How to Make a Budget: A Step-by-Step Guide

make a budget

A budget—it’s one of those things that many of us know we should be doing, but often feel like we can’t. Or, we simply don’t want to, for a variety of reasons. The good news is that a budget is not that complicated and you can do it well. In this article, I will show you how to make a budget and take greater control of your money.

Before we get into the actual steps, I want to take a moment and dispel a few myths about budgeting. If budgeting is surrounded by mystery and mythology, it will inhibit your ability to start and complete your budget. So, let’s set the groundwork first.

What Budgeting Is and What It Is Not

When you hear the word “budget,” what’s the first thing that comes to mind? Being cheap? No frills? No fun? How about cruel and unusual punishment?

That’s what a lot of people think of, too. But it doesn’t have to be that way if you don’t want it to be.

You see, a budget is merely you telling your money where to go instead of wondering where it went. It’s creating a plan for all of your income and expenses, diligently determining what you need to do in a given month. And all of this is guided by what your values are and what is important to you.

Your budget can be as tight or loose as you want it to be (albeit, you can’t spend more than you make). But you get to decide. Your family, friends, colleagues, etc. don’t get to tell you how to spend your money. Not even I as your coach get to do that.

Now that some of the myths are out of the way, let’s get to how you can successfully make a budget.

1. Budget Your Income

make a budget for your income

Determine all income sources you have in a given month. This will include your main job, side jobs, child support, alimony, inheritance, gifts, etc. Whatever comes into your checking account in a given month, add that as an income.

Add all of these amounts together. This is the total you have to plan for this month. Aim to give every dollar a job so that none of them disappear on you.

Keep in mind that some months you may have more or less income. That’s okay! Just adjust what your planned income is for that month, and ensure that your expenses do not exceed that number. Each month is different and our budget needs to reflect that.

2. Make a Budget for Your Four Walls

Now that you have all income accounted for and totaled, we need to start planning for your expenses. In every single budget, there are certain things that must be covered before anything else. I like to call these things the Four Walls.

I wrote an article on the Four Walls here. For a brief overview, these primary expenses will be (in order) your food, utilities, housing, and transportation.

You must eat. Don’t pay on a credit card if there is no food in your pantry. They can wait. Your body cannot. (But remember, this is grocery shopping, not eating out).

Utilities need to be paid so the lights, gas, water, etc. are not turned off. After all, our food has to be kept cold and we need something to cook with.

Ensure your rent or mortgage is paid on time to avoid late fees or the risk of eviction/foreclosure.

After these, make sure your car has gas in the tank (or charge in the battery) and is operating properly.

Once these Four Walls are covered, then we go to the next category of expenses.

3. Plan for Secondary Core Expenses

budget for bills

This next group will be a bit lower in priority, but still important things you have to cover. Included in this group will be auto insurance, medical copays, cable/internet, cell phone, security system, pet care, and important subscriptions.

Not all of these will apply to everyone. You may not always have copays for doctor visits or prescriptions. You may not have a cable bill (hello, fellow Millennials!), or a security system. Simply exclude these types of expenses if they are inapplicable.

The thing to keep in mind in this group is that these are ordinary and necessary expenses, not the unnecessary things that we tend to indulge in. So your Netflix, Hulu, Prime, and Disney+ memberships don’t go into this group. But don’t worry, we’ll get there later in your budget.

4. Plan for All Debt Payments

This part of making your budget is probably one of the least pleasant. In this group are all the past decisions you made to finance things that are taking large portions of your monthly income. But these debts must be paid to prevent repossession and collection actions.

When planning out your debt payments, first make sure you are current on all of them. Before following a debt-free plan like the snowball or avalanche method, get everything back up to speed to avoid additional late fees and penalties.

Once you’re current, first budget for your secured debts. These will generally be vehicles for most people, but may also include other things like furniture, appliances, electronics, or even pets (yes, there is financing for pets). Make sure these are paid each month to prevent the risk of repossession.

The exception to the rule on secured debts will be federal student loans and back taxes. Budget for those before all other debts. The IRS and Department of Education can garnish wages or levy a bank account without the usual process of obtaining a judgment first.

When secured debts plus federal student loans and back taxes are budgeted for, then move to unsecured debts. These will generally be accounts like credit cards, personal loans, private student loans, and (God forbid) payday loans. There is nothing these creditors can repossess, but they can levy high fees and interest on your account if you carry a balance or fall behind.

At this point, just make a budget for your minimum payments. Remember that we’re aiming to use all of your income in the most efficient way possible.

5. Determine What’s Leftover in Your Budget

budget leftover cash

Once all of the above expenses are planned out, determine how much of your income is left. You may be surprised what you actually have to work with. In fact, my clientele was able to find on average $1,700 extra per month in 2021 by budgeting well and making lifestyle adjustments!

Perhaps you’re in a situation where you find yourself in the negative. This is where there is an income problem and we have to go back to the top to get that number up. After all, it’s hard to make a budget when you’re constantly in the red.

One of my first suggestions in this situation is to ask for more earnings opportunities at your main job. Look for overtime hours, if available. Ask what ways you can take on more responsibility to earn more. Set yourself above the rest of your colleagues as the one who has just that bit of extra hustle.

From there, look for side gig opportunities, at least temporarily. If you have a skill that you can use in the evening and on weekends, start with that. Post on your social media that you are for hire to perform those types of services or produce that product.

If you don’t have something that comes to mind, sign up for the gig economy with DoorDash, GrubHub, Instacart, etc. These services allow you to set your schedule and earn a decent hourly rate too, sometimes between $18-22 per hour.

When you have your budget balanced, the next steps are to find ways to increase your earnings at your main job. That can mean getting promotions where you are currently at or even looking for a new position.

Put yourself out there and actively look for ways to provide more value to others. In this, you will have new earning opportunities.

6. Ensure That Every Line Aligns with Your Values

We’ve talked a lot about what to plan for here. Lots of labels that will have lots of numbers. But here’s the thing—all these lines and numbers need a reason to exist. If you make a budget in a vacuum of values, the budget will be meaningless. After all, why do all of this if there isn’t a big reason for it?

Clarify what is important to you. Write down your values and goals. Let those things guide your spending. Make values-based financial decisions. Choose to do things that other people may not understand. This is your life, and you get to decide how you want to spend the money you earn.

Take those values and goals, and let them flow through each line in your budget. When your budget is more than just lines and numbers, it takes on the level of meaning necessary to make it work well for you.

Final Thoughts on How to Make a Budget

man thinking about budgets

Making a budget isn’t all that complicated, at least in theory. But the way we spend our money reflects what’s going on in our minds and hearts. It can be unpleasant to take a deep look at what’s in there, especially if we know that uncovering those things will show how our past decisions have led us to where we are.

The good news is that it’s never too late to do what is right. It’s never too late to find meaning and healing in your finances. Making a good budget will help you make decisions within a solid framework instead of on a whim.

For programs to use, I am a big fan of the EveryDollar app. YNAB (You Need A Budget) is also a popular tool. Download these apps in the AppStore and on Google Play to have a versatile and dynamic experience with making your budget.

Starting this journey can be intimidating. Perhaps you don’t know where to start. That’s what I’m here to help with. I’ll show you how to do this and live at levels you haven’t imagined before.

Book your free Discovery Session today to start your financial transformation!


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