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How to Create a Budget to Save Money

9 min read

Last Updated: August 29, 2025

Table of contents

Key Takeaways

Before you create your personal budget, figure out your monthly income vs. how much you pay in bills each month.
There are different budgeting techniques to help people of all lifestyles pay bills on time and save money.
Monitoring your account, setting automatic payments, and adjusting your budget can all help you meet your financial goals.

Ready to take charge of your finances and work towards a financial future you’re excited about? Creating a budget that works for you is a great first step.

A budget is a spending plan that accounts for your income, expenses, and goals. It’s designed to serve as a roadmap to your desired financial destination.

Setting up your first budget may seem complicated, but it doesn’t have to be. You don’t need to become a financial expert to get started. Your budget can be as simple or elaborate as you’d like. The right approach to budgeting money depends on your financial goals and lifestyle. With a few simple steps, you could be on your way to achieving your financial dreams.

How to create a budget

You can create a budget using pen and paper, a spreadsheet, or with a budgeting tool like a budget calculator or budgeting app.

No matter what tool you use, you may take the same basic steps to build your personal budget.

1. Calculate your monthly income

Before you get fancy with budgeting templates or apps, it’s essential to understand your monthly income. That’s the amount of money you earn each month from a full-time or part-time job, your side hustle, or another income source.

For budgeting purposes, base calculations on your net income because you’ll pay most of your bills after deducting taxes. You may find your net income on your pay stubs. If your cash flow fluctuates, calculate your earnings over a few months to get an idea of your average income.

Use credit card rewards strategically in your budget

Used strategically, a credit card that aligns with your spending habits may add extra money to your budget. To make the most of credit card rewards, choose a card that offers cash back for your most frequent purchases, like gas or groceries.

Try to keep your charges well below your spending limit and repay your balance in full each month. If you accrue credit card debt, interest charges may offset the value of your rewards and make it harder to budget money.

You may be able to redeem rewards for statement credits that may help you buy essentials or pay monthly bills. Or, you may just treat your credit card rewards as extra spending money.

While a credit card can be a great tool in the right circumstances, it may not be worthwhile if you’re worried about mounting credit card debt or if managing a credit card creates financial stress.

2. Make a list of your expenses

After you calculate your monthly income, it’s time to focus on expenses. All you need to do at this phase is make a comprehensive list of your expenses and spending. Think of it as information-gathering, not cutting expenses right away.

Start with fixed expenses, which generally stay the same each month: rent or mortgage payments, and monthly bills like utilities, car payments, insurance, debt payments, student loans, subscription services, and any other monthly expenses that don’t change.

You’ll also want to account for variable expenses, which may change from month to month. Variable expenses may include groceries, dining out, and entertainment.

As you calculate your expenses, you should also factor in deposits to an emergency fund. If you have extra cash set aside in a savings account, then an unexpected expense like a car repair shouldn’t disrupt your financial goals.

Depending on your personal finance preferences, you may want to build a weekly budget instead of a monthly budget. A budgeting app may help you track your spending and expenses on both a weekly and monthly basis.

After you’ve compiled your expenses, you may want to identify areas in which you’re spending money unnecessarily and adjust. For example, you might eat out less, cancel a streaming service, or avoid buying new clothes.

Each expense you’re left with may become its own budget category, or you might combine some categories.

3. Calculate how much you can save

Once you have a rough idea of your monthly cash flow (how much you make and how much you spend), it’s time for the fun part—planning for your goals.

What do you hope to accomplish in the next one, five, or even 10 years? Maybe you want to repay your debts, buy a home, or take a vacation. Consider exactly how much money you might need to meet those goals, and how long it may take to reach them. Then, you may incorporate these short-, medium-, and long-term goals into your budget and start saving right away.

You might break your savings goal down into a weekly basis, monthly basis, and annual basis. A budget template spreadsheet or budget calculator may help you with the math.

Keeping your goals in mind makes it easier to stick to your budget, particularly if you’re budgeting money with a low income.

