How to Create a Budget System That Actually Works in 6 Steps

To many, budgeting their money doesn’t come naturally. You sigh as you think about putting restrictions over your finances, or trying to keep up with all the little details. But there is nothing more satisfying than watching your savings grow and your goals coming true. In addition, budgeting actually doesn’t have to be so hard and tedious.

Yes, it will take some time and patience but the end result will be so worth it as you will grow to love taking steps to secure your future.

While perhaps you may have had a hard time sticking to a budget in the past, as soon as you decide to really make it work for at least two months, more than likely you’ll be hooked. Having the feeling that you are actually growing your money and increasing wealth to reach your goals is incredible.

The most important thing to any goal is to write it out. That way you can visualize exactly where you want to be and start planning out all of the steps you need to take. Visualize the house you will buy with the down payment you saved up for, the vacation you will go on with all expenses paid for in advance, or even your net worth growing with the investments you will be able to make to retire early.

Once you have gotten excited and pumped about your goals coming true, lets get into what a budget is.

What is a monthly budget?

A monthly budget is a detailed plan where you have calculated all of your income and allotted a specific amount to each expense and savings account. With this plan, you know exactly where your money is going and can rest easy that all your bills will be payed for and your savings are adding up.

Budgeting is a tool used to accomplish what you want to do. It is best to have as much accuracy as possible to get the best results.

1. Pick a Budget That Works Best for You

There are many different styles of budgeting but here are the most common ones. Think about which method will be the best fit for you to start budgeting your money.

The 50/30/20 Budget

In this budget, your expenses are broken down into three categories. The 50% goes to necessities, 30% towards your wants and 20% goes to savings. This system ensures that you have all expenses paid for and have a good chunk going towards your savings to help pay down any debt and start building up a savings cushion.

Good for those who want a firm, consistent system, to make it easy how much to spend in each category but still have some freedom and variation.

The Envelope System

For this one, you set a specific limit for each expense category. Being detailed with this system is important to make sure every category is taken care of. Then fill the separate envelopes with the allotted cash and use that money for the month. Once an envelope is empty, you can’t use any more cash in that specific category. This system might be one of the most effective since you can actually see the money disappearing instead of just a swipe with a card. That will force you to be mindful of the things you are purchasing and be smart with your decisions.

Good for those that find it harder to stick to a budget and need to visually see how much money they have in their budget.

Pay Yourself First

With this system, sometimes called the reverse budget, the focus is on the savings. You treat your savings account as the first bill that has to be paid instead of the last thing that receives any left-over money, if any. Of course, how much you have to save each month should still align with having enough money to pay the necessary bills.

Good for those that are serious about building up their savings.

Zero Based Budget

The goal with this budget is to have your income minus savings, payments and expenses equal zero. If a category comes in under budget, then you roll over the amount to the next month for that category. Or if you choose to reallocate the money to a different account, either way, the total should come out to zero for the month.

Good for those with a consistent income that like working out all the numbers and see exactly where everything is going.

Before getting into creating your budget, I made a budget template to make life easier for you! You will be able to write down your income, savings and expenses all on one sheet to be able to see everything in one place. I have added the major categories for expenses so you can just fill in the amounts. Then fill in all of the other expenses you have. Be as detailed as possible!

So Which Budget Method to Use?

The truth is, no one budget will fit everyone perfectly. So, here is the fun part! You can mix and match, and create a system that works for you!

Figure out and set your goals and priorities to determine your budget method:

An important aspect of figuring out the kind of budget to use is to firstly figure out what your main goals and priorities are.

  • Is it to aggressively focus on your savings to save up for a down payment on a house, or build up a nice investment portfolio?
  • Is it just to be organized and see where all of your money is going?
  • Is it to build good financial habits?

Whichever reason you may have, will determine the budget you lean more towards. From the budgets above, you probably have figured out which one will fit your personality, lifestyle and goals the best.

It’s okay if you have to do a little bit of trial and error to pick the best budget, or even mix two together to create a personalized budget for you.

It is incredibly important to stick to the budget for at least 2-3 months to start seeing real results. To make it easier sticking to the budget, make it as organized and seamless into your lifestyle.

