How to make a personal budget

Oleg Avhimkov | Twenty20

To build a better financial future, start by looking at what you’re spending money on today.

Questions about budgets are among the most-searched money issues on Google. “What is a personal budget?” ranked third among the top personal finance questions in the past year, according to data from the search giant, while “How to make a personal budget?” was sixth.

No wonder: Even though a budget can be an important tool for monitoring your spending, paying off debt, and helping you to save money, most people don’t use one. Almost 3 in 5 people aren’t currently tracking their spending and 2 in 5 have never had a budget, according to a January survey from the Certified Financial Planner Board of Standards, a professional group for financial planners.

Here are your most-asked questions about personal budgets, answered:

'What is a personal budget?'

At the heart of it, a budget is a plan for spending your money, says Chris Bailey, productivity consultant and author of “The Productivity Project” and “Hyperfocus.”

It sets parameters for what you’ll do with money coming into your bank account. Over time, tracking where your money goes, and whether you’re holding to that plan, can help you keep yourself accountable, especially if you have variable expenses. You may even be surprised by your spending and saving habits.

“Whether it’s focusing better, whether it’s managing our time, or whether it’s managing how we spend our money, bringing awareness to our behavior is the key,” says Bailey. “We so often do things on autopilot.”

Having a personal budget can also help you better plan for goals and purchases down the line, says Katharine Perry, a financial consultant at Fort Pitt Capital Group in Pittsburgh.

Still, the process of creating one can be stressful, Perry says. You are, after all, coming face to face with the realities of your bills and your savings accounts, and the limits of your net income.

“But once you have it worked out and filled out, there’s a confidence there and financial security — because you know you’re not going to run out of money this month,” she says.

How to make a personal budget

Creating a personal budget will look different for everyone. Some people use software to create a budget spreadsheet, or an app, like or Others use an envelope system that divides cash for each monthly spending categories into separate envelopes — so when the “dining out” money is gone, you’re done.

The “right” way to budget is whatever method you can stick with.

Happily, budgeting is a topic we’ve written about extensively here at Grow, so we have lots of tips and tricks to help you find a budget system that works for you.

1. Start by looking back

If you’re making a budget for the first time, start by reviewing your spending from the last six months, says Bailey. This will show your regular purchases, savings contributions, and bills, as well as unexpected costs.

2. Create categories

Categorize each purchase, like entertainment, food, housing, and utility bills. You don’t have to set harsh spending limits right away, but it’s good to have a visual of where your money is going.

3. Find a formula

If you’re looking to create a framework for your budget, there are a couple ways to go about it. One popular formula is the 50/30/20 rule, which divides your monthly income into three categories: fixed expenses, financial goals, and flexible spending. You can find more about the 50/20/30 rule here.

4. Factor in savings

Budgeting isn’t just about spending and bills. Make sure to include savings and emergency funds so you have a safety net in case something goes wrong — you don’t want to blow your budget because of unforeseen expenses.

Thinking about your future self can be motivating to get started on your budget today. “If we want to have the financial independence that we so crave, it so often means sitting down … and looking where the money goes,” says Bailey. “Even the simple act of making a log of everything you spend will reduce how much you spend in the first place.”