The Complete Budgeting Guide: How To Create A Budget That Works

Are you interested in creating a budget? The average family carries a lot of financial stress. Most people have student loans, credit card debt, a mortgage, car loans, and sometimes even other forms of debt. However, not many people have a budget. According to a survey done by Gallup, 68% of households in the U.S. do…

Michelle Schroeder-Gardner

Last Updated: December 18, 2023

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Are you interested in creating a budget?

68% of households in the U.S. do not prepare a budget. Here are my tips on how to make a budget, so that you can start creating a budget that works.The average family carries a lot of financial stress. Most people have student loans, credit card debt, a mortgage, car loans, and sometimes even other forms of debt.

However, not many people have a budget.

According to a survey done by Gallup, 68% of households in the U.S. do not prepare a budget.

I believe budgets are extremely important and nearly everyone should have one. Rich, poor, middle-class, whatever you are, a budget will likely help improve your financial situation.

Some people think budgets are only for people living paycheck to paycheck, or those with no money.


Budgets are for everyone.

Yes, that means no matter how much money you make, you should probably have a budget. I recently read something that said couples who make $50,000 a month, on average, only save 4% of their income. FOUR PERCENT on a $50,000 monthly income? The majority of that monthly income went towards clothing, food, cars, and homes. I can’t even imagine how someone could blow through so much money each month.

This just proves my point, more people need a budget.

Budgeting may not be the most fun thing in the world, but it needs to be done. Budgeting can help you take control of your financial life, which can help reduce stress and let you reach your dreams.

Other budgeting-related articles you need to read:

Below are my tips on how to make a budget and creating a budget.

The positives of creating a budget.

Budgets help people manage their money better. It’s that simple.

Budgets are great, because they keep you mindful of your income and expenses. With a monthly budget, you will know exactly how much you can spend in a category each month, how much you have to work with, what spending areas need to be evaluated, among other things.

Budgets have helped people reach their goals, pay off debt, make more money, retire, and more.

Should a budget be electronic or on a piece of paper?

Everyone has a preference, so this depends on what will work best for you.

Pencil and paper can be great, but an electronic version (such as a spreadsheet, Mint, or Personal Capital) can help you easily make changes.

I suggest choosing whatever you are most comfortable with. It doesn’t matter how you keep your budget; it’s just important that you stick to it.

Side note: I recommend you check out Personal Capital. Personal Capital is similar to, but much better. Personal Capital allows you to aggregate your financial accounts to easily see your financial situation. You can connect accounts; such as, your mortgage, bank accounts, credit card accounts, investment accounts, retirement accounts, and more. And it’s FREE.

You MUST track your income and spending.

What you want is to create a realistic budget. To show you where your money is coming from and where it is going, you need to gather all of your receipts, bank and credit card transactions, and so on.

Or, you could even take it a step further by tracking everything for the next month or two, this way you know you’re not missing any expenses. This means recording every single transaction with a note that tells you exactly what you bought (if a receipt is not itemized). Then, at the end of the month, you can evaluate your spending.

After one month of closely tracking your spending, I’m sure you’ll be shocked by your results. This is the best way to create a realistic budget, as you will truly see where your money is going, and this will help show you how much should be dedicated towards each category in your budget.

Plus, the shock from seeing exactly where your money is going will encourage you to be wiser with your spending.

Budget category: Income.

For the income part of your budget, it can be from varying sources. You can include income from your day job, rental properties, side jobs, passive income sources, and so on.

One common mistake is that many don’t realize their income can drastically fluctuate from month to month, even when you work the same hours every month or if you are paid salary. Due to this, you will want to be mindful of whether you are paid twice a month, every two weeks, once a week, etc. The difference of when you are paid can change the amount you make each month. Budgeting with a fluctuating income can be difficult, and in a future blog post I will go over it in more detail.

Also, I don’t think bonuses should be included in a person’s budget. Including them in your budget is not usually the best thing to do unless you are 100% certain you are receiving the bonus. I have heard of far too many people who have counted on bonuses only to be let down when it was less than anticipated. Your budget should be realistic, not a fairytale.


Budget category: Expenses.

Have you ever truly totaled your expenses?

When making a budget, many people only estimate their expenses. However, you actually should be taking your realistic expenses and putting them in your budget as your estimations may be way off.

