Overview
Creating a budget may not sound like a lot of fun, but it doesn’t have to feel overwhelming or restrictive. After all, a budget is really just a plan for your money—one that helps you keep up with bills and save for the things that matter most. A monthly budget can also help you figure out (and track) where your money is actually going, which can reduce waste and ensure your spending aligns with your goals.
Whether you want to cut back on overspending, start saving more, or figure out why you never seem to have any extra cash at the end of the month, properly budgeting your income can help. This guide will walk you through the steps to create a budget that actually works, along with some tips that can help you succeed.
What is a Monthly Budget
A monthly budget is a plan for how you’ll use your money over the course of a month. It shows how much you earn, how much you spend, and where you want your money to go instead of wondering where it went. A good budget doesn’t have to be perfect or overly strict; it just needs to be realistic enough that you’ll actually stick with it.
Think of your budget as a guide, not a rulebook. It helps you make intentional choices about spending, saving, and paying down debt while still leaving room for flexibility and real life.
If you’re successful at budgeting, you will see the following benefits in your life:
More money in savings
Funds for unexpected expenses
Bills paid on time, which can reduce or eliminate late fees
Less financial waste
Peace of mind
Common Budgeting Methods to Try
There’s no one-size-fits-all approach to budgeting, and the best method is the one that fits your habits, goals, and personality. Here are a few popular budgeting strategies to consider.
50/30/20 budget
The 50/30/20 budget is one of the simplest frameworks to follow. With this method, you divide your after-tax income into three categories—50% for needs (housing, food, transportation, etc.), 30% for wants (e.g. dining out and hobbies), and 20% for savings. This approach can make sense if you want a clear structure for your budget without tracking every dollar you spend.
Envelope budget
The envelope budget has you assign spending categories like groceries, dining, and entertainment, and place a set amount of cash into an envelope for each one. Once an envelope is empty, you’re done spending in that category for the month. While many people now use digital versions of this system via budgeting apps, the core idea is to set spending limits in all major categories and stick to them.
Zero-based budgeting
With zero-based budgeting, every dollar of your income gets assigned a job. That means your income minus your expenses should equal zero (or close to it) at the end of every month. This method is ideal if you like detail and want maximum control over your finances. It does take more effort, but it can be very effective for reaching specific financial goals.
6 Steps to Creating a Budget that Works
Creating a budget is about more than just numbers… It’s about building a plan you can realistically follow month after month. These six steps break the process of creating a budget down into manageable pieces, helping you create a spending plan that fits your income, priorities, and everyday life.
1. Review bank statements and credit card bills from the last three months
Start the process by looking at your recent financial activity, which can include your monthly bank statements, credit card bills, and regular bills you pay. Reviewing the last few months of bank statements and credit card bills helps you see spending patterns you might not notice day to day.
Pay attention to recurring expenses, subscriptions, and areas where spending tends to creep up. For example, you may find you’re spending considerably more on dining out each month than you realized, or that you are paying for subscriptions you don’t even use. Whatever you uncover in this part of the process, use the information you gained as you move on to the next steps.
2. Calculate your monthly income
Once you have a general idea of where your money has been going in the last few months, you should figure out how much money you actually bring in each month. Use your take-home pay rather than your gross income, and include all reliable sources of income.
If your income varies, consider using an average or a conservative estimate so you don’t accidentally budget more than you earn. If you sometimes bring home $4,500 per month but typically see paychecks reach $4,000 per month instead, for example, going with the lower amount can help you create a budget that works in leaner times.
3. Estimate your expenses
Next, you’ll list out all your monthly expenses, starting with fixed costs like rent, insurance, and loan payments. From there, you’ll add variable expenses such as groceries, gas, dining, and entertainment. Also, remember to budget for occasional expenses like gifts, annual fees, and car maintenance. Planning for random expenses you’re likely to face ahead of time can prevent budget surprises later.
This part of the process is also where your prior expense tracking comes into play. If you’ve been spending $600 per month on restaurant meals and you know that’s too much, for example, you can budget a lower amount you can stick to (maybe half of that or less) going forward. The same rule applies if you’ve been overspending on groceries, entertainment, or even just miscellaneous purchases.
4. Think over your priorities
This step is where your budget becomes even more personal. Decide what matters most to you, whether that’s saving for emergencies, paying off debt, traveling, or simply having more breathing room each month.
