//How to Create a Monthly Budget That Works

How to Create a Monthly Budget That Works

You hear it time and again “you need a budget.”  The truth is that if you have never created one, the mere thought may make you want to run and hide.  But, making a budget that works is not difficult; at least not so if you have someone helping you.

If you are ready, I can help.  Below you will find the exact steps to follow to make your budget.  Whether you are a beginner or have budgeted in the past, this will help.  You’ll find the printables and support you need to make a monthly budget that works.


We all want to be better with our money.  That doesn’t mean just spending less.  It also means learning about your spending habits and making changes.

A simple change may help you reach your savings goal or even pay off your debt. That is why you need to create a budget.

I know it is terrifying to look at how you spend your money.  Trust me.  I’ve been in your shoes.  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 valuable lessons about money.  Most importantly, I learned why I must have a budget

If you are like my husband I used to be, we had “budget.”  Except it wasn’t really.  Rather, it was a paper where I’d write down who I had to pay every month, so I did not forget.  Not even close.

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

Seeing our expenses and income in writing for the first time still sticks with me. I remember being in tears. It was shocking to see that we had not been in better control of our finances.

There was some good that came from us doing this.  It allowed us to acknowledge where we were at and realize that we did not like what we saw. 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.  Creating your first budget will be tough.  It is going to bring significant challenges your way.

But, 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.

Before we begin, you will want to download our FREE budget form by clicking on the pink box below:

If you want something more high tech, I 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 you.



A budget is an estimated plan that lists your income and expenses for a specific period of time.  Most people tend to make a budget based on monthly income.



It is important to include every penny you earn and spend when making a budget.  It is easy to know how to track your income, but it should also include budget categories.  Some of those you need to remember to use include:

  • Savings
  • Annual expenses
  • Holidays/Birthdays
  • Food
  • Clothing
  • Shelter
  • Utilities
  • Subscriptions
  • Dues
  • ChildCare
  • Beauty
  • Medical/Dental

Your list may include more or fewer categories.  The budget template and spreadsheets shared above include the categories that will cover just about 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.  These will include (but are not limited to):

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


Step 2 –  Determine your income

Next, look at your paycheck(s) – what we call your Income Source.  Your budget should reflect your monthly income. If your paychecks come more frequently than once a month, some simple calculations are necessary.  That way, you can come up with an accurate monthly income.

Here are some formulas to help you:

  • Paid Bi-Weekly (i.e., every other Friday):  Take the four 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 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 four income periods, and that will give you an average monthly income.
  • Hourly or Commission Based (i.e., fluctuating income):  Total your last four months of salary and divide by 4 to reach an average.  However, since your income varies more frequently, you will need to adjust your income and revisit your budget more regularly.  You may also want to follow our tips on creating a budget with irregular income.


Step 3 – Determine fixed expenses

Each month you know you must make sure 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 your payment varies slightly (for instance if you are not on a budget billing system), take the past three 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 in 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 utility usage.  For instance, you may use more gas or oil in the winter months, so use that amount as the base for your budget.


Step 4 – Calculate discretionary expenses

Your discretionary expenses include those that 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 to your budget.


Step 5 – Complete the necessary sections of your budget

This is the “fun” part.  Transfer the figures you have listed above into each spot on the budget.  Whether you are using a budget spreadsheet or printable, your monthly income should go at the top and then the amounts for each expense in the appropriate location.

The form has categories listed for you.  These are a guide to help you remember everything you may need to have on your budget.  You can add in additional items that may not be included or ignore those categories you do not need on your budget.

Total both your income and expenses.  Then, subtract your expenses from your income.  The result should be ZERO.   If not, then figure out the changes you need to make:

  • Negative number:  You are spending more than you earn.  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.



After you complete your budget for the first time, it is normal to either cry or even feel sick to your stomach.  As mentioned above, it happened to us. But, once we started to rework the numbers I began to feel better.  I began to feel like I could do it.  It was tough, but nothing in life worth having is ever easy!

Here is how to get started.  First, look at your necessary expenses.  One that I always like to mention to check is cable.  We found out we were paying WAY too much and found a way to cut in half.  (As much as we would like to cut the cord entirely, we are not yet there.)  Perhaps you could do the same as we did and reduce your plan to free up some income.  There are many ways to reduce your monthly expenses.

Once you have cut back where you can, it is time to look at your discretionary spending. 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 may even spend a bit too much on shoes.  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 want to get out of debt or do you want the new television?  These are decisions only you can make.  However, if you are willing to scale back now and 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 amount other than the one they require.  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 more than two years, we ate dinner out no more than 10 – 20 times a YEAR.  We saved a lot of money, which we used to pay off our debt.  It was challenging, but the 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 shift in 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 a fantastic feeling.


Budgeting for beginners!  Learn how to create a monthly budget by following this step by step plan.  Get a free budget printable or use the free online budget calculator to create a budget that works.

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