How To Start a Budget
Starting a budget is relatively simple. The basic process for making a budget goes like this:
- Add up the monthly income you expect from all sources
- Categorize and add up the monthly expenses you expect to pay
- Subtract expenses from income
Your goal should be to see how much you have coming in and to set a plan for what goes out.
Step 1: Add Up Monthly Income
Consider all your possible sources of income: salary from your job, payment from clients if you are a freelancer or gig worker, or sales you’ve made if you run your own business. If you receive regular payment for disability, Social Security, alimony, or child support, include that, too.
Make a list of each source of income and how much you typically receive per month. Use the take-home amount, not the amount you earned before taxes. If the amount you receive changes from month to month, try using an average amount instead.
Step 2: Add Up Monthly Expenses
Next, create a list of all of your regular monthly expenses. Include fixed expenses, such as rent, mortgage, or insurance. Then, list your variable expenses—the costs that change from month to month. Some examples are food (both groceries and restaurant purchases), gas, and entertainment.
Try to record everything you spend money on. Checking your bank and credit card statements can help remind you of any expenses you’ve forgotten.
Step 3: Subtract Expenses From Income
Finally, subtract your total monthly expenses from your total monthly income. You’re ahead of the game if you project to have money left after performing this calculation.
If you think you’ll fall short, revisit your expenses to look for areas you can reduce or eliminate. It’s particularly critical to compare needs versus wants at this point.
The Balance
April 25, 2025
