How to Make a Budget—and Stick to it

The word budget is often the last thing people want to see. Relax for a second and consider that budgeting will actually help you have more money, not less. You won't need to survive on ramen noodles or skip out on nights out with friends. Budgeting is about making a plan that allows you to pay your bills, keep your credit in check and save a little for a big purchase or for future plans. You can do it—with these tips on how to make a budget and stick to it!

How to Make a Budget


Step 1: Keep a money journal

Before you get started making a budget you have to know how much you are spending! Keep a notebook on hand for several weeks and to keep track of where all your money is going or pay close attention to your online banking and credit card statements. Write down who you owe, how much each bill is and when they are due to be paid. When you really sit down and take a close look at your current bills you might find out that your cable bill is out of control or that you are spending more than you thought on food and groceries. Take note of each time you spend, every time you spend. You can then compare the cost of items that you buy. A soda at the CVS near your office might be much more expensive than if you bought a case at the grocery store. For now, just keep track of all your spending, even if it is only a dollar or two. Be ready to crunch the numbers at the end of the month.

Step 2: Identify where your money is going

The daily coffee habit is one thing, but to really get your budget in check, you need to figure out how much you’re spending on the big things too. So get out some paper, and at the top, write down your total monthly income after taxes. Then write down what you spent on every bill this month including loans and credit cards. Divide each number into your income to determine the percentage you are spending for each expense (Example: You spend $725 on rent and make $2400 per month: 725/2400= 30%). Then compare those percentages to what experts recommend is the smartest way to divvy up your income:


  • Your base rent (not including utilities) should account for about 30% of your income.

  • 10% should be spent on utilities and other necessary living staples, such as cleaning supplies and toilet paper.

  • Student loans should account for 8% of your income.

  • Credit cards, car payments and any other personal loans should come in between 10 and 20% of your income.

  • Car insurance (or if you don’t drive, your transportation costs) should account for 15%.

  • 8% should go toward clothing and similar items.

  • Food expenses (including eating out) should be no more than 18% of your income.

  • You can spend up to 5% on recreation and entertainment.

  • 10% goes into savings.



You might have some questions on what category each bill falls into. Your cell phone would most likely be a utility expense, as well as your cable and internet bills, unless you consider those recreational expenses.

If you add up all these percentages you'll get 114%, so clearly the experts are assuming you have most of these expenses but not all. So you'll have to juggle the numbers around to fit your needs. These percentages won't include all of your spending either, like the wedding present you had to buy for your cousin or the emergency new tire you needed when you got your flat. This means random expenses will either have to come from your savings or you'll need to reduce one of the other spending categories, such as reducing your food expenses by eating out less.

Step 3: Rearrange your spending and eliminate splurges

So what happens if you find out that your rent accounts for 50% of your income or you discovered that your credit card bill is taking up more income than your food and clothing expenses? Well, over time, you’re going to have to make some changes. You may need to ride out your current lease and spend only the bare minimum on food, recreation and clothing until then. For other expenses, a little research can do a world of good.

Try calling your cable and internet provider to negotiate a lower rate. If you have one credit card that you've had for a while, and are pretty responsible with making the minimum payment each month, give them a call and ask for a reduced finance percentage. You probably won’t miss your daily $4.00 caffeine and sugar kick if you pack a drink or make coffee at home instead. If you eat out too much and can’t see yourself hard at work in the kitchen every evening, consider ordering from a pre-prepared meal service, which is usually much cheaper (and healthier!) than carry-out.

Now sit back and watch your bank account grow!

This post was updated April 2, 2013.