How to Make a Budget that Works!

May 20, 2021 | Financial Guides, Personal Finance, Saving Money | 2 comments

budgeting guide - how to budget

Have you ever made budget after budget, only to feel like you continue to see no benefit? Unsure how much to plan for in each category, or for some reason you keep overspending, so you end up feeling disappointed and want to give up? Learning how to budget takes time and practice. Which is why we’ve compiled this complete guide to budgeting to help you get better results. No matter what app or spreadsheet you use!

When Dylan and I first started budgeting, we were no different. Even though we gave every dollar a “job” or a “name” we would overspend in one category and under-spend in another. We had to change our perspective on budgeting, to see the progress we wanted. Our view became more about having a healthy relationship with our money versus getting down to the penny accurate.

Don’t get us wrong, you need a budget! We all do. Just do not beat yourself up as you learn how to budget effectively and start getting results!

Think of budgeting like learning anything else that’s new to you, practice makes perfect! It’s normal to want to quit when we are not very good at something, but it’s important to try again and focus on progress, not perfection.

How to Budget – The Basics

What is The “Best Way” to Budget?

We are often asked, “What’s the best budgeting app or tool that will guarantee success?!” Unfortunately, the truth is there is no one BEST budgeting app.

The best budgeting system is the one you commit to, that suits your learning style and habits and you will come back to month-after-month. If you are tapped into your phone all the time then a budgeting app might work well for you. But if you’re more analytical and love excel sheets you can find free templates online or create your own using simple equations.

Believe it or not, some people still prefer to write everything down with pen and paper. Dylan had a client who preferred this method and she kept her budget on the refrigerator and it doubled as a visual reminder that she was prioritizing saving for what mattered most to her.

Zero Based Budgeting

Zero Based Budgeting means having a plan for every dollar you earn. It doesn’t mean you spend everything, but each dollar has a purpose and a job.

Let’s say for example that each month after all expenses are paid, you still have money left over. If you don’t have a plan for that extra money, odds are it will end up being spent at random on things that you really didn’t care about.

But when you budget all of your money, you end up spending, saving, and investing the way you want to and you’ll start to consistently reach your goals.

Paying Yourself First

Paying yourself first is a strategy that makes YOU the top priority.

Immediately after you get paid, the first thing you should do is put money toward savings or contribute to your investments.

Only after you’ve paid yourself can you move on to paying for necessities, bills, even debts.

This will guarantee you make steady progress and can help you set SMART Financial Goals with a realistic deadline.

The Secret to Budgeting Success

Aside from ignoring all of the excellent advice above… want to know why many budgets crash and burn? It actually has to do with the apps themselves.

If you rely on the app to automatically create your budget for you and do all of the thinking and deciding for how you will spend your money each month, the odds are against you.

The “smart” budgeting tools that build your budget based on past spending, aren’t taking enough information into consideration.

Here are 3 Reasons Budgeting apps don’t help users reach their financial goals

  1. These budgets usually aren’t taking into account new habits and new savings goals, which throws off your monthly cash flow.
  2. Each month has different expenses. In December you have holidays, in June you have travel expenses, etc. So copy and pasting your budgets from one month to the next is always a recipe for failure.
  3. Budgets are personal. To make them work you need to make decisions about how you will spend your money, rather than letting an app tell you what to do with it. Research says that you are more likely to stick to a budget that YOU created as opposed to someone else – even us! This is known as the endowment effect.

How to Budget [Step-by-Step]

Now that we’ve covered some of the more conceptual and psychological tips for success, here’s our step-by-step guide on how to make a budget that works!

Step 1: Complete a Spending Analysis.

In this first step, you are gathering information. You want to know how much money you spend and where you’ve been spending it.

If you primarily use a debit or credit card this will be easy.

Download the past 2-3 months of statements from all of your spending accounts and start to analyze where and how you spend your money.

Review your current habits and expenses, looking for opportunities to improve.

Step 2: Determine your income and expense categories

Part of your budget is knowing how much money you bring in each month. Include your job, your spouse’s if you’re married, and any additional forms of income.

Separate spending into categories. For example:

  • Housing
  • Utilities
  • Groceries
  • Restaurants
  • Automotive/Gas/Upkeep
  • Services
  • Household goods
  • Personal Care
  • Misc

Calculate how much you spend in each category in a month’s time, then take an average from the 2 or 3 months statements. Use the averages as a starting point for your budget.

PRO TIP: When you create your categories, it can help to be specific. This will give you more insight into how you’re spending your money. For example, if you go to the grocery store you can buy – groceries, toiletry items, home goods, and even furniture. Breaking up that one expense into these categories will help you identify your spending habits.

Step 3: Create Your Monthly Budget

First start with your income sources, write down each source of income and how much you expect to earn for the month. Add all of this together and now you have your total income for the month.

Next, do the same for your expenses. Determine what expenses you’re planning for during the month and how much you will spend in each category.

Make sure that everything looks right. Subtract your total expenses from your total income.

Do you still have money left to budget/is it a zero based budget? If not, you still have some money you need to give a job to!

Are you spending more money than you plan to make during the month? Look for opportunities to save and start to make some decisions about the changes you will have to make.

PRO TIP: Don’t forget to consider periodic expenses that will come up throughout the month ahead.

Step 4: Tracking your Spending

Schedule a time one day a week to track your spending compared to your planned budget. It shouldn’t take more than 30 minutes, and the more you do it, the better and faster you will get at it.

This is an important step that will help you cultivate a healthy relationship with your money. Not only will this help you make a habit of mindful spending and intentional money management, it gives you the freedom to make changes as the month progresses.

When you track your expenses you’ll see how much money you’ve spent and how much you have left for the month.

If you notice you are spending more money than you expected in one category, you can move money from one category to another. Budgets are fluid and you call the shots. But you only have this option if you check in on your spending during the month.

Say you aren’t eating out as much this month, you can use that money to cover expenses in another category or decide to speed up your savings goals!  Again, it’s completely up to you.

Step 5: Repeat

At the end of the month, review how your budget went. Did you spend more money in one category while not using as much in another? No big deal! Use that information to help you plan for the following month.

Allow yourself some room for error and seek to improve next time. As you start to pay attention to your spending habits, you will naturally improve over time.

On average it takes 3 months, or 3 monthly budgets, to get really accurate and make a budget work. Just keep building the habit. Focus on making choices that move you toward your goals, not further away from them. It’s about progress not perfection. And eventually you’ll get to the point where you’re ready to create you’re first annual budget.

Want to take this a step further and optimize not only your Budget, but your Cash Flow, while also tracking your progress and Net Wealth? Take our Online Course where we teach you everything you need to know about how to budget effectively.


  1. Sed

    Appreciate this insight greatly! Helping me to revamp my process! Thank you

    • Rebecca

      Thank you for letting us know this is helpful for you, Sed! Let us know if you have any questions.


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