Here are expenses you may include when creating a budget:

  • Home – House payment, rent, maintenance, utilities, insurance, property taxes, etc.
  • Car – This includes all car expenses such as your monthly car payment, gas, maintenance, insurance, license plate fees, and so on.
  • Television, cable, Netflix, Hulu, etc.
  • Cell phone.
  • Internet.
  • Food – This includes all groceries, eating out, snacks, etc. Seriously, sit down one day and add up your food expenses for the month before.
  • Clothing.
  • Entertainment – Entertainment can include many things, such as going to the movies, going out for drinks, concert tickets, sports, and so on.
  • Charity – If you regularly donate to charity, then this should be an area you budget for.
  • Savings funds – This can be for your retirement fund, wedding, travel, etc.
  • Taxes – If you are self-employed, then taxes will make up a  large part of your budget.
  • Health insurance.
  • Miscellaneous – Pet expenses, fees, childcare, school, gifts, etc.

Related posts on creating a budget:

Keep your loved ones involved when creating a budget.

Even if only one person manages the family’s finances, the other person in the relationship should, at least, have somewhat of a clue. Conducting regular family money meetings is crucial to having a successful budget and meeting financial goals.

A budget doesn’t work if the other person doesn’t even know it exists!

Make changes when/if needed when creating a budget.

I recommend going over your budget on a regular basis. This may mean once a week, once a month, or something else. Do what feels right for you and what you think your situation calls for.

Many things can change in your budget. Your income may change, your expenses may change, or your goals may change. When something changes, you should adjust your budget to reflect that.

You may have noticed a recurring theme in this budget post, that you should be realistic about everything. Be realistic about what you make, what you spend, and if things need to be changed.

Do you believe in the power of creating a budget? Why or why not?

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Michelle Schroeder-Gardner

Author: Michelle Schroeder-Gardner

Hey! I’m Michelle Schroeder-Gardner and I am the founder of Making Sense of Cents. I’m passionate about all things personal finance, side hustles, making extra money, and online businesses. I have been featured in major publications such as Forbes, CNBC, Time, and Business Insider. Learn more here.

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  1. Nate

    Budgets are awesome. If done correctly, they make financial dreams a reality, and allow you to buy things you never thought you would be able to afford!

  2. A budget helped me pay off a $5000 credit card pretty fast (in 6 weeks) last year. I had no idea I was spending $50 a week on coffee alone, not to mention buying lunch from the local shop rather than making my own at home and taking it to work. Seeing where your money is going is the biggest advantage of a budget so you can modify your spending.

    I did a blog post on my blog about this. Link is in the commentLuv link. Also, the post invites people to get a copy of the spreadsheet I use on Google Docs which is all set up to calculate your spending. At some point I plan on doing a post or video taking people through how I fill it out each week.

    Great article, Michelle. ๐Ÿ™‚

    1. Sherry

      Awesome! Thanks for the insight โ˜ป

  3. Lindsay @ the Notorious D.E.B.T.

    I setup a budget last year, and it has saved me from going completely broke on more than one occasion. Before, I’d just look at the bank account and be like “I have $3,000, I’m rich, beeyotch!”

    Once I started budgeting though and parsed the $3,000 out to different expenses, I started to panic because I didn’t even have an emergency fund – something that I’ve since started and has definitely prevented me from going completely broke. In one month alone, my house needed emergency repairs of $2,700 and my truck broke down and needed a $2,000 repair. I woulda been up $hit creek if I hadn’t started budgeting last year and saving for an emergency fund!

  4. I definitely believe in the power of budgeting! I think it is more as a “spending plan” now, though. It’s just an outline a create to keep us on track!

  5. I’m a big fan of budgeting! It’s has helped us pay all of our bills and survive when things were tight and save up for my husband to go to school full time when we had a bunch extra to save – no student loans! I make up a budget spreadsheet for the month and then I print it out and track our spending on it under each budget category. It’s what works best for us at the moment.

  6. A great overview. So important to have a plan for your money no matter what your income. Tracking your net worth is a great tool as well to look at your financial big picture.

    1. Yes, that’s very important as well.

  7. Ok, I’m still trying to wrap my head around blowing through $50,000 a month!!! I can’t even imagine that…that just proves that no matter how much money you come into, if you can’t manage a little bit of it, you won’t be able to manage a lot of it.

