How to Create a Budget in 6 Simple Steps (2024)

If you’re looking to create a personal budget, start with these six steps

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Most people need some way of seeing where their money is going each month. A budget can help you feel more in control of your finances and make it easier to save money for your goals. The trick is to figure out a way to track your finances that works for you. The following steps can help you create a budget.

Step 1: Calculate your net income

The foundation of an effective budget is your net income. That’s your take-home pay—total wages or salary minus deductions for taxes and employer-provided programs such as retirement plans and health insurance. Focusing on your total salary instead of net income could lead to overspending because you’ll think you have more available money than you do. If you’re a freelancer, gig worker, contractor or are self-employed, make sure to keep detailed notes of your contracts and pay in order to help manage irregular income.

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  • How to Create a Budget in 6 Simple Steps (1)

Step 2: Track your spending

Once you know how much money you have coming in, the next step is to figure out where it’s going. Tracking and categorizing your expenses can help you determine what you are spending the most money on and where it might be easiest to save.

Begin by listing your fixed expenses. These are regular monthly bills such as rent or mortgage, utilities and car payments. Next list your variable expenses—those that may change from month to month, such as groceries, gas and entertainment. This is an area where you might find opportunities to cut back. Credit card and bank statements are a good place to start since they often itemize or categorize your monthly expenditures.

Record your daily spending with anything that’s handy—a pen and paper, an app or your smartphone, or budgeting spreadsheets or templates found online.

  • How to Create a Budget in 6 Simple Steps (3)

Step 3: Set realistic goals

Before you start sifting through the information you’ve tracked, make a list of your short- and long-term financial goals. Short-term goals should take around one to three years to achieve and might include things like setting up an emergency fund or paying down credit card debt. Long-term goals, such as saving for retirement or your child’s education, may take decades to reach. Remember, your goals don’t have to be set in stone, but identifying them can help motivate you to stick to your budget. For example, it may be easier to cut spending if you know you’re saving for a vacation.

More from Bank of America Bank of America Life Plan helps you create a plan that’s tailored to your goals.

Step 4: Make a plan

This is where everything comes together: What you’re actually spending vs. what you want to spend. Use the variable and fixed expenses you compiled to get a sense of what you’ll spend in the coming months. Then compare that to your net income and priorities. Consider setting specific—and realistic—spending limits for each category of expenses.

You might choose to break down your expenses even further, between things you need to have and things you want to have. For instance, if you drive to work every day, gasoline counts as a need. A monthly music subscription, however, may count as a want. This difference becomes important when you’re looking for ways to redirect money to your financial goals.

How to Create a Budget in 6 Simple Steps (5)

How to Create a Budget in 6 Simple Steps (6)

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What is the 50/30/20 rule?

The 50/30/20 rule is a budgeting technique that divides your take-home income into three categories by percentages. It’s a simple way to track your spending. Here’s the breakdown:

Needs
50%
Rent or mortgage
Car payment
Utilities
Groceries

Wants
30%
Streaming services
Shopping
Vacations

Savings or Debt
20%
Emergency fund
Retirement
Child’s education
Credit card payments

  • How to Create a Budget in 6 Simple Steps (7)

Step 5: Adjust your spending to stay on budget

Now that you’ve documented your income and spending, you can make any necessary adjustments so that you don’t overspend and have money to put toward your goals. Look toward your “wants” as the first area for cuts. Can you skip movie night in favor of a movie at home? If you’ve already adjusted your spending on wants, take a closer look at your spending on monthly payments. On close inspection a “need” may just be a “hard to part with.”

If the numbers still aren’t adding up, look at adjusting your fixed expenses. Could you, for instance, save more by shopping around for a better rate on auto or homeowners insurance? Such decisions come with big trade-offs, so make sure you carefully weigh your options.

Remember, even small savings can add up to a lot of money. You might be surprised at how much extra money you accumulate by making one minor adjustment at a time.

Step 6: Review your budget regularly

Once your budget is set, it’s important to review it and your spending on a regular basis to be sure you are staying on track. Few elements of your budget are set in stone: You may get a raise, your expenses may change or you may reach a goal and want to plan for a new one. Whatever the reason, get into the habit of regularly checking in with your budget following the steps above.

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The material provided on this website is for informational use only and is not intended for financial or investment advice. Bank of America Corporation and/or its affiliates assume no liability for any loss or damage resulting from one’s reliance on the material provided. Please also note that such material is not updated regularly and that some of the information may not therefore be current. Consult with your own financial professional when making decisions regarding your financial or investment management. ©2024 Bank of America Corporation.

