How to Build a Budget

Personal finance goals and questions come up so often in the PowerSheets Facebook Group that Jess and I thought it was high time we added a bit of this content into the blog schedule! And, lucky me, I'm the one who gets to write to you about it! (No, really: lucky me. I am extremely passionate about financial freedom, both in my own life and helping to equip others, so there is almost nothing else I'd rather write about!) To start, I thought I'd share a little bit about how to build a budget.

I have followed a written budget for eleven years now, and I can confidently say that it is the number one reason I feel at peace with my finances. I don’t worry about whether or not we’ll have enough money to pay our mortgage or insurance bill every month; I know we will. The headspace this surety frees up allows me to focus on my dreams and keeps me on track to reach my lifetime financial goals. There are few things better than that!

If the word budget sounds scary, shake off that fear and listen to this: a budget is not about denying yourself and cutting out everything fun, it's about making a plan. Dave Ramsey likes to say that budgeting is “telling your money where to go.” I like that image. A budget helps me be purposeful about how I spend and save instead of just closing my eyes and hoping. While there are many ways to track a budget (which we can chat about later!), building a budget is pretty standard. It’s all about two things — income and expenses — which make up your cash flow.


1. Calculate your monthly net income (your gross income minus taxes). For most of us, this is simply our paycheck.

2. Add up all of your fixed expenses. Fixed expenses are difficult or impossible to change and are the same (or roughly the same) every month: rent, utilities, your electric bill, student loans, car loan(s), auto insurance, health insurance, etc.

3. Calculate your monthly contribution to your financial goals. Like the experts say, pay yourself first. Put money into an emergency fund, reduce debt with extra payments, save for a down payment, save for retirement, and/or feed an investment account. If it’s a priority for you, include charitable giving in this step. Whatever you do, do not skip this step! Treat your savings like any other budget line item, not as something optional if there’s money left over.

4. Add up all of your variable expenses. Like the name implies, these are things that are not externally set, so you could, for example, cut back here if you wanted to move faster toward your goals. Examples include groceries, dining out, clothing, entertainment, gifts, travel, gas, personal care, etc.

5. Put it all together. When you subtract your fixed expenses, your contributions to your financial goals, and your variable expenses from your net income, there are three possible outcomes: you’ll either have a surplus, you’ll break even, or you’ll have a deficit. If you come out with a surplus, you can either save more or spend more (assuming you’re already saving the recommended amounts!). If you break even, perfect! If you have a deficit, it’s time to take another look at your figures (most likely your variable expenses), and adjust numbers until you’re in the clear. By the time your budget is finished, you'll have a plan in hand, ready to be followed to financial freedom!

Easy to understand, a bit harder to follow in practice :) Your homework: walk through these steps, and start calculating! If you’ve never made a budget before and are unsure how much to allocate for certain categories, I’d suggest looking back through last month’s expenses (maybe on a credit or debit card statement) and estimating from there. It might take a few months to get the balance across categories just right.

For more, here's another post I wrote about what we take into consideration when making our yearly budget. If you are looking for another great resource for getting started on your financial goals, please allow us to introduce our Finance Goal Guide!

I'd love to hear any questions you might have about making a budget, or if there are other personal finance topics you'd like to chat about more!

Show Comments (12)
  1. India

    This was super helpful! Since moving up north, my budget has been all over the place since things here are a lot more pricey than in the south. I love this system, thanks!


    • Jess Metcalf
      Jess Metcalf

      We are so glad, India! Any move always takes a bit of time to readjust doesn't it? Cheering you on!

  2. Fiona

    I did a Christian's Against Poverty (CAP) budgeting course a fe years back which was really helpful in identifying where I was wasting money and gave me continued access to their online budgeting tool which I have used ever since.
    I also have about 7 savings accounts with the banks and can name them so I can keep money for different things separate, holiday, car costs, Christmas/ birthday, new car, etc for those things where I will budget a certain amount each payday but the spending isn't spread evenly through the year. It stops me accidentally spending the money for my annual car service as if I want to use money from that account I have to consciously move it to my cheque account.

    • Jess Metcalf
      Jess Metcalf

      That's so smart to separate those things, Fiona! I'm glad you've found a system that works so well for you! Xo!

  3. Maria

    Do you suggest doing this in excel or on paper or through a website? It seems so overwhelming to start!

    • Jess Metcalf
      Jess Metcalf

      We'd recommend starting however you feel most comfortable! If you're a spreadsheet wizard, excel is a great place to start! Pen and paper also works, too! The key is to building a budget (and a system!) that you will use daily! Emily will be sharing some more tips in the coming weeks on how to track a budget!

  4. Nadia

    This was insightful. I do a good job of tracking our fixed expenses every month, but I really struggle with finding a way to track Target runs, clothing allowances, gift buying, and all of the random things that change from month to month. And since I'm not tracking that stuff, we end up spending too much every month. Any suggestions?

    • Jess Metcalf
      Jess Metcalf

      That's a great question, Nadia! I'd recommend creating allowances in your budget for those tricky areas, and then using cash for them! Once you run out of cash, you know you have to wait until the end of the month!

  5. Kay Hobbs
    Kay Hobbs

    Hey, All! I love this post. I LOVE Dave Ramsey- my husband and I are debt free and have been for years. While I agree with most of this post, the one thing I think needs to change is Who we pay first. That Person should be GOD! Malachi 3:10-12 says: “Bring the entire tithe into the storehouse so that there may be food in my temple. Test me in this matter,” says the Lord who rules over all, “to see if I will not open for you the windows of heaven and pour out for you a blessing until there is no room for it all. 11 Then I will stop the plague from ruining your crops, and the vine will not lose its fruit before harvest,” says the Lord who rules over all. 12 “All nations will call you happy, for you indeed will live in a delightful land,” says the Lord who rules over all." GOD tells us to Test HIM in this matter! The rest WILL fall into place...

    • Jess Metcalf
      Jess Metcalf

      Hi Kay! I'm so glad to hear that Dave Ramsey has been so instrumental in your family! We wanted to make sure this post was inclusive of all religions and all backgrounds, but I love how that is something you and your husband prioritize in your spending! Xo!

  6. Janelle

    Hello- I need help! I want to stick to tracking my budget but I always get stuck on one aspect - how to track expenses that are paid for out of your savings or emergency fund. For example- you tracked all of your monthly expenses and income for that month and assigned a job for every dollar. Then an unexpected expense comes up like you need a new vacuum. You decide to pay for the vacuum with money in your savings account instead of adjusting the other monthly categories. How do you track that?

    • Emily

      Hi Janelle! Great question! This answer might not work for everyone, but this is how we do it: if we pay an expense out of savings or our emergency fund, we do not track it/reflect that in our budget, since those monies aren't part of the income we've accounted for in our budget. If you want to build back up the savings or emergency funds accounts after the expense, then that should probably go in your budget, because it would come from your monthly income, but not the expense! Hope that helps!

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