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Budget for beginners: how to make your first budget

A budget is a plan for your take-home pay: you write down what comes in, list what has to go out, and decide in advance where the rest goes. For a first budget, use last month's bank statements, sort every cost into a few groups, and plan next month so income minus spending equals zero. It takes about an hour at a kitchen table. Below are the steps, a filled-in example, and what to do in the first month when things don't go to plan (they won't, and that's normal).

What a budget is, and what it isn't

A budget isn't a record of what you spent; that's tracking. A budget is the plan you make before the money is spent. Tracking feeds it: you look at what happened last month so next month's plan is realistic.

It also isn't a diet. The goal of a first budget isn't to cut everything; it's to see the whole picture once, so you stop being surprised. Most people find a few leaks the first time: a subscription they forgot, a grocery bill that's really two, or eating out that adds up to more than a car payment.

What you need before you start

• Your last two pay stubs, or the deposits on your bank statement.
• One to three months of statements for every account and card you spend from: checking, credit cards, any app you pay with.
• Your bills: rent or mortgage, utilities, phone, insurance, loans, with their due dates.
• Something to write on: paper, a spreadsheet, or a free template. Our paycheck budget template is laid out one check at a time.
• An hour with no one asking you for anything.

Doing it at home with a partner? Do the gathering together; it's the step people skip, and it's where the surprises are.

Step 1: work out your take-home pay

Use what actually lands in your account after taxes, insurance and retirement deductions, not your salary. If you're paid every two weeks, plan on two checks a month (the extra checks come twice a year). If your pay changes, use your lowest normal month of the last three. Add any regular income that's reliable: child support received, a steady side job. Leave out money that might not come.

Step 2: list your fixed costs

Fixed costs are the same, or close to it, every month. Go through your statements and write each one with its amount and due date:

• Rent or mortgage, renter's or home insurance
• Utilities: electric, gas, water, trash
• Phone and internet
• Car payment and car insurance
• Minimum payments on every debt
• Childcare, child support paid
• Subscriptions and memberships

Our full budget categories list has every line people usually forget, from pet insurance to software renewals.

Step 3: find your real variable spending

Variable costs change month to month: groceries, gas, eating out, household items, clothes, fun. This is where beginners guess low. Don't guess; add it up from the statements:

1. Go line by line through one month and mark each spend with a group: G for groceries, E for eating out, and so on.
2. Add each group up. If you have three months, take the average.
3. Watch for spending that hides: grocery runs at a pharmacy, delivery apps, small card charges under $10.

Expect at least one number to shock you. That number is the most useful thing you'll learn today.

Step 4: add the costs that don't come every month

Car registration, holidays, birthdays, annual subscriptions, back-to-school, car repairs, a doctor's visit. They're not monthly, but they're not surprises. Write each one with its yearly cost and divide by 12; that's a monthly set-aside. These set-asides are called sinking funds, and our list of sinking funds categories covers the common ones.

Step 5: give every dollar a job

Now write the plan for next month: income at the top, then fixed costs, variable costs, set-asides and savings. Subtract. If money is left, give it a job (more savings, extra on a debt) until the plan reaches $0. If you're short, cut from the variable lines first, then look at the fixed ones at their next renewal.

Planning to $0 doesn't mean spending everything. It means every dollar, including the ones you save, was decided on purpose. That's the core of the zero based budget.

A filled-in beginner budget: $2,800 a month

A single renter with a paid-off car and a student loan.

Totals: fixed $1,530 (55%), variable $830 (30%), set-asides $105, buffer $100, savings $235 (8%). The $100 "forgot it" line is on purpose: a first budget always misses something. After two months, look at what that line paid for, give those things their own lines, and shrink it.

Paid every two weeks? Split the same plan across two checks so each check carries the bills due before the next payday. The biweekly budget guide shows how.

Which budgeting method should a beginner use?

