Budgeting Basics: How To Make a Personal Budget That Works For You
In This Article
Budgeting is a necessary evil when it comes to long-term wealth building. Without a personal budget, you will end up in a rabbit hole of overspending, making it seem almost impossible to manage your money. Some people use spreadsheets to budget. Others, like myself, use apps on their phone. Others may use a pen and a piece of paper. Regardless of what method you decide to use, I will give you some of the basics (along with some budgeting tips). Get a pen and paper, and let's get started!

4 Steps to Preparing Any Budgeting Plan
There are a few things that apply to all budgets. Regardless of what method of budgeting you decide to track your income and expenses, four things always apply:
Reviewing past bank statements is crucial to accurately estimate monthly expenses and monitor spending patterns.
Step 1: Determine Your Monthly Income
First things first! You have to know how much is coming in. Write down all income you receive every month. This can include pay from jobs, cash gifts, income from business ventures, child support, alimony, or anything that hits your bank account as a credit. Now that you are looking at these numbers, do you feel this number is enough to sustain your current lifestyle? If not, you may have an income problem, but we will see as we continue through our process.
Calculate Your Net Income After Taxes
Your net income is the amount of money you have available to spend or save after taxes have been deducted from your gross income. To calculate your net income, you can use a tax calculator or consult with a financial advisor. Itโs essential to have an accurate picture of your net income to create a realistic budget.
Consider Irregular Income and Expenses
In addition to your regular monthly income, you may have irregular income or expenses that need to be factored into your budget. This could include freelance work, bonuses, or expenses like car maintenance or property taxes. Make sure to account for these irregularities to ensure your budget is accurate and comprehensive.

Update Your Income Regularly to Ensure Accuracy
Your income may change over time due to factors like raises, job changes, or changes in business expenses. Itโs essential to update your income regularly to ensure your budget remains accurate and effective. This will help you make informed financial decisions and achieve your savings goals.
Step 2: Choose a Budgeting Method
Choosing a budgeting method is a crucial step in creating a budget. There are several methods to choose from, including the zero-based budget, pay yourself first budget, and envelope budget. Each method has its strengths and weaknesses, and itโs essential to choose a method that works best for your financial situation and preferences.
Learn About Different Budgeting Methods
Before choosing a budgeting method, itโs essential to learn about the different options available. Here are a few popular budgeting methods:
Zero-Based Budget: This method involves allocating every dollar of your income towards a specific expense or savings goal. Itโs a great way to ensure every dollar is accounted for and working towards your financial goals.
Flex Budgeting: Flex budgeting is a dynamic approach that adjusts your budget based on changes in your monthly income and expenses. Unlike traditional budgeting methods, which set fixed amounts, flex budgeting allows for more adaptability, making it ideal for those with variable expenses or fluctuating income. This method helps you respond to unexpected changes while still keeping your financial goals on track.
Pay Yourself First Budget: This method involves setting aside a portion of your income for savings and investments before spending on other expenses. Itโs a great way to prioritize your savings goals and build wealth over time.
Envelope Budget: This method involves dividing your expenses into categories (e.g., housing, transportation, food) and allocating a specific amount of cash for each category. Itโs a great way to stick to your budget and avoid overspending.
By understanding the different budgeting methods available, you can choose a method that works best for your financial situation and preferences.

Step 3: Determine Fixed Expenses
Next, letโs write down all monthly expenses (not including debt – more on that later). Start with necessities, such as rent, mortgage, water, electricity, groceries, etc. As you work down the list, add non-necessities like that gym membership you rarely use and recurring expenses like Netflix. Be sure to account for all your monthly variable and fixed expenses. Identifying and managing fixed expenses is crucial to maintaining a balanced budget.
So, at this point, you may be getting a little nervous, but we arenโt quite done yet. Now, I want you to check out your percentages. Break out the expenses into categories. Examining monthly payments is an essential part of budget management. As a guideline, I have charitable (10-15%), savings (5-10%), housing (25-35%), utilities (5-10%), food (5-15%), transportation (10-15%), clothing (2-7%), medical/health (5-10%), personal (5-10%), and recreation (5-10%). The percentages are your spending in relation to your income. (For instance, letโs say you make $3000 a month. You spend $845 a month on housing. This includes rent/mortgage, insurance, repairs, and home decor. That would land you at about 28% of your income towards this category ((845/3000) * 100). So, you are still within the recommended limits.) These percentages are just estimates/guidelines. You may need more or less depending on your circumstances and the cost of living in your area. I have a few clients in California, and their spending in the housing category is generally more than 25 to 35%.
Step 4: Face Your Debt
Now, let's write down all of your debts. I don't know about you, but this section gives me the most anxiety! Debts include credit cards, student loans, personal loans, car loans, overdue bills that have made it to your credit report, etc. A good rule of thumb is that it is a debt if you see it on your credit report. (Don't know what's on your credit report? Download Credit Karma as a good starting point. There will be a separate post on the topic of credit). You may feel a hint of depression after completing this step but don't fret! This is why we are doing this! You must be aware of your current situation to know where and how to make the necessary adjustments. That is the power of budgeting!
Creating a Budget: Putting it all together
Now that all your numbers are laid out in front of you, you can start planning your method of attack! Letโs go back to the expenses section. Starting at the bottom, is there anything you can start cutting back on? Maybe eating out, Netflix, the gym? Start trimming the non-necessities first. You may say, โBut Tiffany, I canโt go without binge-watching my favorite TV shows or seeing my favorite fast-food workers that have become like family.โ My question to you is, how badly do you want it? Sometimes, we have to live somewhat uncomfortably to create the life we want to live. I promise, once your finances are under control, you will find the sacrifices were well worth it.
Saving money by making necessary adjustments to your budget is crucial for achieving financial stability.
Seriously evaluate your financial goals. See if your budget aligns with your goals. If saving is a goal, do you save enough each month, or would you like to increase that number? Think about your household as well. Do you have kids that are going to college? Are you setting your future college students up for success? Be sure that your spending aligns with your overarching finance goals.
Identifying potential sources of more money, such as a second job or side hustle, can help you achieve your financial goals more effectively.
If you get through this exercise and find that after cutting all non-necessities, you are still in the negative, you have a bonafide income problem! It may be time to find a new job, get a second part-time job, or pick up a side hustle.
Once you have a budget for the following month, stick with it! It may take a few months to get it just right, but you have to start somewhere! It would be best if you threw all of the money left at the end of the month at savings or debts (weโll talk more about that later). At first, you will be amazed at how much money was going out of the window just by not tracking your finances. Then, it will start becoming a habit. Again, these are just the basics. As we progress in our budgeting journey, we can add more nuances to really personalize the experience.
Prioritizing an emergency fund in your budget to cover several months' worth of essential living expenses is essential to avoid debt during unexpected situations.

