How to Make a Budget in 5 Simple Steps
A beginner-friendly guide to building a monthly budget that you can actually stick to.
A budget is simply a plan for your money. It tells every dollar where to go before the month starts, so you spend on purpose instead of wondering where it all went. Here is a simple five-step way to build one.
1. Work out your real monthly income
Use your take-home pay, the amount that lands in your account after tax. If your income changes from month to month, use the lowest typical month as your base.
2. List your fixed costs
Rent or mortgage, utilities, insurance, phone, transport and minimum debt payments. These are the needs you must pay each month.
3. Track your flexible spending
Look back over the last one to three months of bank statements. Group spending into groceries, eating out, subscriptions, fun and shopping. Most people are surprised by the total.
4. Pick a split that fits you
The 50/30/20 rule is a good starting point: 50% needs, 30% wants and 20% savings or debt payoff. If your rent is high, 60/20/20 may be more realistic. Try the numbers in our 50/30/20 budget calculator.
5. Automate and review
Set up an automatic transfer to savings on payday. Check your budget once a month and adjust. A budget that never changes soon stops working.
Common mistakes
- Making the budget too strict, which leads to giving up.
- Forgetting yearly costs such as car service or gifts.
- Not leaving a small buffer for surprises.
If you carry card debt, see how fast you could clear it with the credit card payoff calculator, and set a target with the savings goal calculator.