How to Create a Budget in 6 Simple Steps (2024)

FAQs

How do you make a personal budget in 6 easy steps? ›

Here's how to create a personal budget in 6 steps.
  1. 1) Gather your financial information. ...
  2. 2) List your income. ...
  3. 3) List your fixed and variable expenses. ...
  4. 4) Subtract your expenses from your income. ...
  5. 5) Track your spending. ...
  6. 6) Make a plan for the future.

What are the 6 steps to creating a salary based budget? ›

Use the following steps to create and manage a successful budget:
  1. Calculate your monthly income. ...
  2. Track your spending habits. ...
  3. Set goals for your money. ...
  4. Make a plan. ...
  5. Make adjustments as necessary. ...
  6. Set a schedule for checking in with your plan.
Jan 31, 2023

How do you create a simple budget for beginners? ›

  1. Calculate your net income. The first step is to find out how much money you make each month. ...
  2. List monthly expenses. Next, you'll want to put together a list of your monthly expenses. ...
  3. Label fixed and variable expenses. ...
  4. Determine average monthly cost for each expense. ...
  5. Make adjustments.

What are 7 steps to a budget made easy? ›

Follow these seven steps to start a personal budget that can help you reach your financial goals:
  • Calculate your income. ...
  • Make lists of your expenses. ...
  • Set realistic goals. ...
  • Choose a budgeting strategy. ...
  • Adjust your habits. ...
  • Automate your savings and bills. ...
  • Track your progress.
Oct 11, 2022

What is a 6 6 budget? ›

The most common in my practice is a 6+6 budget; that is, create a new budget that shows six months of actuals and six months of forecasts. If expectations built into the budget aren't materializing, then it's time to recalibrate.

What are 6 main purposes of a budget? ›

A budget can also set you on the right path to achieving your financial goals, spending within your means, saving for retirement, building an emergency fund, and analyzing your spending habits.

What are the six key components of a financial budget? ›

The six components of a financial plan include tracking income and expenses, budgeting, saving and investing, insurance, and retirement planning. By understanding and implementing these components, freelancers can create a secure financial future. It's essential to start planning as soon as possible.

What are the steps of the budget process? ›

8 key budgeting process steps
  • Review the previous period.
  • Calculate existing revenue.
  • Set out fixed costs.
  • List variable costs.
  • Forecast extra spending.
  • Scrutinize cash flow.
  • Make business decisions.
  • Communicate it clearly.
Jan 17, 2024

What are the six types of budgets that may be used in an organization? ›

There are four common types of budgets that companies use: (1) incremental, (2) activity-based, (3) value proposition, and (4) zero-based. These four budgeting methods each have their own advantages and disadvantages, which will be discussed in more detail in this guide.

What are the steps of the budget process in order? ›

The federal budget process typically consists of seven steps, outlined in greater detail below:
  1. President's budget request.
  2. Budget resolution.
  3. Appropriations bills.
  4. Authorization bills.
  5. Revenue measures.
  6. Budget reconciliation.
  7. Debt limit legislation and raising the U.S. debt ceiling.

What is the simplest budget system? ›

If you want a simpler approach to managing your money, the 50/30/20 budgeting method could work well for you. It's a good alternative to more in-depth budget plans if you find that tracking your expenses in multiple specific categories is overwhelming, because it takes a more straightforward approach.

What is the easiest way to budget? ›

Here's what a budget that adheres to the 50/30/20 rule looks like:
  1. Spend 50% of your money on needs. ...
  2. Spend 30% of your money on wants. ...
  3. Stash 20% of your money for savings. ...
  4. Calculate your after-tax income. ...
  5. Categorize your spending for the past month. ...
  6. Evaluate and adjust your spending to match the 50/30/20 rule.
Aug 12, 2022

How to make a simple monthly budget? ›

You can use your budget every month:
  1. At the beginning of the month, make a plan for how you will spend your money that month. Write what you think you will earn and spend.
  2. Write down what you spend. ...
  3. At the end of the month, see if you spent what you planned.
  4. Use the information to help you plan the next month's budget.

What are the 5 steps to building a budget? ›

5 Simple Steps to Create a Successful Budget
  1. DETERMINE YOUR INCOME. Start with how much money you make after tax each month. ...
  2. CALCULATE EXPENSES. Let's break up your monthly spend into specific buckets. ...
  3. CALCULATE THE DIFFERENCE. ...
  4. DETERMINE WHAT TO DO WITH YOUR SAVINGS. ...
  5. MAKE IT A HABIT.
Aug 22, 2022

What are the 5 basics to any budget? ›

What Are the 5 Basic Elements of a Budget?
  • Income. The first place that you should start when thinking about your budget is your income. ...
  • Fixed Expenses. ...
  • Debt. ...
  • Flexible and Unplanned Expenses. ...
  • Savings.

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