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How to Make a Budget in 8 Simple Steps

Sophie Isbell • November 29, 2023

Mastering budgeting is your key to financial freedom, whether you’re new to managing money or refining your skills. In this guide, we’ll show you how to make a budget, from choosing a budget model to tracking your finances.

An effective budget can empower you to manage your money, reduce stress, and reach your financial goals. Let’s get started! 

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1. Set your financial goals

Financial goals can transform budgeting into a powerful tool that supports your life goals. It makes budgeting more purposeful and motivating. Instead of feeling restricted by a budget, you can see it as a means to achieve your dreams. 

To set your financial goals, assess where you are now and where you want to be in the future. You can break this down into short-term and long-term goals: 

Once you have a list of goals, be specific about the amount of money you need and the timeline you want to achieve it. For example, if you plan to pay off $5,000 in credit card debt within a year, you’ll know how much to set aside each month.

2. Choose a budgeting model

There’s no right or wrong way to budget. While we’ll use the 50/30/20 model for this guide, there are countless ways to set up a budget. The method doesn’t matter if it includes your expenses, income, savings, and debts. Choose one that feels manageable and allows you to be consistent. 

Here are popular budgeting models to consider: 

  • 50/30/20 budget: The 50/30/20 budget divides your income into three categories: 50% goes to necessities, 30% goes to wants, and 20% goes to savings and debt payments. This method is a simple way to get started if you don’t know what percentage of your income to spend across different budget categories. 
  • The envelope method: The envelope method is a cash-based approach ideal for anyone who overspends or wants to avoid debt. First, you set a spending limit for each expense category, such as groceries or eating out. Then, you put your cash for each expense category into separate envelopes. Once the envelope is empty, you stop spending in that category for the month.
  • Zero-based budget: With the zero-based budget model, you assign a purpose for every dollar of your income. It requires careful planning and cash flow tracking, but you’ll budget each dollar with intention. 

Finding a sustainable method based on your spending habits, lifestyle, and goals may take some trial and error. 

Need a jump start? Use the templates below to set up your budget. Download and edit them from your computer, or print them out if you prefer a hands-on approach. You can also keep it handy as you work through the rest of the steps below. 

A woman holds an iPad that shows a downloadable monthly budget spreadsheet.

A PDF download button reads “download monthly budget planner”.

This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for financial, legal, or accounting advice.

A closeup shows a woman holding an iPad that displays a downloadable financial goals planner.

A PDF download button reads “download financial goals planner”.

3. Determine your net income

Every budget starts with your income – or the amount of money you receive in a month. That includes regular paychecks and additional income sources (like a side hustle). 

Your net income, often called your take-home pay or net pay, is how much you earn after taxes and deductions. This figure provides a clear starting point for a realistic budget. You can find your net income by checking your pay stubs or online payroll platform. 

Chime tip: If you don’t receive income regularly, calculate how much you’ve earned each month for the last 3-6 months and use the lowest amount for this month’s budget. You can update it later if you end up earning more.

4. Calculate your monthly expenses

Next, find out where all your money goes each month. Calculating your monthly expenses will give you a comprehensive picture of your spending across different categories. 

Essential expenses (necessities) 

First, list your nonnegotiable fixed expenses. These are regular monthly bills and necessities you have to pay, like your rent or mortgage, groceries, utilities, or transportation. Create each category, then add a line or subcategory beneath each with your specific expenses. 

Following the 50/30/20 rule, 50% of your income should go toward these necessities. We’ve included common examples below, which you can tweak or copy for your budget: 

  • Housing
    • Mortgage or rent payment
    • Home or renters insurance 
  • Food
  • Utilities
  • Transportation
    • Gas
    • Parking fees
    • Car insurance 
    • Car loan payment 
  • Health
    • Doctor’s appointments
    • Medications
    • Vision/dental/health insurance 

If your spending doesn’t line up with 50% of your income, that’s okay – we’ll cover how to review and adjust your budget later on. 

Nonessential expenses (wants)

Next, list your non essential expenses. These are wants, not needs, and include discretionary spending like eating out, entertainment, travel, or other personal purchases. 

