How to make a budget

Many Americans don’t track where their money goes each month — but learning how to make a budget is easy.

Creating a budget can help you get out of credit card debt, build an emergency fund or even save to buy a house. Even if you don’t live paycheck to paycheck and you feel satisfied with everything you have, creating a budget can help you feel more in control of your personal finances.

The easiest way to start is by using a template, like this one from the Consumer Financial Protection Bureau. Follow these easy steps to learn more about how to budget.

Step 1: Add up your monthly income

Start with your take-home pay, which is your total salary or earned wages minus taxes, deductions for healthcare and retirement contributions. If you have any other regular, dependable income, add it in.

If you work part time or freelance, or otherwise have inconsistent income, it might be helpful to start with your expenses first, and then determine how much you have to work in order to reach your financial goals.

What is disposable income?

Disposable income is the amount that’s left over from your paycheck or other income after you’ve paid for taxes and any necessities, such as housing costs, utilities and food.

Step 2: Identify and categorize your expenses

When it comes to figuring out your expenses, you’ll want to categorize each item so that you have a good idea of what you might be able to tweak. You’ll probably know a lot of your regular expenses off the top of your head, but going through your bank account and credit card statements can help remind you of where else your money goes.

Start with your necessary fixed expenses — things like your mortgage, rent, utilities, car payments, and other debt like credit cards or student loans. These are considered fixed expenses because they’re unlikely to fluctuate from month to month, and reducing or eliminating any of them may be difficult or impossible.

Once you know what your fixed expenses are, you need to figure out your variable and “nice to have” expenses. Items like groceries, gas and entertainment are considered variable because they usually fluctuate from month to month and are areas where you probably have at least some flexibility to cut back in order to save. You can further split expenses into needs (like groceries) and wants (like a gym membership).

Since some of your expenses will be different depending on the month, it can be helpful to look at up to six months’ worth of expenses to get a sense of what your “normal” spending is.

Step 3: Get clear about your financial goals

Maybe your first priority is to stop living from one paycheck to the next, and to have at least a few extra dollars to spare at the end of each month. Or maybe you’re ready to work toward bigger things like retirement or buying a home. Think about your immediate goals and what you want to accomplish down the road — and write them down.

It’s OK if your goals change over time. The important takeaway is that being specific about what you want to accomplish — and keeping those goals top of mind — can help motivate you to stick with your budget.

Step 4: Do the math and plan ahead

This is the point where you start to fill out your budget template. Input your income and use the fixed and variable expenses you tracked to estimate what you’ll be spending in the coming months. How much money do you have left at the end of the month after covering those expenses? Ask yourself if it’s enough to save toward your goals.

If the answer is no, look for places where you can cut back. The best place to start is your “wants” category under variable expenses. If you go out to eat a lot, plan to cook at home more. If you like going to the movies, try streaming at home at least half the time. After identifying places where you can save, adjust the numbers in your budget template to see how it affects the bottom line.

If you still need more room in your budget, you might have to look at adjusting your fixed expenses by making major changes like moving to a less expensive living situation or refinancing your mortgage for a lower interest rate.

Step 5: Check in regularly and adjust

Scheduling a regular budget check-in with yourself can help keep you accountable and on track. For example, consider taking 30 minutes every Sunday morning to review your spending from the previous week and compare it with the spending you’re projecting for the month.

This will give you a chance to make any necessary adjustments each week if you’ve overspent on one item or another.

Next steps

Creating a budget can help you achieve your short- and long-term goals. It just takes a little time, a plan, and your own commitment to be in control of your financial present and future.

Plan your spending with our budget calculator

You can use our budget calculator to get a clearer picture of how much money you’re spending, what you’re spending it on and where you could improve.