Budgeting isn’t as complicated as you might think. It’s just about getting a clear picture of your finances and planning ahead. While it may feel stressful to face your finances head-on, you’ll have peace of mind knowing you’re doing the best you can. It also gives you permission to spend without feeling guilty. Here’s how to create a budget, step-by-step. 

Why budgeting feels so hard 

Lots of people struggle with budgeting because they think it’s strict and inflexible. If you want your budget to work, you’ve got to change that mindset right away. Realize that every budget will be a little off—especially when you’re starting out—and that’s to be expected. The important part is that you’re thinking ahead and being intentional with your money. The more you practice this, the better you’ll become with money. 

Step 1: Choose how you want to budget 

You’ll need a way to track your income, expenses and savings. Choose whatever method you’re most comfortable with. 

• Using a budgeting app: This is by far the easiest way to budget. A budgeting app will automatically track and categorize transactions and run calculations, all in a purpose-built user interface. Horizon members can use this budgeting app for free.  

• Using a spreadsheet or notebook: This method is flexible, customizable and free. However, it will require more manual work than using an app.  

Step 2: Calculate your take-home income

Determine your monthly take-home pay: how much money you make each month, minus taxes and deductions. A budgeting app will usually calculate this for you.  

If your income varies, use the average of your three lowest months in the past year. This will give you a conservative estimate to start with. 

Make sure to include all regular income: your primary job, any side work, consistent support payments or other reliable income. Write down the total. 

Step 3: Track what you actually spend 

The easiest way to track what you spend is to use a digital budgeting app. A good budgeting app will automatically track your spending once you sync your accounts. 

If budgeting manually, pull your last two to three months of account statements and review them line by line. Next, sort your expenses into two types: 

• Fixed: Expenses that are the same amount every month, such as rent, car payments, loan payments, insurance premiums and subscriptions. 

• Variable: Expenses that change from month to month, such as groceries, gas, dining out, household supplies and clothing. 

Add up what you actually spent in each category. Those real numbers will become the foundation of your budget. 

Also, do your best to identify irregular expenses. These are costs that don’t happen every month but do come up throughout the year, like car registration, holiday gifts, annual memberships or medical copays. One way to account for these expenses is by adding up the annual total, dividing it by 12 and including that amount in your monthly budget.

Step 4: Compare income to expenses 

Subtract your total monthly expenses (Step 3) from your take-home income (Step 2). There are a few possible outcomes: 

• If you have money left over, way to go! You may want to save the extra funds or put them towards a financial goal. This is also money you can spend.  

• If you’re roughly breaking even, good job. Consider making modest adjustments to create breathing room in your budget. Ideally, you can get to a place where you’re saving some money every month.  

• If you’re spending more than you earn, hey—now you know. You’ll have to make some changes to avoid debt, but they’ll be worth it. Start thinking about how you could reduce your spending and/or increase your income.  

Step 5: Assign every dollar a job 

A budget works best when every dollar of income is accounted for before the month starts. Now that you know your income and your normal spending habits, you can estimate and choose how much you’ll spend in the month you’re budgeting for.   

Start by listing your spending categories: rent, groceries, gas, recreation, eating out, etc. You should also have a category for saving.  

Allocate a specific amount of money to each category. Then add up the total. If the total is more than your expected income, you’ll have to make some changes to avoid debt.  

Once you’ve balanced your budget—meaning you’re not planning to spend more than you earn—you can use it to help you make decisions throughout the month. Remember though—your budget’s never going to be perfect. So don’t give up if things don’t go to plan. It’s really the planning that’s important.  

Step 6: Review it every month

At the end of each month, compare what you planned with what actually happened. Where did you spend more than expected? Where did you spend less? What you’re really asking is: are you happy with the decisions you made, or will you make different decisions next month? 

Next, make a plan for the upcoming month. You’ll walk through the same steps as before, except this time, it will all feel a little easier.

Watch out for these budget pitfalls 

Here are a few challenges you might face as you continue budgeting: 

• Being too strict: Being too strict can cause you to feel guilty or ashamed when things don’t go to plan, causing some people to abandon their budget altogether. Give yourself some grace and remember that the habit of budgeting—planning and thinking ahead—is what makes the difference in the long term.   

• Forgetting irregular expenses: These can really upset your budget. Do your best to think ahead each month, and for extra security, start building an emergency fund as soon as possible.  

• Not adjusting when things change: A budget built for your life six months ago may not fit your life today. Always keep your budget up to date. 

Start your budget today 

Log into Horizon’s digital banking on your phone or computer to access our free budgeting tools. Our service automatically syncs transactions, calculates spending, helps you set goals and more. You can even link accounts from other financial institutions. Budgeting has never been easier, so start today!