How To Make a Budget In 3 Easy Steps7 min read

The estimated reading time for this post is 7 minutes. This post may contain affiliate links.

Creating a budget can be a very empowering or scary experience to some people. Too some people, they don’t want that monster to come out of the closet and tell them exactly what they are spending each month. To others, it gives a sense of control where they feel they really are telling their money where to go and giving every dollar a name and a place to march off to with a set of orders.

"A budget is telling your money where to go instead of wondering where it went."If you’ve ever had a hard time creating a budget, you’ve come to the right place! I have laid out in 3 easy to follow steps how to create a budget that you can implement today and start taking control of your finances! It’s not hard, you just need to list your income, track your expenses, and make it all balance to zero so that you have the same amount going out as is coming in with all your goals in place within that budget.

Budgets can be kept in many places. You can go primitive with pen and paper, start a workbook to track your progress with spreadsheets, or go the tech-savvy way of software like, Personal Capital, or even Every Dollar.

I would just like to start off by telling you my wife and my story with budgeting. We have kept a spreadsheet budget all the way back to August 2011. We constantly are tweaking our budget to make the most of our money and try to plan for the future the best that we can. My wife and I have found that by creating a plan for our money each and every month, we have been successful at sticking to our goals of keeping our sinking funds on track, funding our emergency fund with the extra money that we’ve been able to spare by squeezing money out of our other categories, and finding areas that we can cut back and eliminate just by paying attention to them.

Since 2011, my wife and I have been able to buy two vehicles with cash, pay off over $27,000 in debt, cash flow emergencies, and build margin in our lives so that we are able to relax a little in our financial lives. Although we’ve got a long way to go, our net worth is growing consistently over time and that’s, in a big part, due to the budgeting that we do month in and month out.

Step 1 – Budget Income

Write down any income sources that you have so that you have a good idea of how much money you have to allocate to your budget each month. Some income categories include:

  • Paychecks
  • Small business you run
  • Side jobs you work
  • Freelance work
  • Residual Income
  • Child Support
  • Gifts
  • Money “found” on walks or other places
  • Reimbursements

The idea here is to include any and all money coming into your possession each and every month. Again, by having a clear picture of what you are bringing in, it will allow you to focus your money better and put it to work harder. We don’t want any of those dollars slacking off not producing while you are running around working so hard to earn them!

Step 2 – Budget Expenses aka “Outgo”

This is where you get to see where all your hard earned dollars are going to march off to. You will want to write down and make sure to account for the following, but there may be more than I was able to think of here:

These are just budget categories I use.

These are budget categories I use.



This is where your “tithe” or local church giving is going. This is also where anything above your tithe, love and offerings, are going to be categorized as well. We give 10% of our income to our local church.


This will be your baby emergency fund of $1,000 while you are building it in step 1. Or this will be your funding of your full emergency fund when you reach baby step 3. I have also included Roth IRA’s and 401k’s if you are tracking your income on your gross here. This way you can see all the progress that’s happening.


Recreation is where you get some “fun” money to play with if you so choose. How much you allow yourself is up to you, but this has worked wonders for us and allows us to stay intentional with the rest of our money. Most of this money is put into a sinking fund since our expenses in each category vary month to month. This way we can have more money on the months when we need more and save more money when we don’t need it as much.

For us, we have a few different categories:

  • Entertainment – Money that we could use to go out on dates or use for family time. When we want to go to fairs and stuff, we usually use money out of this category.
  • Vacation – This is a sinking fund that we had created so that we wouldn’t have to worry about our vacations following us back home in the form of debt. We move our monthly contribution over to the account to save the money up until we are ready to go on vacation.
  • Blow Money aka Fun Money – We each get a little bit of this to use however we would like. Whether I want to buy tech toys or she wants to go out to lunch with friends, we can use it with no regrets from each other’s perspective at any time.
  • Laundry/Clothes/Hair – This is a set amount that we put aside each month to offset the cost of these expenses. Again, we set up a sinking fund and contribute monthly to it to keep it stocked as we need it.


Our housing expenses are quite simple. They include things like our mortgage, which includes out homeowners insurance and property taxes due to ours being escrowed, our association dues (due yearly for us), and our home repair fund.


Our utilities are everything that we use to run our house. For us, these include: Electricity, Natural Gas, Water, Cell Phone, Internet, TV (we have Netflix, Amazon Prime, and HBO Go which is free). We pay each monthly as they come due and don’t do flex plans because it encourages us to curb our usage and try to keep our bills lower more often.


