7 Steps to Create a Monthly Budget That Actually Works

Creating a monthly budget can help you take control of your finances, reduce stress, and achieve your financial goals. Here's a quick overview of the 7 steps to build a budget that works for you:

1. Know Your Take-Home Pay: Calculate your net income after taxes and deductions. If your income is variable, use your lowest monthly income as a baseline.

2. List All Monthly Expenses: Categorize your spending into fixed, flexible, and non-monthly expenses. Track your habits to understand where your money goes.

3. Plan Your Money Goals: Start with an emergency fund, then tackle debt using methods like the Avalanche or Snowball approach.

4. Pick Your Budget System: Choose between the 50/30/20 rule (50% needs, 30% wants, 20% savings) or zero-based budgeting, assigning every dollar to a purpose.

5. Divide Your Money: Prioritize essentials like housing, food, and transportation before allocating funds to savings and discretionary spending.

6. Track Your Progress: Use apps, spreadsheets, or bank tools to monitor spending and set alerts for overspending or low balances.

7. Update Your Plan Monthly: Review your budget regularly, adjust for changes in income or expenses, and refine your spending plan.

How To Create A Monthly Budget for Beginners | Step by Step Breakdown

Step 1: Know Your Take-Home Pay

Your take-home pay is what you actually receive after taxes and deductions - not your gross salary. For example, someone earning a $50,000 gross salary usually takes home between $34,290 and $38,942 annually. Up to $15,710 per year (around $1,309 per month) might be withheld for taxes and deductions [4].

Net vs. Gross Income

When creating a budget, focus on your net income - the amount you keep after deductions. Common paycheck deductions include:

• Taxes: Federal, state, local, and FICA taxes

• Insurance: Health, dental, and life insurance premiums

• Retirement and Savings: Contributions to 401(k), FSA, or HSA accounts

"Take-home pay is the same as net income, or the amount employees have left after voluntary contributions, benefits and taxes are deducted." - Indeed.com [2]

Here’s an example to illustrate: Sara works 35 hours a week at $15 per hour.

Item	Amount
Gross	$525.00
Health Insurance	-$40.00
FICA (7.65%)	-$37.10
Federal Tax	-$63.00
State Tax (2.5%)	-$12.12
Net	$373.78

This breakdown shows typical deductions. If your income varies, you’ll need to adjust your approach as described below.

Budgeting with Variable Income

For freelancers, servers, or anyone with an inconsistent income, managing finances requires extra planning:

1. Set a Base Income
   
   Use your lowest monthly income from the past year as the foundation for covering fixed expenses.

2. Build a Savings Cushion
   
   Save 20% of your weekly income during higher-earning periods to prepare for slower months.

"I have not had to go without anything that I need or want, although my wants aren't much." - Tara Frenck, Bartender

1. Use Budget Billing
   Many utility companies offer budget billing programs, which average your yearly usage into predictable monthly payments.

Pro Tip: During months with higher income, set aside extra savings to cover expenses during leaner times.

Once you’ve nailed down your net income, you’re ready to track and manage your monthly expenses. This step is essential for creating a clear financial picture.

Step 2: List All Monthly Expenses

Once you've figured out your take-home pay, it's time to track where your money is going. Knowing your spending habits is key to creating a budget that actually works for you.

Regular vs. Changing Expenses

To make tracking easier, group your expenses into three categories:

Expense Type	Description	Examples
Fixed	Same amount each month	Rent ($1,500), Car payment ($350), Insurance ($120)
Flexible	Varies month to month	Groceries ($400–$600), Utilities ($80–$150), Gas ($150–$200)
Non-monthly	Occasional or irregular	Car maintenance ($600/year), Holiday gifts ($800/year)

For non-monthly expenses, consider using the "escrow approach." Estimate the yearly cost, divide it by 12, and save that amount monthly. For instance, if car maintenance costs $600 annually, set aside $50 each month in a separate savings account.

"Examining your transaction history can help you learn your patterns and be aware of the general cost so you can adjust your budget if necessary. Even if you can't control prices, you still have the power to set a limit on how much and how often you spend."

• Lauren Schwahn, Personal Finance Writer at NerdWallet [5]

Pro Tip: Use two checking accounts - one for fixed expenses with automated payments and another for everyday spending. This strategy can help you avoid dipping into funds meant for bills.

Tracking your expenses accurately is a crucial step in managing your budget effectively.

Tools to Track Spending

Technology makes tracking your expenses simpler. Here are some options to consider:

• Digital Budgeting Apps: These apps automatically categorize your transactions and provide real-time updates. Maybe Finance can help you with this.

• Spreadsheet Templates: If you prefer manual tracking, spreadsheets offer full control. Both Microsoft and Google provide free budget templates you can customize.

• Bank Tools: Many banks offer built-in features that automatically categorize your transactions. Reviewing your monthly statements can help you identify recurring charges and see where your money goes.

Tip: Choose a tracking method that fits your comfort level with technology and the time you can commit. The best system is the one you'll stick with.

