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How to Create a Budget in 7 Simple Steps

These in-depth tips will help you create a budget and manage your money more effectively.


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What We'll Cover

  • What categories to include in your budget
  • Free budget forms
  • How to create a zero-based budget
  • How to adjust your budget when needed

How are we ever going to get caught up with the bills?

Has this thought ever popped in your mind before? If this is you, the truth is you’re not alone. In fact, you are part of the almost 80% of the U.S. workforce who report that they currently live paycheck to paycheck.1

Of course, the first thought that comes to mind is that you just need to make more money, right? Well, not so fast. A recent report breaks down the percentage of adults stating they are struggling making necessary expenses such as food, rent or mortgage, car payments, medical expenses or student loans as compared to their annual income.

income percentages graph

Source: NPR: Paycheck-To-Paycheck Nation: Why Even Americans With Higher Income Struggle With Bills2

As you can see above, even those making $100,000 or more per year are living paycheck to paycheck and struggling to make the payments for the basic needs in their lives.

So, how do I stop living paycheck to paycheck with my current income?

The good news is the answer is simpler than you may realize. The absolute best way to stop living paycheck to paycheck is to create a plan for the money coming into and out of your life.

As Zig Ziglar famously said, “If you aim at nothing, you will hit it every time.”

The Seven Steps to Creating Your Own Budget

Before we create any kind of change in life, we need to draw a line in the sand; the starting line. The first step is that line.


Step 1: Print off 90 days’ worth of bank statements

Before you can tell your money what to do, you need to find out what the money has been doing. To start off, print off the last three months of all bank statements. Anywhere money comes into your accounts and then leaves your account needs to be printed off. This includes checking account statements and all credit card statements.

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Step 2: Create categories

Next, go through all of your expenses from your statements and look for common themes of spending.

You should notice the obvious ones, such as rent or mortgage, car payment, insurance and your cell phone bill. But then you’ll want to start grouping expenses you see into other categories you have in your life.

Do you have a lot of dining out expenses? Are there expenses from grocery shopping, department store shopping, or other themes you notice?

In the free budget forms, you will find examples to get you started.

Some common categories include:

  • Groceries
  • Dining Out
  • Fuel
  • House Expenses
  • Car Expenses
  • Health and Beauty
  • Kids

Pro Tip: Limit your categories to no more than 20. In fact, the fewer the better.

Average of the 90 days

After you have added up all your expenses for each category over the last 90 days (three months), it’s time to get the monthly average.

Example: If you added up three months’ worth of grocery expenses and the total is $1,500, then your monthly expense for groceries is $500.

Repeat this for all categories you created.

Keep in mind you are just creating a baseline based on the past 90 days of expenses. This is not a perfect science (yet), but for now it gives you a great starting point.


Step 3: Add it to your budget

Now that you know where the money has been going, it’s time to transfer that into your own budget.

You can grab these free budget forms here.

Start with your take-home pay

The very first number you are going to enter into your budget is your take-home pay. This is NOT how much you earn each month, but rather how much actually hits your checking account each month after taxes, benefits and retirement contributions are taken out.

It doesn’t matter whether you get paid weekly, bi-weekly or monthly. Simply add up how much you take home each month and enter that into the “Income” section of your budget.

Enter in the categories

Next, start entering in the categories you created from step 2, and the monthly average for each category based on the 90-day totals you calculated.

You will notice some of your expenses are “fixed”, meaning they are the same amount each month. This will likely be your mortgage/rent, car payment, cell phone bill, subscriptions or anything else that remains the same.

The rest are your “flexible” expenses, meaning they fluctuate each month. Your power bill may be higher in the summer, while your fuel costs will fluctuate with the cost of gas prices.

Step 4: Zero out your budget

Okay, now comes the official “budgeting” work. What you are going to do here is create a zero-based budget. This is just a fancy way of saying your income minus all of your expenses will be zero.

Now if you’re confused at this point, let me explain a little bit further. When you’re doing a zero-based budget, you are determining where and how much you will be spending before you actually spend it.

Think of your monthly budget as a road map for a road trip you plan to travel. Just like you would plan your routes and stops before you start the trip, the same is true for your monthly expenses.

It won’t be perfect—and that’s okay

The truth is, 90% of people who create their first budget will quickly learn they are overspending when they subtract their expenses from their income.

