Budget Basics: How To Create A Budget

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It can be scary when it comes to budget and debt. Learn how to get started creating a budget (and you'll wonder why you didn't do it sooner).

How to Create a Budget

When the new year approaches, many make resolutions.  For some it is to end a bad habit or get back into shape.  However, around 25% of Americans want to make sure they spend less money (Source: Nielsen).   If you are one of the 25%, then you are in the right place!

Finances do not involve only spending less, but also learning more about your spending and finding ways to make changes, perhaps pay off debt and increase your overall savings.

I know it is very scary to look at your spending.  Trust me.  I’ve been in your shoes.  However, I have learned that the things which were the most challenging in my life have been the most rewarding.  For me, personally, it was getting out of debt and actually being in control of our money (read my personal debt free story).

If you were like my husband and I, we had a “budget.”  I use that term very loosely as it was just a piece of paper where I’d write down who I had to pay every month so I did not forget.  The sad reality was that it was not a budget.  It wasn’t even close.   As my husband and I began our journey to get out of debt one of the first things we had to do was to actually look at create our budget.

I remember sitting down the first time and actually listing out our monthly expenses in income.  I was in tears when we were done. I could not believe that we had allowed ourselves to not be in better control of our finances.  The good thing in doing this was the reality and understanding of where we were at and knowing that we did not like that picture.  It instantly provided us with a goal.  We wanted to make positive changes and get out of debt.  It took us time, but we did achieve our goal (and it was one of those top moments in my life).

I am going to be completely blunt here.  This will be tough.  It is going to bring great challenges your way.  However, I can guarantee that it will be worth it in the end.  Just wait until you can finally control where your money goes instead of the other way around.  It is liberating.

Now, before we begin, you will want to download our FREE budget form.  We’ve got this in a couple of different formats for you, so you can use the one that works with the computer/software you have available (I would never want anyone to spend money just to access our forms)!

Budget Form

(Click links below to access)

Budget Worksheet (Print and complete by hand)

Budget Spreadsheet (Opens in Google.  Select Save Copy to save to your drive)
(Permission to edit will NOT be granted to anyone)


If you want something more high tech, I’d recommend You Need A Budget (YNAB).  You can try it for free for 34 days and then it is $60.  However, I don’t pay for most apps or software I personally use as there is so much out there that is FREE!!!  Read my honest review of this app HERE (before you shell out the cash to purchase it for yourself).



Now that you have your form, it is time to get started!  Follow our easy step-by-step instructions to prepare yours!


Step 1 – Compile necessary items.

Before you begin, make sure you have everything you will need to prepare your budget.  These will include (but are not limited to):

  • Bank Statements
  • Paystubs
  • Monthly receipts to various stores
  • Credit Card statements
  • Personal/Vehicle Loan information
  • Monthly utility statements


2. Determine your income. 

Next, look at your paycheck(s) – what we call your Income Source.  Since  your budget is based upon your monthly income, you will have to possibly complete some calculations to reach that figure.  Here are some calculations to help you:

  • Paid Bi-Weekly (i.e. every other Friday):  Take the 4 income totals and subtotal them.  Divide them by 2 and you will read your average monthly income.
  • Paid Monthly: If the amount listed in each pay period is exactly the same, you can just use the monthly income you see.  Otherwise, add 3 or 4 months of income and divide by that same number of months calculated.
  • Paid Weekly:  Take the total of the 4 income periods and that will give you an average monthly income.
  • Hourly or Commission Based (i.e. fluctuating income):  Total your last 4 months of income and divide by 4 to reach an average.  However, since your income fluctuates more frequently, you will need to adjust your income and revisit your budget more frequently.


3. Determine fixed expenses.

Each month you know you have to make certain payments such as your mortgage or rent, electric, insurance, vehicle payments — just to name a few.   Add these to the form in the necessary columns.  If you payment varies slightly (for instance if you are not on a budget billing system), take the past 3 months worth of statements and average them together to get your actual payment.

Example:  October – $45.79; November – $52.95; December – $49.22.  Add those 3 items together and divide the total by 3 to reach your average. In this example, it looks like this:

$45.79 + $52.95 + $49.22 = $147.96    $147.96/3 = $49.32 is the average you spend.

I would also recommend you look at the months of highest usage.  For instance, you may use more gas or oil in the winter months, so use that as your base for you budget.


