How to make a budget from scratch

Table of Contents

how to make a budget

Do you ever feel like your paycheck disappears as soon as it hits your bank account? It can be frustrating to end the month with nothing left in savings. If you’re struggling to make ends meet, it’s possible that you’re not budgeting. Creating a budget may seem daunting, but fear not! In this article, you’ll discover how to build a budget and get some helpful tips to help you keep your finances on track.

What is a budget?

A budget is the plan you make every month to know how you will be spending your money; is a practical approach to manage your finances and make the most of your hard-earned money.

Chances are that you think of some complex process by using the technical jargon of ‘budgeting’. Maybe it sounds like some restricting measure that won’t let you buy yourself something pretty every now and then. However, in reality, a budget is a tool that gives you permission to spend your money on the things you like.

By creating a budget, you can organize your expenses by prioritizing what is most important for your financial situation and goals.

Why do I need a budget?

Did you know that over 60% of individuals aged 25 to 34 have savings of less than $1,000? This is concerning from a financial standpoint, as experts recommend having an emergency fund that covers at least 3 to 6 months worth of expenses (more on that later).

Creating a budget not only helps you save money for unexpected financial emergencies, but also makes your dreams more achievable. Have you been dreaming of taking a vacation to a tropical island? Or maybe you’re planning to buy a house in the future? By budgeting, you can see how much money you can save each month towards these goals and estimate when you’ll be able to achieve them.

How to make a budget

The first step can be overwhelming. There’s so much advice out there about budgeting, from friends to social media influencers. However, it’s important to remember that budgeting is a personal journey and what works for others may not work for you.

It’s important to start by understanding your current financial situation and what you hope to achieve with your money. Once you have a clear understanding of your goals, you can take simple steps to build a budget that aligns with your priorities. Remember, it’s okay to take it one step at a time and be kind to yourself throughout the process.

Step 1: List your income sources

To start budgeting, it is important to first create a comprehensive list of all the sources of income you expect to receive during the month. This includes your primary job paycheck, any additional earnings from a side gig, profits gained from selling old items, the $5 bill you found on the sidewalk, and even grandma’s cash birthday present.

Step 2: List your monthly expenses

Next, it’s time to list your expenses. Begin with fixed expenses like rent, mortgage, insurance, utilities, and wifi bills. Then, include your variable costs, such as food expenses (whether you eat at home or go out), gas, and any discretionary spending for entertainment or hobbies. 

Assign a monetary value to each item to estimate how much you plan to spend. Add up all your expenses and keep the result in mind for the next step. 

Step 3: Check your final balance

Now it’s time to compare your total income and total expenses. Ideally, your income should be higher than your expenses after calculating this. However, if you find that your expenses are greater than your income, it may be necessary to cut back on some costs. Don’t worry, we’ll guide you through this process in the next step. 

Step 4: Adjust your numbers

Remember, budgeting is an ongoing process, and it’s important to constantly track your expenses to ensure they align with your financial goals.

The best scenario is to have some money left over that can be put towards savings. To achieve this, review your expenses again and look for areas where you can cut back.

Extra tip: If you want to take your financial life one step further, prioritize your savings by assigning them as one of your expenses. It is recommended to save at least 15% of your income. This may mean that you won’t be able to afford that night at the movies or dinner at a fancy restaurant, but it will guarantee that you’ll have a portion of your income in your savings at the end of the month. Remember, every penny counts towards building a more secure and stable financial foundation.

Now that you have the basic knowledge of how to make a budget consider this. Have you ever played a videogame in which you suddenly find an upgrade that gives you special powers and makes it a lot easier to accomplish your mission? Well, something similar happens with budgeting once you find the right budgeting strategy. Here are some examples to consider.

Budgeting strategies

Before we start with these, let’s remember that no budgeting strategy is better than the others. There is not just one right answer, every strategy works well if applied correctly. Now let’s take a look at some examples.

The 50-30-20 rule

Even if it may sound like a complex algorithm you used to study in high school, the 50-30-20 rule is one of the easiest budgeting strategies. It gets its name from the way in which you divide your income into different categories of expenses.