If this happens, pause, take a deep breath and remind yourself this is completely normal. We are human, and humans like to spend more than we earn. This is why almost 80% of U.S. workers currently live paycheck to paycheck.

Pro Tip: Go through your budget and identify the needs versus the wants. You need to pay the mortgage and you want the premium cable channels. Once the needs are distinguished from the wants, start pulling back on the wants first to zero out your budget.

Monthly Take-home Pay – Monthly Planned Expenses = Zero


Step 5: Follow Your Plan

Once you have created your zero-based budget, it’s now officially time for you to follow the plan you created for yourself.

Think about this: for most Americans who are paycheck to paycheck, money is always in control of their lives. They are constantly thinking or stressing about how to make the next bill payment or trying to time the due date with the next paycheck.

This officially stops right now.

At this step you have looked back 90 days and given yourself a great estimate of how much you spend in different areas of your life. Then you ironed out the wrinkles to make sure your income will cover all the expenses you plan to make.

Now, each time you make a payment, or an expense occurs, simply enter it into the budget you just created. When you make the rent payment on the first of the month, go ahead and enter that amount in. Or when you leave the checkout at the grocery store, hold onto the receipt and enter that amount into your budget.

Pro Tip: Always ask for a receipt. At the end of the day, spend the two to three minutes entering those totals into your budget. Also, round up your expenses for easy math and to create a little buffer in your checking account. Instead of $33.82 on gas, make it an even $34.


Step 6: Make Adjustments

One of the most important parts of creating a budget is realizing you will never be perfect. So many people start a budget, feel like a failure, and unfortunately quit.

Don’t let this happen to you.

Yes, you’re going to be really close on some of the expense categories you created, and you will also be way off on others. This is completely normal, and it happens to everyone.

You will forget about certain categories halfway through the month, you may miss a few expenses, and you will likely overspend that first month.

If this happens to you, remember this is completely normal. If it were easy right away, the entire country would live on a budget, right?

Step 7: Rinse and Repeat

Alright, promise yourself you will stick to a budget for the next 90 days. Month one is going to feel like a disaster for some. You’ll probably have 37 emergency budget meetings and may even get a little worked up over it.

The second month, you’ll make adjustments based on the mistakes from the previous month. By the third month, you will be a budgeting all-star.

Any time we make a change in our lives, it’s not going to start off perfect or the way we expect. This is why you must rinse and repeat the budgeting process until you start to feel comfortable with it.


The Result of Your Budget

The one thing that will shock you is how much you have been spending in certain categories. You may also surprise yourself and find money you didn’t even know you had inside your budget.

When my wife and I first started our monthly budget process, it was ugly. We were pulling in two different directions and that first month it felt like the budget was an absolute disaster.

Then, the second month, we made a few tweaks and by month three we were smooth sailing.

In fact, today it takes us about five minutes per month to create our budget. We usually do this on the last day of the month to forecast and prepare for the upcoming month.

Saving more money

We noticed those first few months we were saving around $500 per month by creating a plan for our money and following it. This means we were able to give ourselves a $6,000 per year raise without having to work extra hours or pick up a second job.

This was simply by creating a plan, following the plan and improving the plan.

Because we now pay attention to the dollars and cents in our life, we no longer pay interest—we earn interest.

Key Takeaways

  • Print off the last 90 days of your bank statements to find your average monthly spending in various categories.
  • Zero out your budget, knowing that it won’t be perfect in the first month.
  • Make adjustments as needed.
  • Stick to budgeting for at least 90 days. The first few months may be rough, but you should start to settle into a flow by Month 3.

It’s your turn to get the money right. Start by creating your own budget today.

Grab the free budget templates here.


1 Ramsey Solutions, December 20, 2020, How to Stop Living Paycheck to Paycheck, Dave Ramsey, accessed February 1st, 2021, <>.

2 Alina Selyukh, December 16th, 2020, Paycheck-To-Paycheck Nation: Why Even Americans With Higher Income Struggle With Bills, NPR, accessed February 1st, 2021, <>

Chris “Peach” Petrie is the founder of Money Peach. Money Peach partnered with OneAZ to provide free financial education to members across the state. To learn more about OneAZ’s partnership with Money Peach, click here.

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