Creating a Budget – A Step-By-Step Guide

This step-by-step guide to creating a budget will help you build a budgeting spreadsheet and give you the tools you need to manage your budget each month. Living on a budget doesn’t have to be scary or overly restricting. The purpose of creating a budget is to give you peace of mind and make saving for your goals easier.

*This post was originally published on August 1, 2013 and updated on January 1, 2020.*

creating a budget




*This post was written by my husband Jesse, the builder of our budget.*

As an auditor/accountant people are always asking me about how I manage our home finances. Unfortunately, that question isn’t answerable in a 5 minute conversation. In reality crafting a financial plan for a household can take some time. The process can sometimes be difficult and tedious. However, if you can handle simple math and stick to a plan, you can be successful. The reward of being financially stable vastly outweighs the few hours spent creating a plan. No matter what the situation, creating a budget can give you peace of mind.

I can’t guarantee that the way Ashley and I organize our finances is the best way. Or that our way is the simplest out there. It just works for us. If it works for you great! If not, modify, create, or find a way that works for you. Which leads me to the disclaimer: “This is not professional advice.” This is just an example of how we’ve decided to organize our finances. (If you are in a bind or need serious help, go see a professional.) I can’t tell you enough how great it is not having to worry about bills when they come in, and not having to check our bank balance each day.

Most people assume I use some complicated system, or an online system like Mint (and other variants). In fact, most people are always trying to convince me to use an online system that links with your bank accounts to sort out your finances and track spending. Those systems are great but to be honest, I am just too lazy to use them. It works for some people, but there is nothing more boring to me than tracking every time I spend and categorizing every purchase I make.

For simplicity’s sake, and again because I am lazy, I use a spreadsheet. I check our spreadsheet twice a month along with our bank statement when I pay our bills or when we make a big purchase. I only worry about it for an hour or two every two weeks because I have things to do!

There are a couple things needed for this plan:
1. Income
2. Bills
3. A spreadsheet program. Excel, or if you don’t have Excel you can use OpenOffice or GoogleDocs. OpenOffice is free and it works great. I used it all the way through college! (Download it here.)




Since finances can be a large project, I have broken it down into 4 sections.

Section 1: Creating a Budget
Section 2: Saving Money
Section 3: Paying Bills – First 2 Weeks
Section 4: Paying Bills – Last 2 Weeks

Today we’ll be talking about creating a budget!

creating a budget




Creating a Budget Using a Spreadsheet

The cornerstone to anyone’s finances is the dreaded budget. And unfortunately there is a large portion of the population that doesn’t have any budget for their household. I have talked to a lot of people that think creating a budget is difficult or requires some sort of skill in finances. False! If you can add and subtract, you should have no problem creating a budget. It just takes a little time.

The easiest way to learn how to create a budget is doing one for yourself. We will be creating a budget for a fictional couple, Jane and John, and using their situation to build a basic plan for their household. You can either follow along with the examples or build your own plan using whatever situation you are in. At the end of each section I will post a screenshot of the worksheet we created in the lesson, just in case you have any questions or get stuck!

First, let us look at J&J’s income. John works in sales downtown and brings home $675 after taxes, retirement and healthcare deductions. He gets paid every other Friday. Jane is an interior designer and blogs part time. She brings home $700 after taxes, retirement and healthcare deductions. She gets paid every other Friday as well.

Now that we have some numbers to work with lets go ahead and create a new spreadsheet in Excel/Open Office/Google Docs. I will be using Excel, but the examples should work the same in the other programs. Let’s start by filling in some cells. To edit a cell just double click on it and type in the value or text. When you are finished, just click off the cell or press “enter”. Go ahead and add the text to the cells like in the pictures below. creating a budget




As you can see we have the month in A1. Income, Budgeted, Actual, and Difference in A2-D2. Jane, John, and Total in A3-A5. This is a little hard to read so let’s add some formatting and color. To change the color highlight the cells you want to fill in and then click on the fill button.creating a budget

Next, let’s add a grid. Same as we added the color. Select the area and click on the border button.creating a budget

Now we are looking good. If you are going to be creating a budget, it might as well have some style. Now it’s time to add the numbers. Since J&J get paid every two weeks we can assume that they get paid twice a month. So for the month of January Jane will bring in $1400 and John will bring in $1350. We will add those under the “Budgeted” column. And while we are at it, we will change the column format to money. This adds the $ sign and the 2 decimal places next to our numbers. Remember, we want our budget to look good. To change the format to money, highlight the cells and click on the “currency” button.creating a budget




Next, we need to fill in the budget total. We could manually add $1400 and $1350 and fill it in, but instead we will use a formula to do it automatically. The formulas should be relatively the same for whatever spreadsheet program you are using. We want our formula to add cells B3 and B4 together. To create our sum formula, double click cell B5 and type “=sum(B3:B4)” and hit “enter”. The cell should now show $2750!creating a budget

