4 Steps to Build a Budget

Having a budget set in place, regardless of your financial status or age, is an incredibly important step toward a stable fiscal future. Knowing where your money flows is the only way to get a grip on excessive spending and successfully prepare for the future.

Creating a budget may strike as a daunting task at first glance, but really, it’s just a matter of a couple of hours and a calculator. Sit down with a pencil and paper and get ready to be responsible.


Step 1: List Your Income

The first step in building a budget is to make a complete list of your income per month. If you have a steady job with consistent hours, then this is as simple as adding up your paystubs. However, if you work gig jobs or unusual hours, you may want to add up your monthly income for the past three months and divide by three to get a look at your average earnings.

Additionally, don’t forget to include non-employment related income, such as:

  • Government payments, including disability, SNAP, SSI
  • Dividends or other payouts from your investments
  • Child support and alimony


Step 2: List Your Expenses

When looking at your expenses, it’s important to list out every single payment or consistent purchase within a 30-day period. In addition to regular installment payments such as credit bills, utilities, subscription services, and rent, you’ll want to consider your grocery and gas bills.

You’ll also want to include yearly and quarterly payments, such as is common with insurance premiums. To add these costs in your monthly budget, take the amount spent over a year, and divide by 12. This will give you the exact amount of money you’ll need to set aside each month.


Step 3: Divide Your Expenses

Once you have your expenses listed, divide them into two categories: essential and nonessential. Essentials include items such as toilet paper, food, and rent – the things you need for daily living. Nonessential items are products such as entertainment subscriptions, takeout or date night, and unneeded luxuries.


Step 4: Make Adjustments

Once you have a complete visual on where your money comes and goes, you can set realistic goals. First off, find areas where you may be spending disproportionate amounts of money. You may find that you are spending too much on entertainment and eating out or not saving enough toward your goals. Consider cutting out unnecessary expenditures to free up some cash flow.

After you have tallied up your adjusted expenditures, compare this number against your total monthly income. If you’re coming out negative, it’s time to find more cuts. On the other hand, if you’re in the black, consider opening an emergency or rainy-day savings fund.


Pro Tip: Use a Budgeting App

If you’re not good with numbers or want a second set of eyes on your work, consider a budgeting app to help you along. Services such as YNAB, Mint, and Clarity Money can help you keep track of your expenses and stick to your budget, so you’re prepared to invest in your future goals.



Building a budget doesn’t have to be difficult, and the rewards from having – and keeping to – a budget can literally be measured in the thousands of dollars as you age into retirement. Make a plan, stick to your goals, and reap the rewards of responsibility.