Sometimes personal finances can be overwhelming. Maybe you feel like you have too much debt, are spending too much each month or have no idea how much money you’re really making. If so, you may realize that a first step to getting hold of your financial life is budgeting. In this article, I will teach you how to make a budget so that you can manage your personal financial life.

A couple at their laptop making a budget to track their financial life.

What Exactly Is a Budget?

A budget is a plan. More specifically, it is a financial plan that tells you how much money you are earning and spending each month. The first step to improving your financial life is knowing where you currently stand.

According to, only about one third of Americans actually keep a regular household budget. No wonder so many people feel like they have money problems!

Your money life doesn’t manage itself. You need to be an active participant. Creating a budget to track things like total assets, total debt, net worth and monthly income and expenses is the first step to a future of financial freedom.

Why Should I Keep a Budget?

You may be wondering whether you should really go through the hassle of keeping a budget. If you are a living, breathing, eating and sleeping human being, the answer is yes.

As the famous philosopher Francis Bacon (not the painter, the philosopher and founding father of science) once said, “Knowledge is power.” You can’t successfully navigate or manage your financial life if you don’t know what’s going on.

Creating a budget is the perfect way to know what money you have, what money you need and what money you’ve spent. Also, it will give you great insight into how far away you are from your financial goals.

How Do I Even Get Started?

You may be wondering how to even get started making a budget. It might feel overwhelming. But it doesn’t have to be. In fact, the first step you need to take is simply to make a choice. You need to be willing to make one – and to do the work.

Sometimes making a major life decision is the hardest step of all – but it doesn’t have to be. The guys at have some tips for how to make big choices that can empower you to handle your life – and go through with the decisions you make.

Another helpful tip is to articulate your choice to other key stakeholders or even just a friend. Verbalizing your intentions and your choice gives you a sense of accountability. And you can have these people check in to make sure you are sticking to your decision.

With that said, it’s time to get down to the real nitty-gritty of how to make a budget.

How to Make a Budget: A Step-by-Step Guide

Making a budget takes some work. But it’s work that’s more than worth doing if you want to take control of you financial life and build your wealth.

Here’s your step-by-step guide to making a budget:

1. Figure Out Your Assets

Before you figure out where you want to go when making a budget, you have to know where you are right now. This means figuring out what your personal assets are.

This, of course, includes the cash in your checking and savings accounts. But it can be much more than that. You may own a home or car, and you may have a 401(k), an IRA or a Roth IRA.

Adding up all these assets will give you a better sense of how much money you have. Of course, that may make you feel better or worse. But as I said, knowledge is power, and if you don’t have the wealth you’d like, now is the time to change that.

2. Figure Out Your Debt

The next step in making your budget is to do the same with your debt. Your debt is any money that you owe to a creditor. One classic form of debt is credit card debt. And there are pros and cons to this kind of revolving debt.

Also, you may very well have long-term debts of varying lengths. For example, perhaps you took out a mortgage on your Long Island split-level house. Or borrowed to buy a 2020 Lexus with the fancy security system you wanted.

Maybe a student loan or two?

In this step, it’s very important to be honest with yourself. The more honest you are in accounting for your total debt, the more making a budget can be of help in paying it down.

3. Calculate Your Net Worth

When making a budget, the next step is to calculate your net worth. The definition of net worth is very simple: It is the sum of your total monies, or assets, minus the sum of your total debts, or liabilities.

And the good news is that thanks to steps one and two, you already have the tools to do this. You can take your final number from step one, your total assets, and subtract the total debt you calculated in step two.

Voila! You now know your net worth. The only problem is that you may not like the number you see. In 2017, 14% of households had a negative net worth. And the problem may be even worse now.

If this is you, do not panic. That is exactly why you are making a budget. Let’s continue.

4. Determine Your Monthly Income

Every month (hopefully) you earn a certain amount of money. Much of this probably comes from wages or salary from your primary job. Keeping track of this is essential to making your budget.

But there may be much more income per month that you aren’t considering. Here are some potential examples

  • A secondary job or side hustle
  • Passive income from investments in stocks or bonds
  • Rental income from an apartment you lease to tenants
  • Monetary gifts from family members
  • And there could be even more.

All of these sources of income should be included when you make a monthly budget.

5. Determine Your Monthly Expenses

This is likely the most important part of making a budget. You need to account for all your monthly expenses. Do not fudge this for you will only be cheating yourself.

Your expenses are not going to be exactly the same each month – they will fluctuate, and that’s fine. Instead of trying to estimate from one month of expenses, average together your monthly expenses from the past three to six months. Then you will have a good idea of what you are spending each month.

This step in the process is key because it will help you determine in future months whether you are over- or underspending compared with your monthly average. If this turns out to be the case, you will likely need to adjust your spending or saving habits.

6. Enter Your Numbers Into a Tracking System

Once you have collected all this data about your finances, it is time to actually make your budget. And trust me: You are not going to want to do this by hand, on sheets of paper.

One easy to way create a budget is to build it in Excel. I used to use this method, and it works well enough. Excel is software you likely already have and use. But the downside to making your budget in Excel is that you will have to enter your monthly transactions manually.

If automating this process appeals to you like it does to me, there are plenty of budgeting apps you can use to help you. In fact, Investment U has put together a list of the best budgeting apps around.

Two of the budgeting apps that didn’t make this list that I personally love are Everydollar and Personal Capital. When you connect your financial accounts – such as bank accounts, credit cards or 401(k)s – to them, they automatically add the transactions from those accounts to your budget.

The Bottom Line for Making Your Budget

After you’ve taken all these steps, you will have a working monthly budget that will help you manage your financial life and well-being. Each month, you will be able to see whether you’ve spent more money than you’ve earned or whether you’ve been able to save some money in a bank or investing account.

Of course, as you go, you will likely see that you need to adjust both your budget and your spending and saving habits. This is normal, and doing so will be key to helping you reach your short- and long-term financial goals.

Now that you know how to make a budget, why don’t you take your personal finances to the next level? You can sign up for our free Investment U e-letter in the subscription box below to receive daily tips on how to manage your money, invest and build wealth.