The 5 Basics of Building a Budget

Getting your financial life in order isn’t always a difficult thing to do, though it does require some effort on your part. How long it will take and what will be involved frequently depends upon how good you are at managing money, what your income looks like, how much debt you may have and numerous other facts like unexpected expenses.

One of the simplest (and most important) things you can do to get your finances in shape is to create a budget. It’s the cornerstone upon which everything else is built, providing you with the foundational knowledge of what your monthly or even annual cash flow looks like, so you’ll have a clear picture of what it’s going to take to save more, spend less and pay down your debt as quickly as possible.

As simple as a budget may be, it can seem daunting if you’ve never done it before. With that in mind, we’ve put together the basics of how to build a budget. The tools you choose to use to help you manage it (and your money), are completely up to you. There are simple-to-use spreadsheets available online (we’re particularly fond of the budget spreadsheet available for free in Google Sheets), automating tools that help you pay your bills on time, and even apps that help you keep your spending in check, etc.

Here’s how to build a basic budget so you can take control of your financial life:

Step 1: What's Your Monthly Income?

To put together your budget, you need to know exactly what you’re working with. Start out by figuring out your after-tax income. If you receive a regular paycheck, you’ll want to use that amount as your income, but don’t forget the big picture. Do you have automatic deductions for your 401(k), health and/or life insurance, additional savings? Be sure to add those back in so you have a true picture of what your savings and expenditures are.

Once you’ve done this, you’ll want to log all of your expenses – things like your rent and other bills that you’re required to pay every month. If your bills don’t meet or exceed your income, congratulations! You have what’s known as discretionary income, which you can choose to spend or start using to pay off things like student loans, credit card bills or put into savings.


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Step 2: Set Your Goals

What are your goals in establishing a budget? Do you want to pay off debt? Increase your savings? Just have a better handle on where your money is going?

Decide what your long- and short-term goals are so you can use your budget to direct exactly where your money goes. Do you want to pay off $5,000 in credit card debt within a year? How much money will you need each month to make that happen? Do you need a plan like the Debt Snowball Method to help you pay that debt off? Establishing your priorities and setting deadlines will help ensure your budget is a tool that works for you and not just a place where you track what you do with your money.

And don’t forget that you should be putting away a little into an emergency savings account. You don’t want an unexpected bill or job loss somewhere down the road to turn into a financial hardship.


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Step 3: Find Tools That Fit You

As we said before, choosing the tools that work best for you is important. There’s no one-size-fits-all solution here, so you’re going to need to do a bit of research. In general, though, you need a piece of paper at a minimum, or an automated spreadsheet for optimal efficiency to record your spending. Keep in mind that tools that automate as much of your budget as possible will make saving and paying bills a breeze, so you won’t have to think about it so often. A tool like Pay Down My Debt can help. You may also want to consider the aid of an accountability partner or online support group, so that you’re held accountable for choices that blow the budget.


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Step 4: Don't Cut Out All the Fun

A budget is a lot like a diet: It’s good to set goals and parameters, but if you cut out all the stuff you love, you’re not going to stick to it, especially not for the long term. Building a budget is as much about creating good habits as it is spending less and saving more. So let yourself do a little shopping, go out with your friends, take that weekend trip. Just build it all into your budget so you can plan for these expenses and adjust accordingly.


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Step 5: Revisit & Revise

Your income, expenses – and even your priorities – will change with time. Your budget also should change to reflect your new money goals. Revisit your budget every few months to start, and tweak it as needed.


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[Editorial Disclosure: is a service that provides people with tools to pay down their debts through automatic payments. The purpose of this article, however, is not to encourage users to purchase that service. This article is educational and journalistic in nature and aims to help people learn how to pay down their debt, whether they use our site, another, or go it alone.]