Now that we have income it’s time to add the expenses.  I break down expenses in to two categories “Monthly Expense” and “Discretionary Expense”. Monthly Expenses are anything that you receive a monthly bill for like rent (or a mortgage), phone, and utilities. Discretionary expenses are things like gas, entertainment and grocery, stuff that you need but don’t receive a bill for and can somewhat control. Go ahead and add J&Js Monthly Expenses using the picture below. I inserted a new column by right clicking on column B because I like to add the date that the bill is due and put them in order. This will help us later when we have to decide what bills to pay and when.creating a budget

Don’t forget to add the total. The formula for B15 will be “=SUM(C8:C14)”. Next add discretionary expenses.creating a budget




Now that we have all our income and expense laid out let’s add them all together by creating a group of cells that consolidate our budget.creating a budget

To fill in our net category we need to use some more formulas. We want to get the total income from C5 into the cell in C24. To do that all we have to do is type “=C5” into cell C24 and press enter.creating a budget

Now to get our total expense in C25 we want to add our monthly expense and discretionary expenses together. To do that we use the formula “=C15+C21” in C25 and press enter.creating a budget




Now to get the net total we will have total income minus total expenses. Use “=C24-C25” in C26 and press enter. (Dang that’s a pretty looking spreadsheet).

If you did everything right the net total of the budget should be -$75. That means that we are spending $75 more a month than we are bringing in, which is BAD. When creating a budget, remember this important rule: Don’t budget more than 90% of your income. Now I know not everyone can do that, but it is a good goal that has worked for us. Because sometimes we get sick, cars break down, or we want to save money for other things like couches and a house!

J&J need to cut some of their expenses to get in good shape and save some money. J&J also want to buy a house in a couple of years, so they need to save extra money for a down payment. Currently they make $2,750 a month. If they only want to budget 90% of their income then they need to get their expenses down to $2,475 (90% of $2,750). Additionally they want to save an additional $150 per month towards a house. So their total expenses need to come to down $2,325 ($2,475-$150) per month.

Time to chop!

  • J&J decide that they are going to get the smallest data package for their phones reducing their phone bill to $150.
  • J&J is giving up NFL Sunday ticket and cable reducing their cable bill to $50 for just internet.
  • J&J decide to eat out less and reduce their fun and entertainment to $150.
  • J&J reduce their grocery budget to $300.
  • Since J&J go out less their gas budget has decreased to $250.

creating a budget




With the changes to the budget the total left over should be $425! Wasn’t that easy? Yea right, it is never that easy. Why? Because we like going out, we like buying extra groceries, and sometimes bad things happen. A budget is a model for when everything goes according to plan. Of course, that never happens. That is why I suggest budgeting maximum of 90%. Because we all spurge, overspend, and get sick.

Believe it or not, this budget hits very close to home. This is actually a rough outline of the budget Ashley and I had when we first got married, except we cut even more expenses. We were able to get our grocery bill down to $150 a month….YES $150 a month! Man, that sucked… We also reduced our entertainment and gas budget as much as we could. It was very hard, but with a lot of discipline we were able to save around $800-$900 a month. We had to get creative with meals, but we were able to have a down payment for a house within a year!

Creating a budget shouldn’t be a punishment. Budgeting is about getting what you want! It forces us to create priorities and identify what we really want to spend our money on. Which leaves me with the last tip of budgeting: “Relax, there is never enough and you always have to make a choice about what you can’t have.”

Do you operate on a budget? How do plan out your budget?

After creating a budget, check out the other 3 lessons for Saving Money, Paying Bills and Paying Bills Biweekly.



28 thoughts on “Creating a Budget – A Step-By-Step Guide”

  • What a great post! I do something pretty similar for tracking/budgeting, and I can definitely see this being helpful for people starting from scratch and having no idea what to do. Good job!

  • Great post, Jesse!

    Kevin and I do something similar every six months or so. We have what we call “financial pow-wows” where we sit down, break out Excel, and plan our budget based on our current income (we get raises at opposite ends of the year from one another). Kevin and I, being engineers (and Kevin has a finance MBA), are super detail oriented, so we have 15 budget categories and three savings funds. After we decide on amounts for our budgets, we use Mint to keep an up to date tally on where we’re at for the month. It helps us keep our head on straight (instead of saying “I think we have enough $ for that” we can know exactly how much we have). And because we’ve been using Mint for three years now, it basically auto-categorizes everything for us (but it’s not for everyone). We’re just too lazy to keep all our receipts and balance everything at the end of the month.

    I’m excited about the rest of your posts! I’m going to send the link to Kev so he can follow along, too!

