The How To’s of Creating a Budget that Works

Budgeting is a necessary step to becoming financially stable. Some people may see this is a negative, but even individuals with plenty of income can enjoy benefits of sticking to a budget and saving for the future. Unexpected expenses can arise at any time, and having money in a savings account can relieve some of the stress that occurs when these costs come up.

Figuring out Where Money Goes

The first step to creating a budget that works is to sit down with the past two to three months of bills. Going through each line item and determining where money is spent is crucial in understanding spending habits. There are usually several categories that must be included in any budget:

  • Housing expenses, which typically include mortgage or rent payment, homeowner’s association fees, and homeowner’s or renter’s insurance policies
  • Personal care, such as clothing, health and beauty items, grooming and maintenance
  • Groceries
  • Utilities
  • Entertainment, such as television, cable, going out, and travel costs
  • Transportation, including auto insurance, gasoline, car loan payment, and maintenance
  • Gifts
  • Savings
  • Other loan payments, if applicable
  • Pet expenses, if applicable
  • Taxes, if applicable


After determining how much is usually spent in each category, individuals can compare the total of expenditures against the amount of income that is received each month. Those creating a budget can then organize their lists in order of most important to least important. This way, bills are paid on time, and individuals can save their money to put toward expenses such as travel, entertainment, and other more enjoyable ways to spend.

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Methods of Tracking

Some people prefer a handwritten budget, while others like to use free websites, which can pull transaction records from credit card and banking websites. Some like to use Microsoft Excel or QuickBooks, which produce logs for tracking each expense and category. Determining how much goes to each necessity is usually the final step in creating a budget that will work. It must be doable; for example, a person who drives 30 miles to work every day cannot budget for one tank of gas per month. All members of the family need to be on the same page about the expenses, so that each will stick to the amounts budgeted in all categories.

Emergency Funds

When an unexpected emergency arises, such as a medical bill or a large home or car repair that must be completed, even the most prepared budgeter can be caught off guard. In such cases, a loan can be obtained from This allows for a lump sum to be borrowed in order to pay for a sudden expense.

Preparing for the Financial Future

Creating a budget is a great way to keep closer track of monthly expenses. This will allow those using the budget to feel much less financial strain when bills are due each month, and will provide feelings of calm when thinking about the financial future. What are other methods of tracking spending each month?