Your budget categories may vary from the examples below, so feel free to adjust accordingly: 

  • Entertainment
  • Dining out
    • Restaurants 
    • Coffee shops
    • Take out
  • Travel
    • Plane tickets
    • Hotel expenses
    • Gas
  • Personal purchases
    • Gym memberships
    • Nonessential personal care
  • Clothing
  • Other
    • Holiday shopping
    • Hobby-related purchases

Following the 50/30/20 rule, you would put 30% of your income toward your wants. 

Savings and debt payments

The last category is for savings and debt payments, which should take up 20% of your income based on the 50/30/20 method. Dedicate this part of your budget to preparing for the future, reaching savings goals, and creating a financial cushion for emergencies. 

Your budget categories for this section can vary, but here’s what they may include: 

  • Emergency fund
    • At least 3-6 months of living expenses 
  • Retirement savings
  • Debt
    • Credit card payments 
    • Loan payments (beyond the minimum payment)

While minimum loan payments are essential, any additional payments can go here in the debt repayment section. 

Chime tip: Use our loan payoff calculator to calculate how soon you can pay off existing loans.

5. Subtract expenses from income

Once you list all your monthly expenses, add them up and subtract that number from your net income. The remainder will guide how you adjust and build your budget in the next step. 

  • If it’s a positive number, you have extra funds after covering your expenses.
  • If it’s a negative number, you’re spending more than you make, and you’ll want to adjust accordingly. Learn how to review your results below.

6. Review and adjust your spending

An illustrated pie chart accompanies a break down of the 50/30/20 budget, overviewing examples for each category (needs, wants, and savings).

Now that you have a clear view of your income and expenses, you can adjust your budget to align with the 50/30/20 rule. The tips below can highlight where you stand and potential changes: 

  • Examine each expense: Go through your list of expenses. Are there areas where you can cut back or reduce spending? Identify any items in your “wants” section that you can pull back on. 
  • Prioritize financial goals: Revisit your financial goals. Are you putting enough funds toward achieving these goals? Adjust your budget to prioritize your most important goals, like building an emergency fund, saving for retirement, or paying off high-interest debt.
  • Analyze spending patterns: Look at your spending patterns over the past few months. If you’re overspending in certain categories, adjust your budget accordingly.
  • Be strategic with leftover funds: If you have leftover money, don’t leave it hanging – give it a purpose that aligns with your current goals. That could mean increasing your monthly savings, putting more toward lingering debts, or increasing your investments for retirement. 

By reviewing your current spending and making adjustments that align with your financial priorities, you put yourself in the driver’s seat of your financial future.

Ready to put your savings to work? Open a Chime high-yield savings account* to watch your money grow.

7. Track your budget regularly

Congratulations on creating your budget! Now, let’s make it work for you. Regularly reviewing your budget throughout the month is the secret sauce. Here’s how:

  • Daily or weekly updates: Dedicate some time daily or weekly to update your budget with your latest transactions. This practice keeps you in the loop about your spending on needs, wants, and savings.
  • Stay flexible: Your budget isn’t static, so don’t be afraid to tweak it. If your energy bill spikes, tweak another part of your budget to balance it out. Being proactive ensures you cover all essentials, preventing last-minute surprises.

Your budget is a tool that evolves with your life, so keep it up to date and watch your financial control grow.

8. Keep up with best practices for successful budgeting

As you continue reviewing and updating your budget, consider the following milestones to work toward. 

Build an emergency fund

An emergency fund is your financial safety cushion for unexpected expenses or emergencies. To stay financially secure, save enough to cover at least three to six months of living expenses. 

Get the employer match on your 401(k)

If your job offers a 401(k) match, don’t pass on this deal. Contribute enough to snag the maximum employer match. Doing so builds your retirement nest egg and scores you some valuable tax benefits.

Tackle high-interest debt

Prioritize paying off high-interest debt as part of your budgeting game plan. Look for ways to fit debt payments into your budget and use extra cash to cut down that balance faster. 

Once those high-interest debts are under control, you can redirect that money to savings or other financial goals.

Save at least 20% of your income

Save at least 20% of your income to build a sturdy financial foundation and prepare for the future. This includes funding your retirement accounts and emergency fund and stashing away money for other savings goals. Adjust your budget to make it happen as your income grows. 

To further boost your savings, look for savings accounts that make it easy to automatically build savings into your budget, like Chime’s high-yield savings account. It offers savings tools like Save When I Get Paid to automatically save a portion of your paycheck each month, and Roundups, which transfer money to your savings with every purchase or bill payment.¹

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