How to Make a Budget

Five Simple Steps to Smarter Spending and Happier Days

Written by Shannon Marie  |  on


You might think that the entire point of budgeting is restriction. And, there’s a little truth in that. See, it helps (a lot) if you spend less than you earn. But the bigger truth—the one you don’t want to miss out on—is how good life gets when you’re not worried about how to pay your bills.

Think of a budget as a lifestyle design blueprint. It’s a working plan for taking your life from where you are now, to where you really want to be: Zero debt. Home ownership. Retirement plans. Travel. More money for eating out. Much less frustration and anxiety. Pick a goal that speaks to you and budget your way to success!

Here are five simple steps to get you going:

1 – Know How Much Money You Have.

This one’s easy. What’s your bank balance right now? If you have more than one checking account, or a mattress stuffed full of cash (lucky you!), add those in, too. This is not a projection—or how much you think you’ll make—this is literally just the amount of money you have right now. Cool? (It’s probably a good idea to write this down.)

2 – Know Your Financial Obligations.

Now that you know how much money you have, ask yourself, “What do I need to pay for, before I get paid again?”

It’s such a straightforward question that it feels, almost, too simple to be helpful, right? And it is simple: what do you need to spend your money on? Maybe your electric bill is due, you’re out of groceries and your kiddo needs a mouthguard for field hockey. There you have it, those are the jobs that you’re going to assign to your dollars.

3 – Think About Your Spending Habits.

Budgeting really is as simple as Steps 1 and 2 (above). But if you’re just starting out, you might be left wanting (and worrying). How will this play out—two steps feels impossibly simplistic?! How will I know if I have enough? Don’t worry, I got you …

YNAB does budgeting differently (that’s why it works so well), but there is one traditional budgeting task that’ll help you out: establish a basic framework that helps you see ahead, so you can better prioritize your expenses.

You can download YNAB and follow the guided setup (it’s free for 34 days), or grab a notepad and start making some lists. Everyone’s life is different, which means your lists won’t look exactly like these. (And that’s the beauty of this process! When you’re done, you’ll have a budget that’s tailored to suit your priorities and money situation).

Ready? It’s time to brainstorm where you spend money. Here are some ideas to get you thinking:

  • Fixed monthly bills – Stuff like rent, phone bill, internet bill or membership fees.
  • Variable monthly bills – Things that fluctuate a bit more, like eating out, new clothing, babysitting expenses or fuel.
  • Annual expenses – Like car insurance, holiday gifts or renewing your web hosting service.
  • Debt – Credit cards, student loans or a car loan. How much do you owe for each, and what are your minimum monthly payments?

You probably won’t remember every single thing (and you definitely can’t predict the future and expenditures to come!). That’s OK. You can, and will, edit your list.

If this exercise is just way too hard, here’s the easy way out: take a month to simply write down everything you spend. You’ll have a decent idea of your monthly obligations, and it’ll ease you into the process. If that sounds good, watch this.

Oh, and no big deal, but these “lists” we just made? They’re actually categories … of your NEW BUDGET. Sneaky, huh?

4 – Work Your Plan & Achieve Your Goals!

Congratulations, you’re ready to master your money! You’ve got a plan for the dollars you have right now, and you can see the big picture. The next time you get paid, just repeat step 2—take a peek at your budget categories, and decide what those dollars need to do. In YNAB-speak, we refer to this as “Rule 1: Give Every Dollar A Job.

With a budget, it’s easy to prioritize which expenses are the most important to you (Hello, rent!), eliminate the spending that doesn’t really support your goals (Seeya later, fancy trash can), and find your sweet spot—where financial responsibility and enjoying life intersect!

5 – Don’t Give Up.

Lastly, don’t feel bad if you’re overwhelmed or if you mess up. We’ve all been there! In fact, your budget should have some flexibility for the unexpected stuff! Just remember, this budgeting thing is your ticket to financial freedom, and the bumps in the road will become fewer as you go.

Join a free class to learn more and get encouragement from YNAB’s amazing teachers (they’re also amazing humans, and they can answer all of your questions!). Good luck!


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Your Next Step

Budgeting is not restrictive. You won’t be spending less, you’ll be spending right. So what do you have to lose? Except all that debt and stress?