Written by Spotloan

Personal finance budgets are like diets. Nobody likes them. They’re super hard to follow. But they’re important because they help us define and meet our goals.

A personal budget can help you break the cycle of living paycheck to paycheck. Maybe not right away, but over time, a budget can help you climb out of debt. At a minimum, you’ll get a sense of the money coming in and where it’s going. And with that information, you can start to gain control of your financial health.  

Here are 8 steps toward creating a personal budget you can live with.  

1. Know your goals 

What are you trying to accomplish with a budget? Is your top priority to save? Pay down debt? Or do you have other goals? The best way to start a budget is to know what you want to achieve with it. That will help you prioritize.  

2. Decide on the tools

There are tons of ways to build a personal budget. You can start with a free personal budget spreadsheet template for Excel, Apple’s Numbers, or Google Sheets.

You can also create a budget using free tools like Intuit’s Mint, which imports transactions from linked accounts. Level Money gives you a ‘spendable’ number each month, so you’ll know how much discretionary income you’ve got. Banks and credit unions often offer budgeting tools as well.  

3. Start with your after-tax income

How much do you take home after taxes each month? Do you have any forms of regular supplemental income? This is the starting point for your budget, as you need to know how much money is coming in.

Build your budget around predictable, ongoing income—known as ‘recurring’ income, such as the money you make at work. Income that doesn’t occur with any consistency, such as a tax refund, is always nice to have. But since you can’t predict when you’ll receive the income or how much it will be, it’s best not to include it in your budget.

4. Record all predictable, ongoing expenses

What do you spend monthly on rent or mortgage, car payments, insurance, and utilities? Make sure to record all these ongoing expenses in your budget. Some amounts, like your power company bill, will differ each month. If possible, get at least three months of past bills. Add up the totals and divide by the number of months. This gives you an average monthly payment.

Don’t forget to include items like cell phone bills, gym memberships, credit card payments, and haircuts. Anything you spend money on every month should go into your budget.

5. Identify expenses that aren’t as predictable

Then there are things you don’t necessarily spend money on every month. Or if you do, there’s no predictable amount.

Examples include eating out, going to movies, traveling, gasoline, parking, pet care, child care, clothes, and dry cleaning. Though they’re harder to predict than, say, your monthly rent, it’s still important that you list them in your budget, along with a guesstimate on what you spend. Because if you need to cut expenses, at least some of these expenses—like going to the movies—is a good place to start. 

Don’t know how much to budget for these expenses? Try keeping a record for a few weeks to get an idea. Also, log into your bank or credit card accounts to view past transactions. FileThis will automatically download account statements in PDF from a variety of companies. A free account lets you download statements from up to six organizations.

6. Do your research

If you realize you’re spending too much, it’s time to do research. Go online or pick up the phone to find ways to reduce expenses.

Example: Is your monthly cable bill too high? If so, look online at other options, such as satellite packages. Figure out if you can cut the cord without giving up too many of your favorite channels. You can try streaming live TV packages from the likes of Sling and Hulu free for seven days before cutting the cord. The Wirecutter has helpful information on the topic. 

Once you’ve got information about alternatives, call your cable company. Tell them you need a less costly plan or you’ll discontinue your service. Ask to speak to someone in the customer retention department if needed. They typically have some leeway to cut deals to keep your business. 

Also, check out these recent articles about cutting your cable bill from Money magazine, MarketWatch, and USA Today.

Repeat the same process with your cell phone service provider, too. Money magazine, NerdWallet, and CheatSheet offer tips and strategies.  

7. Find easy ways to save

Ideally, your budget should include a line-item for savings. If saving money doesn’t seem possible right now, set a date to re-evaluate your situation later.

In the meantime, find ways to incrementally put cash aside in ways you won’t even notice. For example, the free app Qapital will automatically round up purchases made on a designated debit or credit card. If you spend, say, $10.84, Qapital will round that up to $12 (based on your rules) and squirrel away the difference for you. Pretty soon, you could have a few hundred dollars saved without even noticing it. 

Or go the old-school route. Put a $10 or $20 bill each week into a piggy bank. If you and your significant other are both trying to save, make it a contest. Example: Whoever puts the least into the piggy bank by a certain date has to do the household chores for a week.

8. Do a regular reality check

Are you staying on track with your budget? Are the goals you set for your budget realistic? You won’t know unless you spend a little time, at least once per quarter, reviewing your expenditures and your budget.

And don’t be hard on yourself if you didn’t consistently stick to your budget. Being hard on yourself can become an excuse for not budgeting. Why do it if you can’t stick to it? Instead, try to take an objective look at how you’re doing.

If something isn’t working with your budget, you can always fix it. A budget is not a blueprint. It’s a learning process. You’re trying to learn more about how you spend your money, so that you can meet whatever your top budget goal is. And in any learning process, you make adjustments based on what you’ve learned.


The best time to start a personal budget 

When’s the best time to start a budget? Does ‘now’ work for you?

Seriously. You don’t have to wait until the first day of a new quarter or a new year. That just puts another barrier in your way. It may sound corny, but the best time to start—or reboot—a personal budget is today.