The Step-By-Step Guide To Creating A Budget

Owen Winkelmolen

Advice-only financial planner, CFP, and founder of

Work With Owen

Budgeting is one of those financial skills that can transform your life. The difference between a solid financial situation and a complete financial disaster can be as little as a few percentage points of your income. Even a few $’s in the right direction, over a long enough period of time, can have amazing results.

The key is to create a budget that works for you and what you value.

Everyone is unique and so is their spending. What I value is different from what you value and our spending will reflect that. Even with the same income, in the same city, we will have vastly different budgets because we value things differently. Making a budget involves understanding those differences and understanding what you value.

It also involves understanding your habits.

Not only do we value things differently, but we also have different experiences. Our spending habits are the result of years and years of experiences with money. Some of these experiences begin at a very young age. The way our parents spend money will impact how we spend money. Sometimes in a good way, sometimes not. Friends, family, coworkers, they all impact our spending habits. You can change habits but fighting too many bad spending habits at one time will lead to budgeting disaster.

It’s good to start slow. Build a budget one step at a time. Practice each step before making your budget more difficult. And if you need help, just ask. Partner up with a friend and hold each other accountable. Or seek out a financial coach to help guide you through the process.



Start With A Template

Make things easy on yourself. Don’t reinvent the wheel. Start with a template, like the one we have available for free in the resources section, this eliminates a bunch of work right from the start.

To start, follow a budgeting guideline like the 50/30/20 budget when building your first budget or look for examples online. Don’t get too focused on perfection. Budgets evolve, your first budget can be a guess, you’ll tweak/change it in the future.

It’s also important to remember that everyone is unique. Their situation is different and so is their spending. Someone living in an urban center might spend less on transportation and more on housing. Someone living in a rural location might spend less on housing and food but more on transportation and services. Look for example budgets online but don’t get fixated on the details.

Templates are a great starting point, but budgeting is more than just a template, it’s a process.



Step By Step Guide To Creating A Budget

1. Track Spending

The first step when creating a budget is to track your spending for a few weeks or months, don’t even build a budget yet. It’s impossible to create a good budget if you don’t know where your money goes today. Find out where your money is going and use that as a starting point.

Tracking is also necessary in the future when you have a budget in place, so get into the habit. The only way to make sure you’re on budget during the month is to track your spending.

Start by tracking your spending for a few weeks or a few months BEFORE you even start creating a budget.

Related: Check out my personal spend tracking statistics.


2. Create A Basic Budget

Your first budget should reflect your current spending, not your ideal spending, avoid the impulse to make big changes right away. It takes time to change spending habits and aiming for the ideal budget in the first month is going to lead to failure. Budget fatigue is a very real problem and it’s when you try to do too much at once. Trying to manage too many spending cuts will deplete your will power and cause you to stop budgeting all together.

Start small. Start with a budget that reflects your current spending.


3. Tweak Your Budget Each Month (Try to work on habits!)

Once you have a basic budget in place, and you’ve practiced tracking against it for a few weeks or months, it’s now time to start tweaking. The key to creating a solid budget is to focus on spending habits and to change them gradually over time. Try to change no more than 1-2% of your budget each month. Focus on 1-2 budget categories and try to make small changes.

Look at your spending habits in those 1-2 categories. What can you do differently to save some money? There are thousands of tips online for each budget category. Find out what other people do to save money in those areas. For example, maybe it means negotiating your insurance premiums once per year. Or maybe it means meal planning to avoid food waste.

Little changes to your spending habits will build each month. After a few months you’ll be saving more money without even trying.


4. Repeat

The important thing is to constantly repeat step 3. As you improve your budget changes will become smaller and smaller but it’s important to always be monitoring your spending habits and tweaking them if necessary.




Budget Tips

Tip #1: A budget is not good for managing your day-to-day spending. It’s tiring to think about every… single… purchase. Instead, a budget should be used to identify trends and make changes to your habits. Once you have the right habits in place it becomes much easy to hit your budget every month and you won’t have to actively manage your spending day-to-day.

Tip #2: Don’t focus on budget categories! These are only to help to pinpoint trends or problem areas. It doesn’t matter if you blow your budget in a specific category, as long as you can save money in another category to off set it. What really matters is if your overall spending is inline with your budget. Specific categories are just there to help you identify trends and change your habits.

Tip #3: Budgeting is hard at first, don’t get discouraged. Expect to spend more time on budgeting in the beginning. As you create the right habits and routines you’ll find it becomes much, much easier. Soon you may not need a budget at all and you can use the anti-budget.

Good luck!

Free Resources

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Owen Winkelmolen

Advice-only financial planner, CFP, and founder of

Work With Owen


Join over 250,000 people reading each year. New blog posts weekly!

Tax planning, benefit optimization, budgeting, family planning, retirement planning and more...



Join over 250,000 people reading each year. New blog posts weekly!

Tax planning, benefit optimization, budgeting, family planning, retirement planning and more...



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