For better results, review your expenses weekly instead of waiting until the end of the month. Weekly check-ins help you catch overspending early and stay on track with your budget.

Step 3: Plan Your Money Goals

Now that you’ve reviewed your income and expenses, it’s time to set clear financial targets. These goals will help guide your budgeting decisions and keep you motivated.

Build an Emergency Fund

The first step in financial planning is creating an emergency fund. This acts as your safety net for unexpected expenses. A recent study found that 2 in 5 Americans can’t cover a $1,000 emergency expense [7].

Here’s a simple breakdown to help you build your emergency fund:

Savings Stage	Target Amount	Priority Level
Starter Fund	$1,000	Immediate
Basic Fund	3 months of expenses	High
Full Fund	6 months of expenses	Optimal

Quick Tip: While building your emergency fund, focus on making only the minimum payments on your debts. Once you hit your $1,000 goal, you can start dividing extra funds between growing your savings and paying off debt.

"I cannot emphasize enough how important it is to have a buffer stock of savings. I think of a buffer as a shield against shock, so I always tell people: 'Don't go against shock with no shield. Protect yourself.'" - Annamaria Lusardi, Head of Stanford's Initiative for Financial Decision-Making [7]

To grow your fund faster:

• Set up automatic transfers from your paycheck

• Save windfalls like tax refunds, bonuses, or monetary gifts

• Use a separate savings account to avoid accidental spending

Once you have a solid safety net, you can shift your focus to tackling debt.

Tackle Debt Strategically

After reaching your starter fund goal, it’s time to work on paying off debt. Here are two popular strategies:

Avalanche Method

• Pay off debts with the highest interest rates first

• Reduces the total amount of interest you’ll pay over time

Snowball Method

• Start with your smallest debts and pay them off first

• Builds momentum by giving you quick, motivating wins

For a balanced approach to managing your finances, you can also follow the 50/15/5 guideline [1]:

• 50% for essential expenses

• 15% for retirement savings

• 5% for short-term savings

Step 4: Pick Your Budget System

Once you've set clear financial goals, the next step is to choose a budgeting method that works for you. Here are two popular approaches that can help align your spending and savings with your objectives.

The 50/30/20 Budget Split

This method divides your monthly take-home pay into three categories:

Category	Percentage	What It Covers
Needs	50%	Housing, utilities, groceries, insurance
Wants	30%	Entertainment, dining out, hobbies
Savings	20%	Emergency fund, retirement, debt payoff

Spend a month tracking your expenses to see how they fit into these categories. If your essential costs exceed 50%, consider adjusting the split - for example, a 60/30/10 breakdown might work better. Similarly, if you can save more than 20%, go for it!

Zero-Dollar Budgeting

This approach assigns every dollar of your income a specific job, ensuring that your income minus expenses equals zero.

This method is ideal if you:

• Want to track every dollar closely

• Have irregular income

• Are focused on paying off debt

• Prefer a detailed view of your finances

Pro Tip: During months when you earn more, set aside the extra money to create a cushion for times when income might dip.

Research shows that 70% of people using this method can cover three months of expenses, and the average first-month savings is $600 [11].

Pick the system that best matches your lifestyle, financial goals, and how much time you can dedicate to tracking. If one approach doesn’t feel right after a few months, don’t hesitate to switch to the other [8][9].

Step 5: Divide Your Money

Organize your income to cover both current expenses and future financial goals.

Cover Basic Needs First

Start by addressing your essential living expenses. Recent data shows that U.S. renters spent an average of 30% of their income on housing in Q4 2022 [12]. Here's a breakdown to guide your budgeting:

Category	Typical Range	Examples
Housing	25-35%	Rent/mortgage, utilities, insurance
Food	10-15%	Groceries, household essentials
Transportation	10-15%	Car payments, gas, public transit
Healthcare	5-10%	Insurance premiums, medications
Minimum Debt Payments	5-10%	Credit cards, loans, student debt

"Taking time to better understand and empower yourself financially can be the backbone to creating the freedom, flexibility and peace of mind you desire for your future." - Krista Neeley, Managing Vice President at Appreciation Financial [13]

Once your basic needs are covered, it’s time to focus on saving for your goals.

Set Up Auto-Savings

After handling essentials, automate savings to stay consistent. With the U.S. personal savings rate at just 3.4% as of June 2024 [10], automatic transfers can help you build better habits.

Here’s how to make it work:

• Schedule Transfers on Payday: Set up automatic transfers to savings accounts on your payday. This ensures you save before spending.

• Focus on Key Goals:

  Priority	Target	Suggested Amount
  Emergency Fund	Starter: $500	5-10% of income
  Retirement	Long-term security	10-15% of gross income
  Specific Goals	Travel, home, etc.	Remaining funds

• Leverage Banking Tools: Many banks offer features that round up purchases to the nearest dollar and transfer the difference to savings [14]. These small, automatic contributions can add up over time.