4. Calculate discretionary expenses.

Your discretionary expenses include those which are not always the same payment, like food, fuel, clothing, etc.  You will treat them in the same manner as noted in #3 above.  You will want to make sure you take the average of three months’ spending to get a figure to add into your budget.


5. Complete the necessary sections on your budget.

This is the “fun” part.  Transfer the amounts you have listed above into each spot on the budget.  Your monthly income should go at the top and then the amounts for each expense in the appropriate location.  Those listed on the form are to be used as a guide (reminder if you will) to ensure you properly account for all of your expense.  You can add rows / edit the descriptions as needed.

Subtotal both the income and expenses.  When you deduct your expenses from your income at the bottom of the form, your final result should be ZERO.   If you see that you are spending more than you take home, then you are short on income and will need to adjust your expenses.  If you are not spending all you make, then you might consider increasing your savings or retirement account contributions — or apply this towards your debt payments.

If you would rather, you can watch a short tutorial video which explains how to complete the form.  (Click here for larger screen version, if necessary).



It is quite normal to either cry or even feel sick to your stomach.  As mentioned above, it happened to us. Once we started to rework the numbers I began to feel better.  I actually started to feel like I could do it.  It would be tough, but nothing in life worth having is ever easy!

Here is how to get started.  First, take a look at your mandatory expenses.  One that I always like to mention to check is cable.  We found out that were paying WAY too much and found a way to cut in half.  (As much as we would like to cut the cord completely, we are not yet there, but since our budget allows the payment, we are OK with it).   Perhaps you could do the same as we did and reduce your plan to free up some income.

Once you have cut back where you can on those expenses, that means it is time to look at your discretionary spending .Go and look at your budget to see where you are spending money.  Perhaps you are dining out a bit too much and your budget takes a hit.  You might even buy too many clothes every month.  These are areas where you might find that you just need to scale back on your spending so that your budget works.

It is not a fun thing to do, but what is more important?  A roof over your head or dinner out?  Do you really want to get out of debt or do you want the new shoes?  These are decisions only you can make.  However, if you are willing to scale back now and actually work yourself out of debt, it will be worth it when you can buy those new shoes without any guilt!

If, once you have adjusted your budget it still doesn’t look right, make more adjustments. If you have already scaled back on everything and it isn’t balancing out, make some calls to your debtors.  Ask for reduced interest rates or how to reduce your payments.  You can also suggest to them a different monthly payment other than the one they are asking you for.  You never know what they will accept if you don’t make that phone call.

This is where you have to make tough choices.  My husband and I wanted to get out of debt and so decided that we would not eat dinner out.  For a period of more than 2 years, we ate dinner out no more than 10 – 20 times a YEAR.  We saved soooo much money, which we in turn were able to use to pay off our debts!  It was very difficult, but the end result was well worth the temporary sacrifice.



First of all – congrats!  You now have a budget you can use.  You need to make sure that you revisit and update your budget at least once (if not twice) a month.

Most of the time you will probably not make any changes.  However, if you get a raise, have an added expense or finally pay off your vehicle, it will require a change to your budget numbers.  Remember that your budget must ALWAYS end in zero!

Budgets are not easy nor are they fun, but once you have one set up and continue to refer to it, it will work.  You will find it helps as you are now telling your money where you want it to go rather than it telling you where it is going to end up each month.  Financial control – such an amazing feeling!

(I am not a financial advisor and the information listed within these posts is not to be construed a financial advice.   Financial concerns/issues should be addressed with a professional in order to receive advice and assistance.)


  1. Chris says

    Thank you for putting this out there. I try to start a budget every year but I always fail. I get very frustrated at seeing those numbers. One thing that confuses me about listing where my money goes is shopping at places like Wal Mart and Target. I, like many others I’m sure, but multiple “categories” of items. For example, I buy groceries, toiletries, clothing, toys, birthday gifts, school supplies and so on in one shopping trip. My question is do you literally sit down with your receipt and break out those items accordingly in order to list them correctly on your budget sheet? How do you handle this?

    • Tracie says

      For us, all groceries include food, toiletries, household items, etc. Clothing and annual expenses (such as gifts, holidays, etc) are broken out into their own categories.

      So, if I shopped and bought $50 in clothes, $25 in supplies and $100 in food at one single time, I WILL go through and make sure that I categorize them properly on my budget.

      I hope that helps.