When it comes to becoming financially responsible, learning how to create a personal budget is one of the most foundational first steps. Maintaining a budget means sticking to a plan for how income will be allocated among expenses, savings, debt payments, and ongoing financial goals.
And it’s more than just making sure you spend less than you earn. A budget helps you figure out how to afford what you want, not just what you can afford. For many Americans, it’s easier said than done. Arthur State Bank can help you create a personal budget with nine simple, easy-to-follow steps.
What Should Be Included in a Personal Budget?
If you’re not sure what a personal budget is, it’s a tool to help you track income, expenses, and how close you are to achieving financial goals. Here’s a quick rundown of what you need to get started:
| Budget Component | What to Include | Examples |
| Net income | Money available after taxes and other payroll deductions | Paychecks, freelance income, recurring side income |
| Fixed expenses | Regular costs that stay relatively consistent | Rent or mortgage, insurance, loan payments |
| Variable expenses | Costs that may change from month to month | Groceries, utilities, gas, dining, entertainment |
| Savings | Money intentionally set aside for future needs or goals | Emergency fund, major purchases, long-term savings |
| Debt payments | Required payments plus any planned extra repayment | Credit cards, personal loans, student loans |
How To Create a Personal Budget Step by Step
Creating a personal budget starts with understanding actual income and spending, then setting priorities, assigning money to those priorities, and monitoring the plan over time.
1. Gather Your Financial Information
A good budget is based on hard numbers, not estimates. Try to be as thorough as possible and gather your:
- Monthly bank statements
- Credit card bills
- Pay stubs and other documentation on income
- Recurring bills
- Loan statements
2. Calculate Your Monthly Net Income
Monthly net income is your total take-home pay remaining after taxes, insurance, and other deductions are subtracted from your gross earnings. In plain English, it’s the money that ends up in your pocket that you can spend. For most people, income comes from wages, freelance work fees, and pensions or other payouts. If you have irregular income, it’s best practice to budget around the conservative months.
3. Add Up Your Monthly Expenses
Next, you should calculate your monthly expenses. You should include both your fixed and variable expenses. We suggest reviewing and averaging multiple months’ worth of expenses.
4. Compare Your Income With Your Expenses
Subtract your expenses from your income. If income exceeds expenses, decide how the remaining money should support savings, debt payments, or other goals. If you’re spending more than you’re taking in, identify realistic changes before assigning additional money elsewhere.
5. Set Your Financial Priorities
A good budget includes financial goals that your money is going toward. These can include: building emergency savings, paying down debt, saving for a major purchase, and preparing for retirement.
6. Set Spending, Saving, and Debt-Payment Targets
After setting your financial priorities, you should use your personal budget to figure out how to achieve them. If you’re not sure how to start, we’d suggest the 50/30/20 rule as a starting point. That’s 50% for needs, 30% for discretionary spending, and 20% for savings, investments, and debt repayment.
7. Adjust Spending Where Needed
One of the hardest, but necessary, aspects of budgeting is reducing spending. Start with dining out, entertainment, subscriptions, or other discretionary purchases when you need to reduce spending. Everyone is different, and what’s trimmed from the budget won’t look the same for everyone.
8. Track Your Budget Throughout the Month
Now that you’ve created a budget, you have to do your best to stick to it. This involves tracking your budget throughout the month. You can do so with account statements, online banking, or a banking app to monitor spending and balances.
This isn’t simply about tracking your spending. It’s also about adjusting your budget if unexpected windfalls or expenses pop up.
9. Review and Update Your Budget Regularly
Your life isn’t static, so your budget shouldn’t be either. Reviewing and updating your budget regularly is key to ensuring it’s a tool for your financial goals as opposed to just a spending tracker. We’d suggest reviewing your budget once a month and adjusting it whenever your income, expenses, debts, or financial priorities change significantly.
If you happen to have extra money at the end of the month, it’s often best to keep it in a separate savings account apart from the one you draw on to pay bills.
Make Your Budget Easier To Maintain
Good habits are just as hard to break as bad ones. Here are four habits to help you stick to your budget:
- Automate recurring bills or savings where appropriate
- Check account activity regularly
- Give variable expenses realistic limits
- Update the plan when circumstances change
Ready to put the information on how to make a personal budget into action? Explore Arthur State Bank’s personal banking options to find tools that can help you manage everyday spending, track your money, and build savings.