  8. Amy @ DebtGal

    I’ve been tracking our expenses for about 18 months, and tried using a clearly categorized budget for about four months, but decided to set it aside. For starters, my husband wasn’t into it at all, so it as more challenging to manage it myself. Secondly, I struggled with including all the necessary categories, and forecasting exactly what we would need for them every month. Then I heard a guest on a Martinis and Your Money odcast talk about his household’s simple budget, which appealed to me much more. They just designate a large chuck of funds every month for all spending, without creating specific categories. The simplicity of this system appeals to me, so I’ve switched to using it, rather than a more elaborate budget. And since I still track spending, I’m aware of where our money is going every month.

    1. That sounds like a great way to budget! Different things work for different people ๐Ÿ™‚

  9. Norman

    Great article! I’ve noticed that when people start tracking something, they tend to focus their attention and improve it. For example, I work in healthcare purchasing and notice that hospitals will figure out ways to reduce expenses once they start tracking it. Similarly, I’ve been exercising regularly and maintaining a healthy diet because my Fitbit has been tracking my exercise time while an app has been tracking my meals.

  10. Budgets are very important! It helped me save money to quit my job, go back to school and not have to worry about getting into any debt. It’s a great way to keep track of your expenses and accomplish a savings goal. I loved reading your tips!

  11. I totally agree that people need a budget. I’d like to expand on something you said about budgets and goals. I believe that it’s easier to create, manage, and follow a budget when there’s a goal in place. When you have a goal, you know why you are budgeting and you know what you’re going to accomplish if and when you are successful with your budget.

    At times, people fail to effectively execute their budgets because they are more focused on just squeezing income and expense just to ensure that they are on budget. However, they fail to focus on the goal part of budgeting.

    In short, making and following a budget should have a purpose.

    1. Arlene Saldivar

      Maybe this is my problem. I’ve always budgeted, from the time I got married 47 years ago, yet we have almost no savings and we easily blow through more than $50,000/month. Basically what I do is tell myself how much is allotted for spending in each category, track all my spending, and then see how much I went over in every category. We don’t have vacation money, or “fun” money. Every category is essential items like food, house, car, utilities, etc. What I need to know is how to not overspend when every penny is earmarked for important things.

        1. Arlene Saldivar

          I wish!

          No, $50,000/year

          Sorry about that.

          1. Haha, okay, I was about to say “AHHHH” if you were blowing through $50,000 a month.

  12. I am definitely a fan of budgeting. Sometimes it takes a little time and effort, but it’s worth it in the end to stay on track and maximize your income.

  13. I cannot live without budgeting. But it was not always this easy. For me, the easy part was creating a budget. The hard part was sticking to it. That is where the discipline comes in. Can you imagine how hard it is to turn down a bag that’s on sale for $50 when the original price was $150? You really have to look at your needs, wants and goals. That’s what gets me through.

    1. Yes, sticking to one can be difficult!

  14. Tyler @ Oddball Wealth

    When I first made a budget a few years back, I was extremely shocked to discover all the wasteful spending I was doing.

    I never would have realized that and changed my spending behavior without first making a budget.

    It just goes to show how valuable making a budget can be!

  15. Budgeting has helped me pay off a ton a debt! I am huge fan of it! ๐Ÿ™‚
    Great Post, Michelle! ๐Ÿ™‚

  16. Michael Belk

    I lived a long time without a budget. It was not because I did not think budgeting was I did not want to save, but because I was unaware of how wasteful I was.

    I was probably like most people. I was young and I thought the money would never run out. If you are heading down this path, let me be the first to tell you budget now for your future is the best advice for anyone.

  17. Making a budget and tracking your income and expenses is SUCH an eye-opening experience. Once you start to see what percentage of your hard-earned money goes toward random stuff and not toward your financial goals, you realize how a few changes — even minor ones — can get you closer to your financial dreams. Thanks for sharing these ideas!

  18. Totally agree with the power of a budget. There are times where I haven’t done one and all I feel is guilt and being unorganized, it’s like planning a trip without the directions to get there. You’ll drive around aimlessly, wasting time and money. Same thing without a budget, you’ll spend more and have no control

  19. Vanessa Jencks

    Ugh. My problem is not making the budget but keeping track of spending. I loved our Mint and phone apps in the States since I could just buy everything with my card and my spending was automatically tracked. Now that I’m in China, we’re confronted with a society with one foot in cash, one foot in digital transactions. If I wanted I could haphazardly send random people money through a messaging app called WeChat, but that wouldn’t help me buy food. I need cash for that. And keeping track of spending and receipts… I’m kind of a lazy girl.