  • 50% for needs: Half of your income should be destined to pay for essential expenses such as food, rent, medicine, transportation, etc.
  • 30% for non-essentials: This percentage should be used for expenses that are okay to have but you can absolutely live without. Think about a new pair of shoes, an upgrade for your phone, a night out with friends, a streaming subscription, etc.
  • 20% for financial goals: What’s left of your income should go towards your savings, investments, and debt payments, whatever helps to reach your financial goals.

Take a look at our article dedicated to the 50-30-20 rule to find some interesting tips on how you can tweak these percentages to make this strategy work perfectly for you.

Zero-based budget

This strategy is not about ending the month with no money, don’t worry. The zero-based budget looks to give every single penny a purpose so that your total income minus the sum of your expenses results in zero. This includes your essential expenses, non-essentials, but also your savings, investments, debt payments, etc. Check our article about the zero-based budget to see why this is one of the easiest methods to implement.

The envelope system

In today’s world, digital wallets, and debit cards are the preferred payment methods. But believe it or not, using cash can actually help you stay on track with your budget.

The envelope system is about allocating a certain amount of cash to each expense category and keeping them in separate envelopes. For instance, if you plan to spend $250 on food, put that cash amount in an envelope labeled “Food”. When you go grocery shopping, only use the money from that designated envelope. This way, you’ll be sure to stay within your budget for each category throughout the month. 

This strategy works well especially for those who struggle to control expenses. Sure, you could use multiple bank accounts and a debit card for this purpose, but using cash is a good way to establish the habit of sticking to your budget.

As you can see, any strategy may work well if you use it right. You just have to find the one that fits your needs and your lifestyle.

How to stick to your budget

Having the best budget ever would mean nothing if you reach the end of the month and discover that you blew your money away. More important than making your budget is sticking to it.

Once you’ve picked the right strategy and started designing your own budget, all that is left is to end the month without going beyond what you have planned. To do this, you’ll need to take a look at your budget every now and then and see if your money is behaving the way you expected. For most people, this is the hardest part, but you can make it easier for you by following these principles.

Set your saving goals

Your saving goals will be the base of everything we have discussed so far. They will work as the North arrow in your compass during this financial journey as they will guide you to make decisions about how much money you need to save and how much you can spend.

Saving goals are important financial milestones that you will want to achieve with your money at some point in your life. These are some of the most popular goals you can consider including in your plan:

  • Big purchases like a car, a house, or family vacations.
  • Tuition for school in case you want to go to college, get a master’s degree, or a special course that may improve your resume.
  • A retirement fund to avoid depending on a pension once you’re done working.

Build an emergency fund

No matter what saving goals you have set for your life, having an emergency fund is a must if you want to live a financially healthy life. You never know when you’ll have to go through a medical emergency, a home calamity, or any other setback so you need to be always financially prepared for these kinds of events.

Keeping an emergency fund makes it easier to stick to your budget because it protects you against unexpected expenses and prevents getting into debt in order to pay for emergencies. No one knows what will happen in the future so make sure to have a fund of 3-6 months worth of regular expenses always available.

Keep control of your expenses

It’s understandable if keeping track of your expenses feels overwhelming or tedious. But we can’t stress enough how essential it is to make your monthly budget work effectively. 

There are a variety of tools available out there, whether you prefer the simplicity of pen and paper or the convenience of digital apps. Whatever your choice is, it’s important to remember that these tools won’t do all the work for you. It’s up to you to check in regularly, understand where your money is going, and make adjustments as needed. 


Phew… that was a lot to cover! Let’s make a quick summary.

A budget is nothing but a very specific plan of how you will be spending your money during a specific time period. To make your own, all you have to do is list all your expenses and income sources and compare the total amounts to see whether your money is behaving as expected.

To take your budget a step further, consider using one of the budgeting strategies mentioned earlier. Make sure to choose the one that fits you best as all of them work well and can help you to prioritize your financial goals.

The most important part of controlling your finances is to stick to your budget. To make that process easier, keep your saving goals as your motivation and decision-making guide, build an emergency fund to be able to face unexpected expenses, and always keep constant track of your expenses.

If you’re looking for some more tips to improve your personal finances, feel free to keep exploring the rest of your articles. You’ll find some useful tricks to save money and thorough guides on how to manage your money wisely.

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