How to make a budget, step by step

This page is the order of work. If you want finished budgets to copy, see budget examples. For the rules themselves, see budget rules compared. For the list of lines to use, see budget categories.

Step 1: Find your take-home pay

Take-home pay is what lands in your bank after tax and deductions. It is the only money you can spend, so every share in a budget is a share of it. The CFPB's first step is the same: record all your income, including a second job, self-employment and benefits.

If you are paid every two weeks, a paycheck of $1,850 is about $4,008 a month ($1,850 × 26 ÷ 12). That is more than twice the paycheck, because two months a year hold three paychecks. See three-paycheck months. Budget on the monthly figure and treat the extra paychecks as a bonus.

In the example, take-home is $4,000 a month.

Step 2: List the bills that do not change

Write down everything you owe at about the same amount each month, and the day it is due: rent, insurance, phone, loan payments, subscriptions. The CFPB says to compare bill due dates with when you get paid, to spot a shortfall before it happens.

Do not forget the ones that come once or twice a year. Divide each by 12 and count it monthly. There is a short guide to sinking funds for this, and a longer list of fixed expenses.

Step 3: See what you really spend

Open three months of bank and card statements and add up each category. The CFPB says to log your spending over a typical month, sorted by category, and to include the small everyday purchases, because they add up. Use three months so one odd month does not set the whole budget.

This is the step most people skip, and the reason many budgets are guesses. Groceries, eating out and gas are where the real number is most often different from the remembered one.

Step 4: Pick the shares

Now decide how much of your pay goes to each part. You do not have to invent the numbers. Two published plans are a good place to start, and both call their numbers guides, not rules.

The two agree on the shape: needs at about 60% or less, a share you are meant to enjoy, and a share for saving. Fidelity measures retirement on your pay before tax, so if it comes out of your paycheck at work, it is already gone from take-home. Our budget rules page lays the two side by side with the others.

For the example we use Fidelity's: $2,400 for needs, $1,200 for wants and $400 for near-term goals and emergencies.

Step 5: Give every dollar a job

Fill in each line so the total comes back to your pay. This is the whole budget, worked on $4,000.

Two checks. The total must equal your take-home, no more and no less. And no line should be blank because you forgot it: a month with an unplanned $300 repair means the plan was missing a line, not that the plan failed. Put the yearly costs in the saving rows, as the last line does.

When needs come to more than 60%

Say the same person pays $1,800 for rent instead of $1,350. Needs are now $2,850, or 71% of $4,000. Fidelity's line is 60%, and it calls its numbers goals.

Do not pretend the line is met. Write the true needs, $2,850, and take the difference from wants for now, so wants are $750 and saving stays $400. Then list which needs could come down in the next year: a cheaper phone plan, a different insurer, a roommate. If rent is the whole gap and you cannot move soon, that is a fact to plan around. The rent guide has the usual percentages.

Step 6: Check it, and change it

A budget is a plan, and plans meet a month. Look at the actual spending once a week or two. At the end of the month, put planned next to actual for each line and look at the differences. The printable monthly budget template has the columns.

• Over in one line? Ask if the plan was wrong or the month was. If three months in a row run over, raise the plan and take it from another line.
• Under everywhere? Send the extra to saving the day it is clear, not at the end of the year.
• A new bill or a raise? Run steps 1 to 5 again. It takes twenty minutes the second time.

Making a budget for two

The six steps stay the same. What changes is that there are two pays, a set of shared bills and two sets of personal spending.

1. Each of you finds your own take-home pay (step 1).
2. List the shared bills together, and keep a person's own bills, like a loan or a phone, with that person (step 2).
3. Decide how to cover the shared bills: evenly, by income or pooled. The fair split calculator does the math on two incomes.
4. Each of you keeps a personal spending amount. Ramit Sethi says that if you contribute proportionally, the personal allocations should match that same proportion.

Our guides on how couples split money and yours, mine and ours cover those choices, and budgeting for couples has the first conversation.

Where a paper budget stops working

A sheet is enough for plenty of people. It stops working when step 3 becomes a chore each month, or when a partner's spending is somewhere you cannot see. If that happens, Wonderful does steps 3 to 6 from your bank connection. It is not free after a free week: $14.99 a month or $99 a year for the household. It is on the web only for now, with no iPhone or Android app.