How to make a budget
A simple way to make a budget is to split your take-home pay into three buckets as a starting point, about half for needs, up to a third for wants, and at least a fifth for savings and debt, then adjust to your real rent. Run it with two accounts: one for bills on autopay and one for everyday spending, so the balance tells you what is left.
About 30 minutes to learnTake care: injury or damage if careless
Mark it once you can do it without this page open.
How to do it
- Add up your monthly take-home pay from your pay stubs, not your salary.
- List your needs: rent, utilities, groceries, insurance, transport and minimum debt payments.
- Compare needs with about half of your pay, and note how far off your rent pushes it.
- Set a savings and extra debt amount, aiming for about a fifth of pay if needs allow.
- Open or use a second checking account, and send the bills money there on payday to cover autopays.
- Leave the rest in your spending account; what is in it is what you can spend until next payday.
- Check both balances once a week, and adjust the split each month until it fits your life.
Stop and call a professional if
- You want advice on your own numbers: a fee-only financial planner or a nonprofit credit counselor can give it; this page only explains the terms.
- Your needs alone cost more than your take-home pay: talk to a nonprofit credit counselor about options.
Common mistakes
- Planning with gross pay.
- Forgetting yearly or irregular costs, such as car registration or gifts.
- Treating the split as a rule you failed rather than a place to start.
- Tracking every coffee for a week and then quitting.
Quick self-check
Three questions. Your last score is kept in this browser.
Teach this to someone
A one-page sheet for showing a friend, a roommate or a kid: what to say, what to show, and one question to check it landed.
Teach: How to make a budget
What to say
A simple way to make a budget is to split your take-home pay into three buckets as a starting point, about half for needs, up to a third for wants, and at least a fifth for savings and debt, then adjust to your real rent. Run it with two accounts: one for bills on autopay and one for everyday spending, so the balance tells you what is left.
What to show, in order
- Add up your monthly take-home pay from your pay stubs, not your salary.
- List your needs: rent, utilities, groceries, insurance, transport and minimum debt payments.
- Compare needs with about half of your pay, and note how far off your rent pushes it.
- Set a savings and extra debt amount, aiming for about a fifth of pay if needs allow.
- Open or use a second checking account, and send the bills money there on payday to cover autopays.
- Leave the rest in your spending account; what is in it is what you can spend until next payday.
- Check both balances once a week, and adjust the split each month until it fits your life.
When to stop and call a professional
- You want advice on your own numbers: a fee-only financial planner or a nonprofit credit counselor can give it; this page only explains the terms.
- Your needs alone cost more than your take-home pay: talk to a nonprofit credit counselor about options.
The check question
Ask: Which number is a budget built on?
Related skills
- How to build an emergency fund
- How to read a pay stub
- How to pay off debt: avalanche vs snowball
- Every skill in Money and Paperwork
Words on this page
Last reviewed . First published .