Skip to Content


Home > Section 5 > Spending and Budgeting > Creating a Budget

Next >

Creating a Budget

A budget is a tool that can help you to:
• see where your money comes from (income)
• notice how you use your money (expenses)
• determine whether you are spending money on what is most important to you
• set future financial goals

The first time you create a budget, you may be surprised by what you learn. You may find that there are ways you use money that you like very much, ways that feel uncomfortable, and changes you'd like to make. As you begin the budgeting process, try to be patient. While you may identify positive changes that you want to make, they could be difficult and slow to implement as habits around money are often entrenched. Print out the budget worksheet (Link) and fill in as needed as you read the steps below.

Step 1 - Calculate Monthly Income

Collect all your salary or wage stubs from the past 12 months and add together your after tax employment, disability, and other consistent sources of income. Calculate the monthly average income and write it in the first column of the Budget Worksheet. For example, if your total after tax income for the past year was $10,000, then your monthly average income is $833 (or, $10,000 divided by 12).

Step 2 - Calculate Average Monthly Expenses

Collect receipts, paid bills, and other records for each expense item listed in the Budget Worksheet. Calculate a monthly average for each item and write it in the first column of the Budget Worksheet. For example, add the telephone bill expense for the past 12 months and divide by 12 to get a monthly average. If you don't have receipts for a full year, estimate the expense. You could keep a record of expenses for a week and multiply the total for each item by 52 to get a yearly estimate (then divide by 12 to get a monthly estimate). For example, if you spent $20 on gas one week, then your monthly estimate would be $20 x 52 divided by 12, or $86.67.

Note: Reviewing your monthly bank statement or checkbook register may help you remember how much you spent on items over the past year.

Step 3 - Calculate Net Income

To calculate net income, subtract the total expenses from the total income in the first column of the Budget Worksheet. If net income is a positive number, you have money available for savings or to spend. If net income is a negative number, you might be using savings to pay monthly expenses, borrowing money to pay debts, or not paying your bills in full or on time. If your expenses are consistently greater than your income, to reduce debt you will need to cut your spending. A credit counselor could help you determine what cuts you can make. You might also need to talk with your case manager to find assistance programs that will help you meet basic needs.

Step 4 - Review Patterns

Look over what you have recorded so far on the Budget Worksheet and take a moment to reflect upon the following.
• Did anything surprise you?
• Do you have money for what is most important to you?
• Did you see changes that you would like to make?
• Can you make those changes? What would help?

Step 5 - Set Goals

Use the information from the previous four steps to set monthly budgeting goals for income and expenses. Take a moment to think about which expenses are essential, which are nice to have but not necessary and which are unimportant. Write your goal for each item in the second column of the Budget Worksheet. Next, calculate your net income. Remember, net income needs to be positive or zero if you want to avoid an increase in debt levels.

Step 6 - Evaluate How You Are Doing

Each month, make a note of how much you earned and how much you spent on each item in the third column of the Budget Worksheet. Compare those numbers against your budget goals.

Next >