How To Create A Budget That Actually Works

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Do you know how to create a budget? Even if you suck at budgeting, you need to have one.

How to create a budget - even if you suck at budgeting

We all want to be better with our money.  That doesn’t mean just spending less.  It also means learning about your spending and making changes.  Your changes may mean you want to get out of of debt or reach a savings goal.  That is why you need to create a budget.

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. Having declared bankruptcy was a low point.  However, it also formed me into the person I am today.  It also taught me many important lessons about money.  Most importantly – the reason I must have a budget.

If you were like my husband and I, we had a “budget.”  I really use that term loosely.  It was not a real budget.  Instead, it was a paper where I’d write down who I had to pay every month so I did not forget.  This was not even close to being a budget.

When my husband and I began our journey to become debt free, we had to look at everything.  One thing was sit down together and really look at create a budget.

Seeing our expenses and income in writing for the first time still sticks with me. I was in tears when we were done. It was shocking to see that we had not been 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.

Budget Spreadsheet (Google Spreadsheet)
(To access select File, Save and it will put a copy in your drive)

Or, to get one you can download and print, just fill out this form!  Once you confirm the details in your email, we’ll give you the tricks on how to unlock and access all of the forms on our site.

If you want something more high tech, I’d recommend You Need A Budget (YNAB) or EveryDollar.  These are apps which have been tested and reviewed personally by me.  They both work very well, so I am confident in recommending them to anyone.



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.
  • Monthly Pay: 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.  You may also want to follow our tips on creating a budget with irregular income.


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.  You can also use a spending form to figure out the exact amounts to include on your budget.

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. 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 not, then figure out the changes you need to make:

  • Negative number:  You are spending more than you make.  Reduce your spending until the total reaches zero.
  • Positive number:  You have not spent everything you make.  Either increase the debt payments or your savings.

This short tutorial helps show you 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.  However, 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.)

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  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.