Adulting 101: How to make a budget plan

Once you understand your monthly spending habits, you’ll be able to make adjustments and empower yourself to save for the future.

Establishing a monthly budget is an essential first move toward making your short- and long-term financial goals a reality. Follow these eight simple steps to get started.

Step 1: Know your financial goals

Start by defining your goals for budgeting. Are you looking to get out of debt? Hoping to reduce overspending in certain areas? Wanting to save up for a major purchase? Focusing on objectives will help you make important budget decisions – and keep you motivated to stay on track.

Be specific about your goal and, if necessary, set a deadline. For example, if your long-term goal is to own a home, a measurable goal may be to save $50,000 (or X amount) in five years (X amount of time) for a down payment.

Step 2: Record your monthly income

Figure out your total net (aka “take-home”) income and record it as a monthly amount. Be sure to include all sources of income. If you’re starting a new job, an online paycheck calculator can give an accurate estimate of your after-tax earnings.

Step 3: List your monthly expenses

Make a detailed list of everything you spend (or plan to spend) money on in a given month, including:

• All payments you make on a monthly basis (e.g., rent or mortgage, utilities, car payment)
• The average monthly cost of expenses that you pay quarterly, semiannually or annually (e.g., car insurance, property taxes, some utilities)
• The average cost of purchases that typically occur each month but can vary from month to month (e.g., eating out, groceries, dry cleaning, gifts)
• An amount for unforeseen expenses (e.g., a car repair or an appliance replacement)
  
  

Scan through recent bank statements and receipts to catch small or random purchases. These may be easy to miss but can quickly eat up big portions of your paycheck.

Don’t forget to list an amount for short-term and long-term savings. Saving is easiest when it’s a built-in part of your monthly budget.

Step 4: Divide up fixed and variable expenses

Sort your expenses into two categories: fixed and variable. Fixed expenses occur regularly and cost the same amount each month or year, like rent or mortgage, insurance payments and subscriptions. (Tip: Include savings in this category, too.)

Variable expenses change from month to month, such as groceries, gas, clothing, entertainment, etc. Expenses in this category are often more flexible, making them easier to adjust to fit your budget. Identifying these will come in handy once you start thinking about ways to cut costs.

Step 5: Add up all your income and expenses

Add up your income and all your listed expenses. You’ll come up with one of three results:

• Your income exceeds your expenses: Great! Now look at using some of that “extra” to pay off debt or add money toward short- and long-term goals. You may even find you can reduce spending in certain areas to further boost your savings.
• Your income equals your expenses: It’s a good start, but spending less than you earn is essential to protect against the unexpected and achieve financial goals. Look for ways to cut costs so you can set aside some extra savings each month.
• Your expenses exceed your income: This is a situation that you’ll want to analyze and take steps to correct. If you’re unable to reduce your expenses by a sufficient amount, consider ways to increase your income.

Step 6: Create a new spending plan

Take a look at your expenses and honestly identify the categories you can cut back on or eliminate. If you’re stuck, try recording everything you buy over a period of a week or two. A month is even better. You may be surprised by how easy it is to rack up “little” purchases that really add up. Luckily, there are many simple ways to cut costs that don’t require much effort or major changes to your lifestyle.

Step 7: Record spending and track progress

Once you’ve set up your budget, stay on top of it by tracking your expenses in each category. Keeping a close eye on where your money’s going will prevent you from overspending. You can do it manually by paper or with an online spreadsheet. Or you can track each transaction with a budgeting app such as Mint or YNAB.

Step 8: Review and revise your budget plan as needed

Regularly evaluating and improving your budget is the key to budgeting successfully. Review it each month and adjust any categories that are consistently lower or higher than planned.

Monthly budget template

To help get you started we've provided a printable monthly budget template (PDF) so you can see where your money is going.  

Tip: Do a deeper dive each year to make sure your budget is keeping you on track to reach your goals.

Learn more and take your budget to the next level with these budgeting tips to help track your spending and save.