Next on the list is our food category. Some people break it down further than us by sorting out toiletries, groceries and eating out. We just have groceries and that includes all of the above.


Next, we have our transportation category. In this category are things like our gas budget. We also put service and parts in here which is basically just for auto repairs and license/registration. We don’t have a car payment and are currently not saving for another vehicle at this time, or else we would have a budget item in here as well. Lastly, we have our auto insurance, which is another sinking fund that we put money away every month and buy yearly because we get the best deal that way.


The last category is the personal category. A lot of different things can go in here depending on what stage of life you are in. For us, this is our babysitting money and our life insurance category. Other things that might go in here are: subscriptions to games, magazines, etc, sports costs, among other things.


Step 3 – Spend all your Income on Paper/Spreadsheet

Breaking it down by paycheckOk, this can be a huge fun part. Now that you know how much you are expecting and income and have written out all of your expenses, it’s time to make the numbers work. This is where you are going to spend your income on the expenses until you are left with $0 income. This means that you have to give every dollar a name. If you have money left over after paying all your bills, saving, giving, and spending, then you need to go back and adjust your numbers so that there isn’t any left over.

Every month this is going to be different, so you are going to need to write up a new budget each and every month going forward. This is the only way to make every dollar march as well as you can towards your goals.

As you can see in the pictures, we have spent our income for each paycheck during each pay period. And, of course, our budget equals zero at the bottom!


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Steven Goodwin

Owner/Blogger/Consultant at MyFamilyOnABudget
Steve Goodwin, a stay-at-home dad of two girls is passionate about finances and is helping others just like you get out of debt and build wealth handling money God's way. His goal is to inspire people like you to gain control of their finances by destroying debt and building wealth using their cash flow.
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  1. This is a great tutorial on how to get started with a budget. It really makes all the difference in the world once you start having an actual budget. Nice post!

    • Thanks. Making a budget is one of the most important exercises that you can do to improve your financial muscle! Thanks for stopping by and reading Alexander!

    • Hi Alexander! Thanks for stopping by and reading my blog! Budgets are a fantastic tool that really helps you get to your goals once you can direct your money a certain way! Thanks for commenting and have a great day!

  2. I can not wait to share this with my husband. Creating and sticking with a budget is something we had decided to implement this year. Thank you so much for this post it was very timely!!

  3. Steven, this is such valuable information! I think budgeting is something a LOT of people struggle with (and fear!). If not, people like Dave wouldn’t be so popular. We need to do it and spelling it out like this makes it less intimidating. Budgeting is something my sister and I have been discussing lately for our personal households so I’m sharing this with her as well. (Coming to you from our FB reciprocation group and happy to make this connection!)

    • Melanie, thanks for the reciprocation and the share! Dave has been a big part of where my family is today financially! The more we can teach people (including our kids) to budget and live on less than they make, the better off our society will be as more people will be able to attain financial freedom and be able to look and help more than just themselves! Thanks for taking the time to read and if you have any questions, please don’t hesitate to reach out!

  4. This is a great start to budgeting. You make it seem less scary. I know I need to sit down and actually create one for our household.

  5. This is an awesome post and extremely helpful for people who are trying to start budgeting. Really great. I’m gonna use some of these tips 🙂 Thanks!!

  6. I am the “nerd” and I can do spreadsheets and use cash all day long. However, it’s hard to stick to a plan all by yourself. We have no credit cards, but we also only have about half the income you use in your example. It’s a tight fix.

    • Hi Angie, every budget is different, but that’s why tracking everything is essential! If you don’t feel you can cut anymore expenses, sometimes looking at the income side of things can really help make things work!

  7. Giving each dollar a name helps me so much. You’ve laid it out so well with your 1-2-3 steps.

    • Thanks Pamela! Stop back by and let us know how you are doing from time to time! Thanks for taking the time to read and comment! Please share if you think this could help someone else!

  8. Those are some great, practical tips. This is a great resource for those starting out on budgeting or needing a refresher. I think this could easily be used regardless of a person’s socio-economic status. Thanks!

    • Everyone has income and outgo and need to make a plan for it. Doesn’t matter if you have $2,000 or $20,000 a month coming in, you have to plan how you are going to spend it or it will just leave and you will wonder where it went!

  9. I love that you call it outgo. That’s new to me!
    We have to rule our money – so it doesn’t rule us!

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