"By simply tracking where money is going today, you'll likely get motivated to focus on where you want your money to actually go. It's a simple exercise that can make impulse buys hard to justify." - Catalina Franco-Cicero, Certified Financial Planner, Tobias Financial Advisors [13]

Step 6: Track Your Progress

Keeping tabs on your spending and savings helps fine-tune your budget and make necessary adjustments. Regular tracking reveals spending habits and highlights the difference between needs and wants. By staying organized, you can ensure your budget remains on track.

Set Spending Alerts

Spending alerts are a great way to monitor your finances and avoid surprises. Here are some common alert types and how they can help:

Alert Type	Purpose	Benefit
Category Limits	Warns when you're nearing spending caps	Helps you avoid overspending
Large Purchases	Flags transactions over a set amount	Keeps impulse spending in check
Bill Reminders	Alerts you about upcoming payments	Avoids late fees
Low Balance	Notifies you when your balance is low	Prevents overdrafts

For example, PocketGuard provides real-time updates on how much money you can safely spend after accounting for necessities, bills, and savings goals. Its "In My Pocket" feature is especially helpful for managing day-to-day expenses.

Check Your Numbers Weekly

Once your alerts are set, make it a habit to review your finances weekly. These check-ins can help you catch small issues before they become big problems.

"Weekly budgets make your daily spending habits matter and keep your goals front of mind. Also, you keep track of your spending better because of the weekly check-ins." - Rob Bertman, CFA, CSLP®, CFP® [15]

Here’s what to focus on during your weekly review:

Review Area	Key Questions	Action Steps
Spending Categories	Did you overspend in any category?	Adjust next week's limits
Savings Progress	Are your automatic transfers working?	Check deposits into savings accounts
Upcoming Bills	What payments are due soon?	Schedule or update payments
Budget Gaps	Where did you overspend?	Identify patterns and triggers

For tools, consider using Maybe Finance ($9/month) for budgeting and managing shared finances.

Step 7: Update Your Plan Monthly

Taking time each month to review your budget helps ensure it stays aligned with your current financial situation and goals.

Spot Budget Gaps

Building on your weekly check-ins, use the end of each month to dig deeper into your finances. Here's what to focus on:

Category	What to Look For	What to Do
Income	Compare actual earnings to estimates	Adjust budget categories as needed
Essential Expenses	Check bills, groceries, utilities	Address any unexpected increases
Discretionary Spending	Review entertainment, dining, shopping	Identify areas where you may have overspent
Savings Goals	Verify emergency fund and investments	Ensure automated transfers are happening
Debt Payments	Check credit cards and loans	Look for opportunities to pay extra

Use a monthly calendar to track key expenses and identify any overlapping bills that might strain your cash flow.

Adjust for Major Life Changes

Sometimes, life events require bigger changes to your budget. Here’s how to handle them:

Life Event	Impact on Budget	How to Adjust
Income Changes	Alters your spending power	Build an emergency fund with 6–12 months of expenses
Seasonal Costs	Holiday shopping, travel	Set up sinking funds for these expenses
Special Occasions	Weddings, birthdays	Save in advance with a dedicated fund
Bill Changes	Insurance, utilities	Review and adjust for new recurring costs

"One of the key components of an unpredictable income stream is having an emergency fund set up. We usually recommend six to 12 months' worth of income so that when work lightens up they have income to live on."

– Lawrence Sprung, Certified Financial Planner [16]

For those with variable income, track your earnings monthly and plan carefully. Save more during high-earning months, and focus on essentials during leaner periods.

When faced with unexpected expenses, ask yourself:

• Is this truly unexpected?

• Is it absolutely necessary?

• Is it urgent?

To handle small surprises without dipping into your emergency fund, set aside 5–10% of your budget for miscellaneous costs. Monthly reviews help you stay on top of your finances and address potential issues before they grow.

Conclusion: Start Your Budget Today

Budgeting doesn't have to be complicated. By linking your accounts, you can automatically track your spending. With Maybe Finance, which connects to over 12,000 financial institutions, you get a clear overview of your finances [17].

Here’s how you can kick off your budgeting journey with a simple, week-by-week plan:

Timeline	Action	Expected Outcome
Week 1	Track all expenses	Gain a clear picture of your spending habits
Week 2	Set practical category limits	Avoid overspending
Week 3	Automate savings transfers	Start building an emergency fund
Week 4	Review and adjust	Refine your budget for better results

These steps are the foundation for cutting debt and growing savings. It usually takes about 1–2 months to refine your budget [19]. To put it into perspective, the average American carried around $6,000 in credit card debt by late 2022 [20].

Maybe Finance offers all its budgeting tools for $9 per month. You can start with a 14-day free trial to see how it works. Prefer a yearly plan? At $90, you’ll save 17% compared to the monthly option [18]. These tools can help you stay on track and simplify your financial planning.

Take the first step today. Link your accounts with Maybe Finance and start building a budget that works for you.

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