How to Start a Personal Budget That Works

By | May 25, 2020

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Today, I’m excited to introduce Linda, a personal finance writer, who shares valuable money tips on how to start your personal budget. Starting your budget is the first crucial step, but how do you make sure that it works? Find out her top tips below.

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It’s not bad to be a controlling freak sometimes, especially when it comes to money.

Unless you have firm control of your finances, it would be tough to protect your precious ‘money tree.’

A personal budget helps you to control your finances and achieve your money goals. It helps you to track your income and expenses.

It helps you to analyze your spending habits, and take corrective actions immediately.

More than anything else, it helps you to save money, which is extremely important.

The following steps can help you create a personal budget that works for you.

#1 Figure out your net income:

What is your take-home pay? Your take-home pay is your net monthly income.

Remember, it’s not your gross monthly income. There is a difference between the two.

For instance, your gross monthly income is $7000. However, this is not the amount you get in your hand. Tax, 401k contributions, and Social Security eat up a portion of your gross income instantly.

After all these deductions, you get $5000 in hand. This is your net monthly income, and you have to create a personal budget based on this figure.

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#2 Calculate your expenses:

The next step is to calculate your overall expenses in a month.

You have to be extremely careful and honest.

Otherwise, you won’t get the correct figure, and it won’t be possible for you to create an accurate budget.

List your fixed expenses first.

This would include mortgage, rent, car maintenance, etc. Next, calculate your variable expenses.

This would include groceries, entertainment, electricity, cosmetics, clothes, accessories, etc.

Your credit card statements will help you to get an accurate estimate of your variable expenses.

Now, deduct your monthly expenses (fixed+variable) from your net monthly income.

Suppose, your net monthly income is $5000.

Your fixed expenses – $2500

Your variable expenses – $4000

So, total expenses – $6500

$5000 – $6500 = -$1500

The figure above shows that your expenses are $1500 more than your income.

Unless you cut down on your expenses, you’re likely to get into credit card debt.

If you get into debt, then your credit score is bound to suffer.

In the future, it will be tough for you to qualify for the best credit cards unless you take effective steps to improve your credit score.

5 Simple Steps to starting a Personal Budget

#3 Create various categories:

Now, it’s time to create your personal budget spreadsheet.

Create several categories in the spreadsheet, and allocate money in each category. Make at least 6 categories in the spreadsheet. These are:

Net monthly income

Fixed expenses

Variable expenses

Short-term goals

Long-term goals

Emergency fund

Your net monthly income and fixed monthly expenses are fixed.

So, it would be easy to put the figure in these columns. You know exactly how much you have to budget for these categories.

Net monthly income – $5000

Fixed expenses – $2500

The remaining amount – $2500

Next comes variable expenses.

You have to allocate a minimum amount here because you have to budget for 3 more categories.

Look at your credit card statements to find out where you can cut down on your expenses.

For instance, you can stop shopping unnecessarily. You can stop ordering food from expensive restaurants.

You can find out ways to save money on your electricity bills. You can buy only basic groceries.

Moreover, you can cancel your music subscriptions and change your cable plan.

Try to keep your variable expenses within $500. In that case, you’ll have $2000 in hand.

#4 Allocate money for others:

You have to budget for 3 more categories, and these are: short-term goals, long-term goals, and an emergency fund.

Your short-term goals may include paying off debt, arranging money for a wedding, buying a few personal goods, etc.

These goals are usually achievable within a year. Based on your goals, you have to allocate money to this category. For instance, you can keep $700 here.

The long-term goals include saving money for a child’s education plans, buying an apartment, building your nest-egg, and so on.

It may take several years to achieve them. Allocate $600 to this category.

The third category is the emergency fund, which helps you cover unforeseen expenses, and survive a recession.

Keep $700 in your emergency fund each month. Ideally, one must try to save 10% of his income to build an emergency fund.

Your gross monthly income is $7000. So, you should try to save $700 in your emergency fund.

#5 Review your budget:

After the spreadsheet is done and you have allocated money, it’s time to follow your budget for a month.

Keep in mind that you need to have strong determination, lead a frugal life, and be self-disciplined to make your budget work.

Don’t forget that you have allocated $500 for variable expenses.

That’s a big drop from $4000. So, you have to change your spending habits and cut down expenses in several areas.

Review your personal budget after a month is over.

See how it goes and make changes to your budget if required. If you get a pay hike or a pay cut, then revise your budget.

Once you achieve short-term goals, review and modify your household budget again.

In the first months, you may not be able to follow your personal budget 100%. But that is fine.

Even if you can stick to 90% of the budget, it’s good progress. In the next few months, it’ll be easier for you to follow the budget.

You’ll feel financially empowered and can manage money in a better way.


The importance of a personal budget has increased manifold after the pandemic. With millions of employees out of work and living on unemployment insurance, it’s mandatory to save money during this uncertain time.

A personal budget and practical frugal tips can help them to save money to survive until the pandemic is finally gone from this world.

If you don’t have a personal budget, then follow the aforementioned steps and create one.

If you don’t control your spending habits now, then it would be difficult to survive the harmful side-effects of the pandemic.

Help others by sharing this post!

Linda Richardson is a financial content writer based in New Jersey and a perennial student with an ongoing interest in learning new things. She uses her curiosity, connected with knowledge as a financial writer, to write about a valuable lesson for small businesses. You can find her on Twitter at @ LindaRossie9 and Facebook at @LindaRich008 She is currently a financial writer for

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2 thoughts on “How to Start a Personal Budget That Works

  1. Kathrin S

    Some good tips, Linda. I like the step by step format, which is easy for people to understand and follow.

    1. Linda Richardson

      Thanks for your feedback. Yeah. That was my goal. I wanted to break down the budget in the step-by-step process so that anyone can understand it and do it on their own.


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