better what you actually need here in the months ahead.

Next, list all other monthly expenses. Start with the essentials: I’m talking about
insurance, debt, childcare, etc. Then work in a miscellaneous line and any
nonessentials like personal spending, fun money and entertainment.

Then use your online bank account or those bank statements to estimate what you
plan to spend for everything.

Here’s a quick callout. If you’re working to save money, get out of debt, or hit
some other money goal, you’ll get there way quicker if you cut back on the
nonessential spending.

If you don’t know what goal to focus on right now, check out the 7 Baby Steps. This
plan breaks the most important money goals into easy-to-understand, actionable
steps!

Make new budget categories for your new budget lines. Of course, if you spend money
eating out, you can just add a line called Restaurants under your food category—as
long as you remember groceries are a necessity, but drive-thrus or fancy three-
course meals out are not.
Step 3: Subtract Expenses From Income

Math time! (It won’t be too bad. But it is totally necessary. Let’s do this.)

Subtract all your expenses from your income. This number should equal zero, meaning
you just made a zero-based budget.

This is key: A zero-based budget doesn’t mean you let your bank account reach zero.
(Leave a little buffer in there of about $100–300.) It also doesn’t mean you blow
all your money.

Zero-based budgeting just means you give every dollar a job to do: spending,
giving, saving or paying off debt. It’s all accounted for and given a purpose. It’s
the reason I love this method.

You work hard for your money, right? Well, it should work hard for you! Every.
Single. Dollar.

Okay, though, what do you do if you subtract your expenses from your income—and
you’ve got money left over? Don’t leave it there. You’ll end up mindlessly spending
it on coffees, convenience store candy, and those one-click deals of the day. Get
those dollars to work by putting any “extra” money toward your current money goal.

What if you end up with a negative number? It’ll be okay. You just need to cut
expenses until your income minus your expenses equals zero. (Hint: Start with those
eating-out and entertainment budget lines. If restaurants are your love language,
this will hit hard, but you can’t spend more than you make. You’ve got this!)

If you’re still struggling to make ends meet, don’t forget the power of the side
hustle or overtime. Just remember not to increase your spending when you increase
your income. Your extra cash needs to cover your budgeted expenses.

Is the math stressing you out a little? Listen, let EveryDollar do that for you.
Our free budgeting app is made for this zero-based budgeting stuff, and you won’t
have to keep running back to the calculator to get it right.

Okay, so that’s it for making a budget. The next two steps are all about sticking
with it.
Step 4: Track Your Transactions (All Month Long)

Ready for one of the biggest secrets for how to budget—and do it really, really
well? Good, because I don’t want to keep it a secret. Here it is: Track. Your.
Transactions.

Every single one.

Putting the plan on paper, in your spreadsheet, or in your app is just a bunch of
good intentions without this step. It’s like writing down a goal to run a marathon,
making a training plan, lacing up your shoes . . . and flopping on the couch with a
bag of donuts.

What am I even talking about? Tracking your transactions means you account for
everything that happens with your money all month long.

When you fill up the gas tank, subtract that expense from transportation. When you
pay the rent, subtract that expense from housing. When you buy a coffee on the way
to the office, subtract that expense from your personal spending (or whatever
budget line you made for the perk that helps you work).

Track your transactions regularly. That might be once a week. Or at the end of each
day. Or it might mean you log a purchase before you leave the grocery store parking
lot. Whatever works for you and gets every expense tracked.

As you’re tracking, make adjustments as you need to. Yes, really! This is your
budget. You make it work for you. If the electricity bill comes in higher than you
thought, just tweak another budget line to make up for it. If the water bill comes
in lower, then celebrate and move that money over to your current money goal—or add
it to a budget line that went over.

I can’t say enough good things about tracking your transactions. But to sum up, I
love this budgeting step because it’s how you:

Stay accountable to your budget, yourself and your money goals. (Also your
spouse, if you’re married! And remember EveryDollar? You two can share an account
so you’re budgeting as a team!) No secrets. No pretending a purchase didn’t happen.
Keep from overspending, because as you enter expenses, you see what you have
left in every budget line! Instantly, you’ll know what’s left so you don’t
overspend.
Stay on top of the budget. Your budget is not a set-it-and-forget-it project.
It’s not a slow cooker. When you track transactions, you get in your budget all the
time, and you can make adjustments so you know where your money is going—all the
time.
Learn and adjust your spending habits so you can get back on track with your
goals and finally make them happen. One monthly budget at a time.

Step 5: Make a New Budget Before the Month Begins

While your budget shouldn’t change too much from month to month, the fact is, no
two months are exactly the same. That’s why you create a new budget every single
month—before the month begins. Then you can stare down certain expenses and say,
“You will not be a surprise to my bank account, thank you very much.”

When you’re ready to start your next budget, just copy over this month’s budget to
the next, and then make changes for anything new that’s coming.

Here are some examples of month-specific expenses to prep for:

 Celebrations like birthdays and anniversaries: Never forget those.
Holidays: Do you need decor, gifts or a feast at the ready?
Seasonal purchases: Don’t forget to budget for back-to-school season, fall
coffee-flavor releases, and your spring kickball league.
Semiannual expenses: Do you pay your auto insurance twice a year? Do you need
an oil change next month?
Annual expenses: Is it time for your yearly eye exam? Do you need to budget for
your pet to get his shots at the vet?

Here’s one way to handle getting these changing expenses into your budget:

Create a budget category called something like Month-Specific Stuff or

Alternating Expenses or Discretionary (if you like huge words).
Then add whatever lines you need for that month and delete the ones from last
month you no longer need.

Where does the money come from? You can cut back spending somewhere else and move
that money over to this category. Taking $5–20 from a couple budget lines really
adds up. Literally. Or if you can, crank up your income for the month. (Time for an
extra freelance gig!)

Hey, if this part sounds complicated or clunky, that’s because it can be at the
beginning. It takes people about three months to really get the hang of budgeting,
so give yourself some grace and keep working on it! The benefits of budgeting will
far outweigh the effort.
how to budget
Why Making a Budget Is So Important

What are the benefits? Why is it worth it? Because when you budget, you’re telling
your money where to go—so you don’t have to wonder where it went. You’re showing
your money who’s in charge. (You.)

Budgeting is how you make any money goals happen—it’s how you make progress with
your finances! It puts you in control. It gives you permission to spend your money
your way.

I could go on and on and on because I honestly believe making a budget—and living

that budgeting life—is one of the most important decisions you’ll make with your
finances.
How to Make a Budget With Confidence

That’s it! That’s how to make a budget—and why you should. So, now it’s time to do
it! It’s time to get confident with your money.

But what about being confident with budgeting? Hey, let EveryDollar help! This free
tool makes budgeting easier, which is always a win. Download EveryDollar. Budget
every month. You got this!
Save more. Spend better. Budget confidently.

Get EveryDollar: the free app that makes creating—and keeping—a budget simple.
(Yes, please.)
Start EveryDollar for Free

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Rachel Cruze

About the author

Rachel Cruze

Rachel Cruze is a #1 New York Times bestselling author, financial expert, host of
The Rachel Cruze Show, and co-host of Smart Money Happy Hour. Rachel writes and
speaks on personal finance, budgeting, investing and money trends. As a co-host of
The Ramsey Show, America’s second-largest talk radio show, Rachel reaches millions
of weekly listeners with her personal finance advice. She’s appeared on Good
Morning America and Fox News and been featured in TIME, REAL SIMPLE and Women’s
Health, among others. Through her shows, books, syndicated columns and speaking
events, Rachel shares fun, practical ways to take control of your money and create
a life you love. Learn More.
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