  • Hubby & I have been married for over 35 yrs. He is better at numbers than I am so he keeps track of the budget and pays the bills, but I am better at thrifting and saving. For 15 yrs of our marriage, I worked for the state getting paid once a month and Hubby was an insurance salesman getting paid on commission. Even though he got paid once a week, we never knew what the amount would be, so the budget was very important – not to mention our 2 kids were growing up during this period, too. I only remember losing it once when our daughter wanted to know why she didn’t get a car for her 16th birthday like her friend did – boy did she get an earful! Ha!

  • This is definitely something I need to work on! I stick more to an “I know how much I make and how much I have to pay then all the extras just go around that”, but it’s not budgeted. I need to get into something more strick though because the mortgage one our new house went from 1/4th my monthly income to half. Thankfully I’ve always been really good with saving and put about 1/4th my monthly income into savings (which stopped upon the new house purchase to make up for that). Need find a new way to keep saving some again, always need that rainy day fund.

  • We keep starting a budget but never monitor it so its not a huge amount of use. but now we are married we are changing up how we manage money together and hopefully that will allow us to save and budget better.

    The biggest tip I have for simple budgeting that has always worked well for me is pay your bills by direct debit (quite often saves you money as well) and have all your bills come of the day after you get paid, on the same day transfer (or direct debit) some money into your savings. Then anything left is what you have for the month. That way you manage to save and don’t get any surprises at the end of the month when most of your pay is gone and you forgot about the phone bill etc.

    Looking forward to the rest of the posts Jesse xoxo

  • This has come at the perfect time. I was just telling my husband we needed to work out a budget because I felt like we are spending too much. He said we are doing fine, but I think we could be doing better. Especially if we plan on buying a house and taking a trip to Disney World next year. Any tips on how to handle commission income. My husband gets a small weekly salary and then the rest is all commission. It is hard to estimate what his monthly bonus will be. I’m guessing we should go off his lowest bonus and if he has a good month that extra will just be money we can throw into savings and maybe put some of it toward our debt.

    • Commission income or other lump sum incomes can be tricky. Planning conservatively is good idea. It is always better to be surprised with extra money rather than being short! I know other people who also get commissions and bonuses. Some of them budget for an average of what they normally get. If they get more they save it for the short months. When the short month comes they draw on the savings. Just and idea.

    • It just depends on the person. I know LOTS of people use mint. However it drives me nuts because when I buy stuff off of Amazon or Ebay, I have to reclassify it in Mint into the proper category. It’s also annoying at Lowe’s, the grocery store, and gas stations where I buy stuff that goes into multiple spending categories. I think its mostly because I’m lazy lol. It takes me like five minutes to scan our CC bill, instead of always fiddling with automated programs.

  • Ooo spreadsheet formulas! I’m totally going to make a spreadsheet like this. I’m tired of the non-personalized ones I have. I’m really curious how you cut your grocery bill down to $150 a month. I’d love an extra hundred dollars or so a month. You should do a post on that.

    • Yea $150 a month was super painful. We drank water for a YEAR. Never had any juice or soda. Went light on meat for most meals and relied heavily of vegetables and rice. It was a pain, but i think it was the healthiest i have eaten in a long time! Oh yea and zero snack food. Ashley would freak out if we had salsa and chips.

      • Only water? Light on meat and heavy on rice and veggies? Ha, that doesn’t sound that different from our diet now! I wonder what we’re splurging on.

  • Oh, by the way, I have a mint account but lately I’ve gotten frustrated with it since it’s not very intuitive and you have to reorganize all of your purchases and check it all of the time. Now I have an mini budget on an index card in my wallet and I write things down as they’re purchased. That way I have a reminder with me at all times of how much we have left in each budget.

    • Yea it is dumb as a brick. I would like it more if they had thresholds. Like if i spend less than $20 at the gas station its for entertainment, but more than $20 is gas.

  • Great idea to budget only 10% of your income–that keeps things in check. I started paying cash for groceries and it made a huge difference in the amount in that category. I can’t wait to read more.

  • What a great tutorial. Hopefully it helps a lot of people save some money! I love your tip to grab some wine/beer 😉

  • Great post! Sadly I don’t know who is worse: myself or my husband with our budget. We really need to do something like this and stick to it! Thanks for sharing!

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  • Hey Jesse, quick question! For the “difference” portion on your Excel spreadsheet, is it best to just go in manually and do the difference part ourselves, or is there a trick to it as well? I loved that you provided the formulas for this, it’s been FOREVER since I’ve used Excel and loved your step-by-step with it 🙂

    Thanks!

  • This is how I keep track of my family budget. It certainly helps to let me know how much is coming in and how much is going out.

    Thank you for your post because it was a good reminder for me.

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