A budget is one of the absolute basic necessities for any individual, family, or business. And yet, Bankrate reports that only 60% of Americans keep a budget while millions of others don’t even bother. This is risky, regardless of your income level, because you could be digging yourself into debt without even realizing it.

When making a budget, all financial items must be accounted for, including debts, savings, investments, bills, and miscellaneous expenses. In the case of businesses and entrepreneurs, you must include accounts payable and receivables, unearned vs booked revenue, tax liabilities, etc.

Otherwise, you likely aren’t making the best use of every dollar you make and could be missing out on significant savings or funding for business growth.

Even if you think you have a solid grasp on your financial situation, it’s better to have a budget and not need it than need it and not have it. Here’s how to make a budget for your personal and professional life.

Evaluate your personal finances

First things first: before setting up a budget, you should assess your financial situation. This includes determining how much your assets are worth, measuring your monthly after-tax income, and calculating how much you owe and to whom.

When it comes to your financial accounts and other assets, it’s not enough to know how much money you have in each. Some questions to ask yourself are:

By asking these questions right off the bat, you’re better able to invest your money in a way that will maximize your return on investment (ROI) and give you more flexibility when it comes time to setting up your budget.


It’s important to be able to allocate your funds based on how often and how much you’re paid. This is easier said than done. Unless you make a stable salary that’s easily divided into twelve-month cycles, there will be some math involved.

If you’re an hourly employees or self-employed or a freelancer, break out a calculator and try to average out your expected monthly income.

This can be done by analyzing your income from the past 6-12 months or predicting your future income, based on how many hours or clients you’re currently working with.

Remember, it’s better to underestimate your income, so you’ll risk unexpected surpluses in the future, rather than unexpected deficits that’ll leave you scrambling to find a way to pay the bills that month.


Now let’s talk about everyone’s least-favorite subject: debt. Of course, it doesn’t have to be a struggle and once you have a budget up and running, you’ll be in a better position to pay off those debts sooner. Some questions to ask yourself:

  • What do you owe, how much interest are you incurring, and who do you owe it to?
  • Do you have a mortgage? Student loans? Credit cards? Car loans?
  • Anything else that would fall under the category of “recurring debt?”

Track what payments you’re currently making and once you get into the actual budgeting phase, you’ll be able to prioritize certain debts over others and add funds to payment schedules. Eventually, you’ll be steps closer to debt-free living.

Assess your monthly expenses

Once you have calculated your net worth (how much money you have minus how much money you owe), your next step is to go through your monthly expenditures and determine how much needs to be allocated in each category. Categorizing your expenses is important because it’ll help you stay organized later on.

Everyone’s lifestyle varies widely, but many households have similar categories: housing (rent or mortgage payments), utilities, transportation (car payments, gas, maintenance, registration, etc.), food and drink, toiletries, cell phone & internet service, health care, entertainment, savings, and contributing to retirement.

If you haven’t been tracking your monthly expenses previously, now is the time to start saving receipts and recording bill payments. There is a huge difference between estimating your spending habits and the actual expenses incurred.

Although it’s good to set target spending goals, it’s better to plan for reality and cut back on spending once you’ve created a solid budget.

Also, don’t forget to account for annual or one-time expenses. Things like car registration, membership dues, vacation, home remodeling, and so on….you aren’t doing yourself any favors by leaving these out of your monthly budget.

In contrast to income, it’s better to overestimate your expenses, so when it comes to irregular expenses, either divide the costs by twelve or set up a category for “Miscellaneous Expenses.”

Finally, you should try to include your investments as a budget line. By forcing yourself to budget for contributions to your retirement portfolio – whether you have an IRA or 401(k) – you ensure that more money is allocated to growing your wealth versus spending on everyday wants. In the long term, even investing with little money will be your path to financial independence and freedom.

Organise your information

After you’ve assessed your current financial situation and tracked your average expenses, it’s time to start imputing that information into a database. There are several quality budgeting tools available online and your budget will be happy to hear that most of them are free.

Mint.com is one of the premiere budgeting applications out there, available for the low cost of $0. Accessible on multiple platforms (including mobile apps for your phone or tablet), Mint is a comprehensive budget tracker because it not only records your income and outflow, but it helps you keep track of your spending habits, investments, bill payments, and more.

The website and app’s formatting makes navigation a breeze, and the simplicity of using the applications makes it easy to see how Mint is one of the best budget trackers online.

When you find the right budget tracker for your situation, begin imputing the information you gathered in the previous steps. Categorize your expenses.

Track your income with graphing software provided by most budget tracker applications. Figure out how much annual interest your savings accounts will accrue.

It might take some time to sort everything out, but having your information stored in a secure, organized location will make the budgeting process that much simpler.

Account for unexpected changes

Once you have your financial information secured in budget tracking software, you have cleared on major hurdle. Making adjustments will be easier now that you’ve got a grip on where all the shortcuts are, how the system works, and where each receipt or statement should be filed.

Best case scenario: you’ve even added a savings category and are making regular contributions to an IRA, savings account, CD, or other interest-garnering investment.

This is all pretty simple, but there are unexpected changes that might arise, too. Take gas prices for example. Fuel for your car is probably the most volatile item in your budget, because gas prices fluctuate due to a variety of factors such as Middle East tensions, technological problems, refinery fires, etc.

There’s also food, which is getting more expensive due to extreme weather conditions affecting crops, political squabbling over agriculture policy, and more.

Don’t let your solid budget be crippled by unexpected price increases or surprise expenses (e.g. a hospital visit, emergency plane ticket or car repairs). Again, we highly recommend creating a “Miscellaneous Expenses” category to account for these circumstances.

Final word

If you’ve followed all the steps above, you’ve now successfully created your own budget. There’s no excuse not to have a monthly budget: it doesn’t require much math or countless hours of imputing expenses into confusing software, and now your finances will be better off.

You’ll have a better idea of where you can cut back (or eliminate altogether), what debts to prioritize over others, and you won’t be scrambling for extra cash in the event of a price spike or unexpected expense.

Staying organized is key to healthy finances, and even if you don’t follow your budget to the penny, it’s still better to use one as a guideline for your spending and saving habits, as opposed to not having a budget at all. Just never forget that, while maintaining your finances is important, money isn’t everything in life.