Not sure how to budget? Although it may seem complicated, it’s really pretty simple when you break it down. Essentially, it’s giving every dollar you earn a job, so you know exactly where your hard-earned money is going. Creating a budget is a really important step in accomplishing your financial dreams, and we’re here to help you learn how! In this easy-to-follow guide, we’ll go over how to calculate your monthly expenses and income to create a budget that works for you.

Calculate Your Expenses

First things first, you’ll need to understand how much money you’re spending each month in order to know just how to calculate your budget. To get started, make a list of all the consistent expenses you have monthly — things like groceries, rent/mortgage payments, health insurance, car payments and other recurring bills. Then, estimate out some of the more flexible expenses, like clothing, dining out and fun money. And don’t forget to list expenses for your savings goals. Want to make sure you’re not missing anything? This budget calculator (Opens in a new tab) can help make sure you’ve considered all your monthly expenses.

Calculate Your Monthly Income

The next step is determining your monthly income. Knowing how much you’re actually bringing in after taxes are deducted will help you determine how to budget your money. Don’t forget to include any income you get aside from your main gig — like part-time jobs, freelance pay and any other ongoing income. Want help laying it all out? This tool (Opens in a new tab) can help.

Create a Budget Plan

Now that you have a good idea of what your income and expenses are, it’s time to create a budget. However you choose to go about it, you’ll want to make sure it accounts for all of your needs and savings goals, and leaves some room for your wants as well. At this stage, there are two things to keep in mind: 1) you should be realistic — having goals is important, but you don’t want to be too strict, so leave some wiggle-room for yourself, 2) budgets can change! Whatever you set today can be tweaked, and money can be moved around if absolutely necessary, so don’t get too caught up on getting it perfect right away. As long as you’re recording and tracking your expenses, you’re on the right path.

50/30/20 rule

Although this rule isn’t absolute, it’s really helpful to consider when it comes to creating a budget. The 50/30/20 budget rule (Opens in a new tab) states that 50% of your income should go towards your needs (think housing, food, transportation, insurance and other ongoing bills), 30% should go towards your wants (like shopping, vacations and entertainment) and the remaining 20% should go towards your savings goals (saving for a house, building an emergency fund, 401(k) contributions, etc.).

Not sure how to make a budget? There are plenty of tools out there that can guide you and help hold you accountable throughout the month. Take a look to determine what budgeting tools might work best for you! And be on your way to better money management in no time.

This article is for informational purposes only and based on information that is widely available. This information does not, and is not intended to, constitute legal or financial advice. You should contact a professional for advice specific to your situation.

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