Your priorities should guide how you allocate extra money and where you’re willing to cut back. If you’re serious about paying off debt this year, for example, you’ll want to find areas of your budget to spend less so you can allocate more funds each month to getting out of debt, and staying out.
5. Design your monthly budget
Using all the information you’ve gathered so far, move on to creating your actual budget. Choose a budgeting method, set spending limits for each category, and make sure your total expenses don’t exceed your income.
Also, make sure you’re aiming for balance, not perfection. A budget that’s too restrictive is hard to maintain. In the meantime, make sure you include the most common expense categories in your budget. These can include:
Mortgage payment (or rent)
Insurance premiums (auto, health, and home)
Car payment and maintenance
Groceries
Dining out
Phone and internet
Utility bills (gas and electric)
Tuition and fees
Home maintenance
Subscriptions
Gym memberships
Pet food and healthcare
Kids’ sports and activities
Household supplies
Travel
Gifts
Tithing
Clothing and personal care
Childcare
Entertainment
Here’s an example of a zero-sum budget that shows how someone’s income might be planned with regular take-home pay of $7,500 per month.
Example budget:
Mortgage payment | $1,750 |
Taxes/Insurance | $500 |
Food | $1,000 |
Savings | $700 |
Phone | $150 |
Health Insurance | $710 |
Electric | $225 |
Gas | $75 |
Water | $70 |
Sewer | $70 |
Life Insurance | $100 |
Television and subscriptions | $100 |
Internet | $85 |
Clothing and school | $200 |
Kids activities | $200 |
Gas | $200 |
Medical bills | $200 |
Miscellaneous | $1,165 |
Monthly total: | $7,500 |
As you can see, our “example budget” includes an estimate of all the regular expenses a family is likely to face in a given month. At the same time, around 15% of the budget is allocated to miscellaneous spending that can apply to unexpected expenses or overages in various categories.
If the miscellaneous category of the budget isn’t spent in a given month, it can be allocated to savings in the following month(s).
6. Monitor your spending and fine-tune your budget over time
No matter what, you have to remember that a budget isn’t something you set once and forget. Even after you’ve been budgeting for a while, you’ll still want to track your spending throughout the month and check in regularly to see what’s working and what’s not.
If you go over in one category or underestimate an expense, you can adjust your budget or your spending going forward. Over time, small tweaks will help you create a system that works no matter what’s going on in your life.
Budgeting Tips for Success
Once your first monthly budget is set and ready to go, a few simple strategies can make it much easier to stick to. The following tips can help you stay on track even when something goes wrong.
Define your "why"
Knowing why you’re budgeting can make the process feel more meaningful, and it can also motivate you to keep going. Whether your goal is paying off debt, building an emergency fund, traveling more, or feeling less stressed about money, keep that reason front and center. When motivation dips, your “why” can help you stay on track.
Be realistic about income and expenses
One of the biggest budgeting mistakes is being overly optimistic. Make sure you’re building a budget on what you actually earn and spend, not what you hope will happen. If you regularly spend more on groceries or dining out than you planned, adjust your numbers instead of getting discouraged.
Plan for the unexpected
Life happens, and unexpected expenses are inevitable. Building a buffer into your budget for things like car repairs, medical bills, or last-minute obligations can help you stay on track regardless. Even a small emergency fund can keep surprise expenses from throwing your entire budget off course.
Try a budgeting app
Budgeting apps like Goodbudget and EveryDollar can make tracking your spending much easier. After all, many of the best budgeting apps automatically categorize transactions, send alerts, and show you where your money is going in real time. If spreadsheets aren’t your thing, a digital tool can help you stay organized with less effort.
Get your partner involved
If you share finances with a spouse or partner, budgeting should be a team effort. Talk openly about goals, spending habits, and priorities so you’re working toward the same outcomes. When both people are on the same page, it’s easier to stick to the plan.
Don't focus on perfection
No budget will be flawless, especially in the beginning. Missed categories, overspending, and adjustments are all part of the process. Instead of giving up when something goes wrong, view it as a learning opportunity and keep going.
The Point
A monthly budget is one of the most important tools to take control of your finances, but it doesn’t have to be overly complex. By choosing a budgeting method that fits your lifestyle, setting realistic expectations, and making adjustments along the way, you can create a spending plan that actually works.
Over time, your small, consistent efforts can lead to less stress, more confidence, and better financial habits overall. And with a monthly budget helping you stay on track with your goals, you’ll build wealth no matter what life throws your way.
by your friends at The Daily Navigator
