A budget allows you to look at your spending realistically and make adjustments so you’re living within your means. However, budgets don’t have to be restrictive – with the right approach, budgeting can actually help you feel more in control of your finances.

In this article, I’ll share some tips for creating a budget that works for your unique situation and lifestyle.

Track Your Spending for a Month

Before making a budget, take 30 days to write down everything you spend money on. This includes bigger purchases like rent as well as daily coffee runs and grocery shopping.

Technology can make budgeting easier. Use a budgeting app like Mint or YNAB to track spending and send alerts automatically. Or use a spreadsheet to DIY your budget. Enter your budget percentages of amounts into the spreadsheet to have a visual monthly spending plan. The National Foundation for Credit Counseling offers a free budgeting worksheet, and here is a free budgeting tool that can help you create a personalized budget.

The Dave Ramsey website also offers a variety of budgeting resources, including a free budgeting app and printable budgeting worksheets.

Categorize Your Expenses

Once you’ve tracked a full month of spending, go through and categorize each transaction. Common categories include housing, utilities, groceries, transportation, dining out, entertainment, etc. Consider making subcategories too, such as splitting dining out into restaurants vs. takeout. Categorizing helps you see exactly where your biggest expenses are each month.

Estimate Your Income

On the income side of the budget, make estimates for all sources like your regular paycheck(s), side income like freelancing, and any additional money from things like child support or alimony. Having a clear picture of your total monthly income is important for balancing realistic spending limits.

If your income varies from month to month, you can use an average of the past few months or base it on the lowest amount you expect to earn. This way, you can avoid overspending and have some extra money to save or invest if you earn more than expected.

Set Spending Limits

Now it’s time to set limits in each category based on your priorities and goals. Make limits realistic rather than restrictive. For essentials like housing and utilities, base limits on your actual costs from tracking. For flexible categories like dining out, entertainment, etc., set limits as a percentage of your post-essential income. Leave wiggle room for life’s unexpected expenses too.

Track Progress Over Time

Budgeting is a process, not a one-time task. Track your category spending each month to see how you’re doing. Adjust limits up or down based on your needs and priorities changing over time. Reviewing monthly results keeps you accountable while allowing flexibility to handle unplanned costs or take on new financial goals.

Extra Tip:

If you’re having trouble sticking to your budget, try putting your spending limits into an envelope system. For example, if you want to limit entertainment expenses to $200 per month, put a physical envelope with $200 cash in it at home or work. 

Every time you spend money on entertainment, put the cash into the envelope. Once the $200 is spent for that category for the rest of the month, do not spend any more money in that category! If you have some extra money left over from other categories or overall income, consider making a fun splurge purchase instead of buying something small every day (such as coffee).