Should You Use A Budget Template Or App?
This is completely up to you! To decide, you should consider your personality style and what would be easiest to use for your lifestyle. Over the years, I have used all of the methods I mentioned at the beginning of the article, and over time my preferences changed. There is a variety of budgeting software to choose from. Regardless of what you decide to use, the key is just to get started! I will break down the pros and cons of each approach.
Budgeting Spreadsheet
I included a link to a FREE budget spreadsheet below as a template. I always start with an Excel budget, even if I decide to use a different method later. In the video above, I show you how to use this budgeting spreadsheet fully. This budget template works very well in Microsoft Excel. If you can access Google's suite of collaboration tools, this spreadsheet is also usable in Google Sheets. I highly recommend using Google Sheets if you need to create the budget with someone else or would like to take it on the go. Google Sheets has an app where you can open the budget and track your monthly expenses from anywhere. If spreadsheets are your jam, this is for you!
Budget_Spreadsheet_FRESH Download
Budget Spreadsheet Walk-Through
Pros
Formulas make it easy to do calculations
Data is easy to input and manipulate
There are lots of budget templates available online for budget spreadsheets.
Works well for monthly or weekly budgets
Helps in tracking variable expenses effectively
Cons
Must have a certain level of spreadsheet knowledge
It May look overwhelming at first
It may be hard to track accurately on the go

Budget Planner & Budget Worksheet
There are quite a few free budget planners and worksheets out there for those that like pen and paper to help keep things organized. Or you could even make your own budget planner by just doing the steps we talked about before simply on a sheet of paper. The Internet is full of budgeting tools and templates that you can download, print out, and write down all of your information.
Pros
Very basic, and anyone can do it
Writing information out sometimes helps with retention
A quick way to get it done
Cons
You will have to calculate your numbers manually
It may be cumbersome to keep up with papers every month

Budget App
I absolutely love budget apps because it is the simplest way, in my opinion, to have the best of all worlds. There are a few free budget apps in the app store, but I have found the ones that make it easy to track your expenses by aggregating (connecting) your bank accounts do have a small cost. Some budget apps allow you to connect your bank accounts, making it easier to review bank statements and track expenses. I personally use YNAB for my budget, but others like Monarch Money and Quicken Simplifi work well too!
Pros
Easy to take on the go
Easy to track expenses as soon as they happen
Some have built-in tracker tools
The most control over your spending
Cons
Have to have a phone
It may not be easy to use for some people
Easy to disregard any app alerts since we have apps for everything (app overload)

What Is The 50-30-20 budget rule?
Itโs a rule where you allocate 50% of your income to needs, 30% to wants, and 20% to your financial goals. To use this rule, you would take all of the steps we did above in collecting your expenses and put them in inclusive categories of โneedsโ, โwantsโ, and โfinancial goalsโ. When using the 50-30-20 rule, it is important to allocate a portion of your budget towards saving for a down payment, especially if purchasing a home is a major financial goal. Sometimes, it is good to look at your same budget from different lenses (percentages discussed above vs. 50-30-20).
Additionally, contributing to a retirement account should be a key component of your long-term financial planning.
What Is The 70-20-10 Budget Rule?
Similar to the 50-30-20 rule, this one says you put 70% of your income towards monthly spending, 20% set aside to save and/or invest, and 10% for debt or donating. Having a savings account as part of a comprehensive financial strategy is crucial for budgeting and building emergency funds. Whatever method you decide to use should go in line with your financial goals. This method wouldnโt work for me personally because I would want to pay more toward debt. Do what works for you!
Conclusion
Budgeting doesnโt have to be complicated, and the beauty is that there are so many ways you can do it. You can tailor the budget to your personality style and what would make it easiest to stick to. As you create the financial life you want, use a household budget to manage your money flow and make personal finance easy! Additionally, consider how you choose to spend money on enjoyable activities or subscriptions rather than essential needs.
Need More help?
Check out my Budget Nirvana course, where I explain these concepts (and more) in greater detail or become a client for more personalized help!