How to Create a Budget

The key to financial success starts with a robust budget.

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One of the most important steps to achieving financial wellness is consistently using a monthly budget (often referred to as a spending plan). Follow the five steps below to help you create this valuable tool and keep your finances well-managed.

Calculate your monthly net income

Net income is the amount of your paycheck that is left over after taxes, benefits, retirement contributions, and any other deductions are taken out. (Gross pay is what you earn pre-tax.) Only use income that is regular and reliable.

Separate your expenses into fixed, variable, and periodic

Fixed expenses stay the same every month
Variable expenses occur frequently but the amount changes each month
Periodic expenses occur a few times during a calendar year

Create a realistic plan and track all spending

Use a budget notebook, app, or other method to document monthly income, all expenses, savings, and debt payments
Tracking helps you spot areas where you might be overspending and figure out areas to adjust

Set financial goals

Create specific and attainable goals that can be measured
Working towards a goal makes saving feel rewarding and keeps you motivated

Decrease spending and increase income if there's a budget deficit

Explore ways to increase income, such as part-time work or a side hustle
Strive to reduce spending in the variable categories until your budget is balanced

Common Budgeting Questions

It's actually important that you create room in your budget for the "wants" category so you can do the things you enjoy. If you're only spending money on needs, debt, and savings, it's not sustainable.

Yes! In fact, your budget will be more sustainable if you make adjustments over time. Barring a major life change, try to keep the budget changes slow and steady so it's easier to adapt.

Let's be honest: creating a budget is not the most exciting task. But it sets you up for success in the long run because you can see the numbers, totals, and categories you're working with.

A good way to keep spending and saving in balance is following the 50/30/20 rule which divides your funds into three categories:

50% - Needs

"Needs" are things that you absolutely must spend money on each month. This includes:

Groceries
Housing
Utilities
Medical expenses
Transportation (gas, bus fare, etc.)

30% - Wants

"Wants" are things that you do to treat yourself and have fun! Think: shopping, dining out, hobbies.

10-20% - Debt Repayment & Savings

Think of savings as paying yourself first. It's a good idea to setup automatic transfers so that funds are deposited into your account every pay period or once a month. Take the work out of manually transferring your money so it'll automatically become a habit.

Think of saving as paying a debt to your future self. It can be tempting to neglect your savings when you really want to spend your money on something fun, have extra bills this month, or don't always remember to move funds to your savings account. However, making savings a priority in your budget will make it a habit instead of an afterthought. A good idea is to set up automatic transfers so that funds are deposited into your account from your gross income. Then you won't have to remember to set aside money to savings.

Even though they may not cost a lot, small expenses can sometimes add up more than we realize and could take away extra money for savings, debt repayment, or bigger ticket expenses. Track them closely and set a budget!

The whole goal of a budget is to balance your income and expenses. Some people like to break down every single category and have expenses to the exact cent, where others like to be more general and round up their expenses.

Enable autopay for your bills so they always get paid on-time. It's one less thing to remember!
Wait 24 hours if you weren't planning on purchasing something. This helps prevent impulse purchases!
Choose groceries over dining out - groceries are almost always more cost effective!
Consider using cash for smaller purchases.
Whenever possible, use coupons, discounts, rebate apps, etc. to save money.

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