How to Create a Monthly Budget: A Step-by-Step Guide

1. Write out your goals.

This helps you put your budget in perspective and give it meaning. "A budget is about helping you achieve and do the things you want, not just a set of numbers or a tool to restrict your spending," says Kyle Enright, consumer finance expert and president of Achieve Lending. "Set and write down short- and long-term goals, and include your spouse and family if applicable."

These can include everything from purchasing a new laptop or vacation to sending your child to college without debt.

"Over time, you’ll revisit and modify goals and budget, but taking this approach will help you stick to the budgeting process, which ultimately leads to your ability to reach your goals," says Enright.

2. Track every expense for a few weeks.

Before you make line items on your budget, you need to know exactly where your money is going.

"Track your spending for a couple of weeks, keeping and logging every single receipt for both online and in-person expenditures," suggests Enright. "Most people can identify spending patterns and areas where they may want to cut back." It might be especially glaring once you see it written out.

3. Determine your net income.

Here's where the budgeting process begins. "Determine your monthly net household income, which is the amount after deducting taxes and any other paycheck deductions, such as retirement plan contributions and insurance premiums you pay, to know how much you have to spend," advises Enright.

This is your baseline—so commit it to memory or enter it into your budgeting spreadsheet or app.

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4. Calculate your necessities.

Now, you'll need to add up the expenses you absolutely can't live without. "This includes items that are the same each month, like a mortgage or rent payment and cell phone bill, as well as items that fluctuate, such as utilities and groceries," says Dana Anspach, CFP, RMA, founder and CEO of Sensible Money.

"For fluctuating items, start with an average: For example, in Arizona, our utility bill is double the amount in summer, about $400 a month, as it is in the winter, where it runs about $200 monthly," she notes. In the budget, she logs it as $300.

5. List your non-essential recurring expenses.

Take a look at a few months of bank statements to find the expenses that reoccur but aren't required.

"This may be subscriptions, memberships, or automated purchases," says Anspach. "Once you've compiled this list, start to purge—I did this recently to realize I had signed up for the Showtime channel twice under two different accounts and had three monthly music subscriptions."

6. Create a line for incidentals.

You'll also need to factor in occasional items, such as clothing, restaurants, travel, repairs, and decor.

"I prefer a monthly bucket approach: For example, if I have $3,000 of allowable spend on a credit card which gets paid off each month, if a car repair or out-of-pocket health expense arises that month, and uses up $1,000 of it, then I know I have only $2,000 remaining on clothing, travel, and entertainment," says Anspach. "This approach allows me to stay within my overall spending limits without feeling like I need to itemize each category."

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7. Choose your savings percentage.

Steve Walker, life and leadership coach and education consultant at Integrity and Joy, says this is where many people go wrong with their budgets. "They think that savings is what's left over, but if you think there will be money left over, your brain will think it is 'extra,' and you will tend to spend that and more by the end of the month," he says.

Instead, build the budget around your savings goal. "Ideally, pick a percentage that's as high as you possibly can go," he says. "It should be 10 to 20 percent of your income."

8. Track your budget.

Now that you've established what your budget is, you'll need to stick to it.

"There are plenty of apps and online services that track your spending and help you budget, and some bank apps even have budgeting features built in," says Mark Henry, founder and CEO of Alloy Wealth Management. "Some people may hold themselves accountable more when manually managing a budget and tracking expenses in a spreadsheet."

You can try a few options and keep going with the one that works for you. "Avoid any paid budgeting apps—the last thing you want is to spend more when trying to get your finances under control."

9. Automate your savings and bills.

This makes getting things done easy. "There are many utility, mortgage, and other companies that allow automatic deduction plans in which they withdraw funds directly from a designated bank account," says Enright. "Some lenders and utility companies even offer reduced interest rates or other benefits for the use of their automated payment services."

You can do the same with your savings. "Set up a transfer from a checking account to a savings account at your financial institution," Enright adds. "Or ask your employer about the automatic deposit of a specific amount into an account you designate."

10. Find where you’re losing money.

After tracking your finances for a while, you may spot some places where you often lose money.

"If it's late-night Amazon shopping, what new habits can you form to keep you from logging on in the first place?" says Anspach. "If you tend to spend a set amount each time you visit a certain store or website, then find ways to visit less frequently—go for a walk, hit the gym, or pick up a book to build healthier habits and stay away from the things that tempt you to spend."

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11. Tell people about your goals.

They could help you stick to them! "If it comes up, it is OK to tell people that you are working on your financial goals and will be more discerning with how you choose to spend your money," shares Rasure.

"This could include saying no to invitations to be a member of a wedding party or preparing lower-cost alternatives to spend time with friends and family, like getting together at someone’s house versus going out to an expensive patio for drinks and dinner," she says.

12. Review your budget once a month.

Sticking to your budget means actually looking at it. "Schedule a regular time to review the budget at least once a month with your spouse or partner if that applies," advises Enright. "These discussions will lead you to modify your goals, revenue, and expenses over time, and also means you’re dedicated a specific time for the budget, which eliminates the temptation for one or the other spouse to bring it up continually."

13. Adjust your goals.

Picture your budget as a living document. "It’s important to revisit those goals you set," says Enright. "If you already bought the new appliance you originally budgeted for or decided on a different vacation, adjust for those—you’ll then begin a process of modifying both goals and the realities of the figures."

14. Reassess after life changes.

Other times, you should adjust things after big life events. "That could be moving, going back to school, getting married, or having a baby," says Henry. "Your budget will need to be adjusted for any of these things, and the sooner you do so, the better—try to adjust your budget before you make the change so you know you can sustain your new lifestyle."