The method matters less than doing it every month. Here is how the common ones compare:

If you live paycheck to paycheck, start with zero based for the plan and envelopes for groceries and eating out. The 50/30/20 split is a useful score to check once a month, not a plan on its own.

Set up your accounts to do the work

A budget on paper still needs a way to stop you spending the rent. A simple setup:

• Bills account: a checking account that only pays bills. On payday, move each bill's amount into it.
• Spending account or card: groceries, gas, eating out and fun. When it's low, you know without doing maths.
• Savings account at a different bank, or at least not linked to your debit card, so it's not one tap away.

Turn on low-balance alerts and set autopays for a day or two after payday, not before. Our guide on how to avoid overdraft fees lists the bank settings that matter.

Paper, spreadsheet or app?

• Paper works well for a first budget: one page, nothing to set up.
• A spreadsheet adds up for you and is easy to copy each month. Google Sheets and Excel both have budget templates.
• An app pulls in transactions so tracking is quicker. Free and paid options change often (Intuit closed Mint in 2024), so check what an app costs and what it needs access to before you link a bank.

Pick the one you'll open every week. The rest is preference.

Your first month: what to expect

Most first budgets are off in the first month, usually in groceries, eating out and things bought for the house. That's not a failure; it's how you get real numbers. A simple plan for month one:

1. Week 1: follow the plan and write down every spend, or check the app every two days.
2. Week 2: compare each variable line to the plan. Over? Move money from another line now, so the total still works.
3. Week 3: note anything you forgot to plan for. It goes on next month's list.
4. Week 4: write next month's budget using what really happened.

By month three, most budgets are close to reality. That's when cutting starts to work, because you're cutting real numbers.

What to do when you overspend

• Move money, don't break the plan. If groceries ran $60 over, take $60 from fun or eating out. The budget still adds up to zero.
• Don't use savings for wants. Savings covers real emergencies; overspending on takeout isn't one.
• Find the reason. Over because of one big shop, or every week? A repeated overspend means the line was planned too low; raise it and lower another.
• Don't start over from scratch. A bad month is data. Keep going.

A 15-minute weekly check-in

Once a week, at the same time:

1. Open your accounts and see the balances.
2. Compare each spending line to what's left for the month.
3. Check bills due in the next 10 days are covered.
4. Move money between lines if one ran over.
5. Write one thing that went well. It keeps you coming back.

Budgeting as a couple

Two people, one household: agree on shared costs first (housing, food, utilities, childcare), then decide how to split them, either 50/50 or by each person's share of income. Give each person some money with no questions asked; it heads off most arguments. Do the weekly check-in together. If one person handles the money, the other should still see the plan every month.

Beginner budget mistakes

• Budgeting gross pay. Taxes and deductions are gone before you see the money.
• Guessing variable spending. Statements beat memory every time.
• No line for yearly costs. The car registration arrives every year.
• Too many lines. 15 to 25 is plenty for a household. More, and you stop keeping up.
• Zero fun money. A budget you can't live with ends in a binge. Plan some.
• Quitting after month one. Month one is practice.

If you're starting a budget because the money always runs out before payday, our guide on how to stop living paycheck to paycheck puts the steps in order after this one.

Get the statements out tonight and do steps 1 to 3; that alone shows you most of the picture. If you'd like a shortcut to the leaks first, the free 2-minute money leak quiz shows where a paycheck tends to slip, with no bank login. More guides are on the Ahead Again guides page.

Budgeting help only. This guide isn't financial, tax or investment advice.

Sources

1. Consumer Financial Protection Bureau, Your Money, Your Goals toolkit: income and spending trackers, bill calendar. consumerfinance.gov
2. FDIC, Money Smart for adults: budgeting and spending plan modules. fdic.gov/money-smart
3. Elizabeth Warren and Amelia Warren Tyagi, All Your Worth (Free Press, 2005): the 50/30/20 split.
4. Intuit, notice that the Mint app closed in March 2024 and users were moved to Credit Karma. mint.intuit.com