How to build a budget

As long as your budget is a living, breathing document and not set in stone, you’ll have the tools you need to save for the future while living your life today.

When you’re ready to start your budget:

Step 1: What is your income?

This is where you must be 100% honest with yourself or the whole budget won’t work. If you have a salary or a set number of hours every week, this step is easy. If you are on commission or self-employed, you’ll want to average your monthly income. Be sure to use your “after taxes” income on your budget worksheet.

Step 2: Track your spending

To get a good idea of where your money goes every month, track your spending during a typical non-holiday, five week period (a full month and one week into the next month). Keeping a detailed register is the best way to keep track of your spending. Anytime you use your card, schedule an electronic payment or write a check, record the transaction in your book. After this process is done, you’ll have a good idea of where you are spending your money.

Step 3: Set up categories

Now, start putting your wants and needs, including your set bills, into categories such as housing, clothing, gas/auto maintenance, food, entertainment, etc.

  • For clarification: “Wants” include cable or satellite television, while needs are food, shelter, clothing and work-related expenses.

Step 4: Paying your bills and yourself

Next, subtract those monthly expenses from your monthly earnings. Start with your fixed-cost bills such as electric, heat, water and your own personal savings. (Yes, you should pay yourself each month). Then add your rent or mortgage, car payment, gas, groceries and any other essentials, not forgetting fun. After everything is added up, see what you have left at the end of the month.

If your budget is negative, or you are going into debt every month, take another look at your budget and cut out the “wants” first. It’s vital that you not go into debt or use credit to make your budget work.

Step 5: Saving for the future

Whatever you have left at the end of each month is money you can use to save for the future and pay off debts. The first thing to save for is a budget cushion or “just in case” fund.

  • Tip: Try to build a cushion equal to at least 10% of your annual salary.

After that, start paying off extra debt. Consider putting your debt reduction plan on your budget as a line item.

Step 6: Adjust your budget 

When you discover leaks in your spending, such as buying too much at the grocery store or going out to eat too often, look for ways to cut back. For example, instead of renting movies why not check out DVDs from the library? Or make a stew on the weekend to make family dinners during the week quick and easy. Whatever you choose to do, get creative and stick to your budget!

Step 7: Seek professional guidance

We are here to help you. Just call 800-732-0173 or visit a branch.


Back to financial education resources

« Return to "Financial education articles" Go to main navigation