    This post reminded me that I need to go back to the envelope system so we can reign in our spending. PS – I’m also totally shocked that a household with $50,000 per month only saves 4%. Crazy!

  20. Max

    Keeping a budget takes work, but online tools make it much easier. If you have a large, annual expense, like property tax, you can budget for it each month instead of scrambling to come up with the funds just before it’s due. Same for preparing for a future expense, like a down payment on a house or retirement. Treat it like an expense and pay toward it each month. Then the money will be there when you need it.
    Now I gotta just find a similar way to budget my time …

  21. Elizabeth Trejo

    This is great! I recently starting doing a budget sheet on Excel that my boss taught me and I love how everything is laid out in front of you, but you really have to be strict and consistent when doing so. It is really easy to forget to input something.

  22. Hi Michelle, thanks for this article! Can you share your thoughts on Personal Capital and why you think it is better? I just started using Mint which seems fine so far but I’d be open to changing.

  23. Sassy Mamaw

    As far as bonuses go, I don’t include them in my regular budget. If I am expecting money, I keep an “irregular income” list. This has the different areas on it that “extra money” will be spent on. Whether it’s paying down debt or travel or savings. That way, when something like a bonus, or a tax refund comes in, I know right where the money is going.

  24. YES Budget are important, I understood when I was repaying a small debt and changed work, at the beginning was hard to have a good budget, but after some adjustments is been good see monthly difference into my bank balances… BUDGET are absolutely necessary when you have financial goals to achieve!!!

  25. Budgeting is very important. It gets financial plans in order and makes those dreams come to reality. Others might say that doing budgeting is being stingy ๐Ÿ™‚ but the reality can all be seen on the paper.
    Thanks for the great share.


  26. Jane Allen

    I also love budgeting but it’s a discipline I’m still trying to cultivate. I’m not there yet. But, I’ll keep trying to see the budgeting style that works for me. I guess I have this issue because I’m not really good with numbers. But, I’ll quit telling myself stories and just get a budget done. At least, let me start in July so I can track my expenses.

  27. This is so true! Keeping busy a budget and monitoring your spending is so important. We do a good job tracking expenses and then analyzing ever few months. It also helps us budget each year, therefore we know where extra cash is for extra investing.

  28. Carolette Alcoran

    I live with my first family, I don’t know if it was meant to be called that way, but what I mean is that I am still living with my mother, father, and 9 siblings. Yes, 9 siblings. My parents don’t have proper work, so me and my 3 older siblings tried our very best to sustain financial stability. And it is very challenging for us. Until I realize how savings really work. Actually, before I even spend my earnings, I make sure to save first. I actually read it from a book somewhere, I can’t remember the title, but it says, “rather than saving the remaining of your earnings, why not get the saving first?”.

  29. I love a good budget ๐Ÿ˜€

  30. Helen Jayne

    Starting budgeting can be tough. I have found tackling your mindset key to making the budget work. There are so many times we self sabotage. For me the answer was not a better paid job and more money coming in, I simply made the same mistakes I had always made. Once I understood why I made those mistakes budgeting became so much easier.

  31. Thanks for this valuable piece, Michelle.

    This is exactly what I need this year, 2019.

    I remember I created a budget in 2017 and tracked my income and expenses for a couple of money and that helped me to save a ton of cash but how I totally fling the idea into the air in 2018 after my income has gone up is what I can understand. Maybe I used to think that budgeting is for people with very low income. Now I know better.

    I’m going to go back to my drawing table this time.

    Thanks for sharing.


  32. Desmond Mar

    Thanks for sharing such comprehensive guide on budgeting! I did create one last time but find it difficult to maintain and update it regularly. Guess it’s time to re-create a new one again. That’s the only way I find it effective to save more money.

  33. I have always failed in managing budget. Your points boost highly. Thank you. Shall try this time if I can manage.

  34. I know this is an old post, but I generally agree with everyone needing a budget. However, a lot of people find creating budgets dry and boring. In the last few years, there’s been a lot of financial aggregate apps that help in the budgeting process.

    Simplification is key. If we can get everyone to save more money coming in versus going out – that will be a big win already.