Choose a budget strategy

Now that you’ve got a solid understanding of your financial picture, you get to choose a budget method that works for you. Keep in mind that there’s no right or wrong here. It’s all about what works best for you and which system aligns with your personality.

Zero-based budgeting

The premise of zero-based budgeting is simple. You assign every single dollar you earn to your expenses, debt payments, or savings. That way, when you subtract your expenses from your income, you’re left with zero. If you earn $2,000 per month, for example, you would allocate exactly $2,000 to your expenses or savings goals. That doesn’t mean you should spend all of your income; extra cash after expenses should go to your savings account.

Zero-based budgeting typically requires regular check-ins throughout the month to stay on track, so it’s best for someone who prefers a proactive budgeting approach. This budget method may be challenging if your monthly expenses fluctuate significantly.

50-30-20 rule

For a simple breakdown of your expenses, consider the 50-30-20 rule for how to budget money. The 50-30-20 rule says that 50% of your income should go to necessities like living expenses, groceries, transportation, utilities, and insurance. Then, 30% goes toward your “wants” or discretionary spending, like dining out, travel, concerts, and shopping. The final 20% should be allocated to savings and long-term goals like retirement savings, and debt repayment. When you’re new to creating a budget, the 50-30-20 rule acts as a simple budget template that may help you stay organized.

Once you have the basics down, the 50-30-20 rule is a low-maintenance way to manage your money. Plus, you can rest easy knowing that you’ve set yourself up for financial stability.

70-20-10 rule

Like the 50-30-20 rule, the 70-20-10 rule splits your income into necessities, discretionary spending, and savings. But sometimes, living expenses and other necessities may cost a significant portion of your income. This budget method accounts for a higher cost of living relative to monthly income.

Envelope method

If you struggle to stop spending money, you may consider the envelope method to get your spending under control. Some people turn to the envelope method to keep their spending in check when paying off debt, for instance.

With the envelope method, you determine exactly how much money you can spend in each monthly budget category. Then, you assign each category a physical or virtual envelope. Every month, you set aside the exact allotted amount for each category in each envelope. Once each envelope is empty, you can’t spend any more money in that category until you replenish the envelope the following month. The envelope method is a strict, highly structured budgeting approach.

Anti-budget

Not into tracking your spending or creating specific budget categories? The anti-budget strategy may be a good choice for you. Instead of tracking your budget in categories, you set aside a specific percentage of your income towards savings, debt repayment, and investments like retirement savings at the beginning of each month. Then, you get to spend whatever’s left over. To make this method work, make sure you always have enough money to cover your monthly bills and other necessary expenses.

Set your money to save automatically

Once you’ve decided how much money to allocate to savings, automating the savings part of your budget means you’re less likely to spend the money elsewhere. If your employer offers an automatic deduction into a 401K plan, that’s an excellent place to start. You may also set up a direct deposit of a portion of your paycheck into a savings account.

Monitor your budget

Here’s the thing about budgeting—it’s a work in progress. Instead of waiting for the perfect budget strategy, you may pick one and see if it’s a good fit. You’re already off to a great start if you have a basic plan in place and a clear understanding of your income and your expenses. Keep an eye on your budget and spending to see if it’s working for you. If you’re having trouble covering your living expenses or you’re feeling a lot of financial stress, it may be time to make a change.

Adjust your budgeting plan

Your budget is deeply personal, and your financial plan may change and evolve with your financial situation. The best way to make and stick to a budget for the long haul is to keep an eye on your strategy and adjust as your needs change.

Did you know?

Budgeting may be an opportunity to review your credit card rewards and goals. Consider a rewards card, like the Discover it^® Cash Back Credit Card, which lets you earn 5% cash back at rotating categories each quarter, on up to $1,500 in purchases, when you activate.

Learn More

The bottom line

You don’t need a financial advisor to begin working toward your savings goals. You can start by building a personal budget that works for your life. When you’re spending and saving money intentionally, you may enjoy financial stability today and know that you’re working toward a strong financial future.

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