Since the goal is to make the budget actually work, it is highly recommended that you create a budget spreadsheet on paper for the first several months. This will help to see the budget in action and keep yourself accountable. After you get used to the budget and have a system in place, then you can begin using the various budgeting apps.

2. Calculate Your Income

After figuring out what budget you think will work best for you, it’s time to calculate all of the income you receive. Be sure to include any job paychecks, side hustles, or any investments that might be bringing in income.

If you are a business owner or freelancer and have a lot of variance in your income then have a projected number you think that you are going to make this month. Take the lowest amount of income you have made within the last six months. Use that number to start your budget for the month to not overestimate your budget and not overspend.

Want to learn more passive income streams to add to your income? Here are 25 Passive Income Ideas to Make Money In Your Sleep

3. Set Your Savings Goal

Whether your primary budget goal is to save or not, there is a reason you want to create a budget. More than likely, money has not been going to the places you want it to go and one of those places is of course, a savings account. After all, if you have enough money in your savings accounts for your goals, why worry about a budget?

So even if you are not wanting to save aggressively, it is a good idea to still set a certain amount aside to save each month. Set a bare minimum number, that will get put away into savings every month no matter what the rest of your budget looks like. This minimum is the lowest amount that gets put away, but it’s not the only amount you should save depending on your chosen budget. It’s okay if you start with a small minimum, like $20 per month, something is better than nothing. Soon that will increase as you implement your budget.

Savings are important to invest and to have a good cushion in case of any emergency. There should be different savings accounts for each goal including emergencies, repairs, investments, vacations, giving, etc. It might seem like a lot to keep track of, but it is good to see where you are and how much you need to save for each particular category.

You can keep putting away the bare minimum generally to increase your savings or later add it into either one of your savings account for specific goals.

If you can, take out a savings amount firstly every month and put it away. The best way to do this is to set up an automatic transfer into a savings account. You can do it with your bank that you already use, or open an online savings account that pays a great interest rate with a minimum deposit.

4. Figure Out Your Expenses

Now that you know your income and how much you want to save, the most important part is to figure out exactly where your money goes every single month. This will affect how much money you are able to save for your goals and will ultimately affect your future.

Although this part might seem a bit tedious, especially if you are wanting to go with the generalized 50/30/20 budget, but stick with it and you’ll be amazed how much you’re actually spending and how much you can save.

In the beginning, it’s important to get an idea of where you’re starting at. To do this, review your bank and credit card statements to help give you an accurate look at your finances.

Take into account every debt you have and minimum payment you have to make every month. Then create categories and put every expense that you’ve had within the last several months into a category. Write how much you have been spending in that category.

5. Reduce Your Spending

This one can be difficult if the real culprit is overspending but let’s take a deep breath and carry on. We’re making positive changes and that is what matters most.

Take your total after tax income and subtract your minimum savings goal. That is what you have to work with. Next look at your expenses and see how much you’ve been spending. Finally, decide how much you should really allocate to each category reasonably.

Spending less can be easily taken care of by stopping impulsive purchases and buying “want” items such as entertainment or eating out. But can you go beyond that and see how much you can really save?

  • Can you lower your cell phone bill by switching providers?
  • Can you do some work for your landlord to reduce your rent even by a little or get a roommate?
  • Can you negotiate with your insurance companies?

Next to how much you’ve been spending for each individual thing in your spending categories, now write in your new amount. This is the new amount that should be spent for all of your expenses.

If you got fixed expenses like your cell phone and insurance down, then great put that money towards your savings. But don’t be extreme in reducing your “want” spending right away.

It is better to start small and build up than to go over budget and immediately feel like you have failed. Instead, reduce it by 10% by implementing strategies like having no spend days or meal planning for one day, then start increasing the percentage.

Now that you have your complete budget: Income Minimum SavingsExpenses, you can see how much you are saving towards your goals. Are you happy with that number? If not, then look over your budget again and see where else you can save more.

6. Create a System

Now that you have calculated your income, set a savings goal, and established how much you’ve been spending, it’s time to create a lasting budget with the method of your choice.

We like to call this a system, rather than budget now, because you will have organized systems in place to help make it easy for you and integrate it into your daily life.

Putting strategies into place for your system

You’re at the end of creating your budget, so how can you turn it into a system that actually works? Thankfully there are strategies you can implement to stay within your spending goals. You can use one or more of these strategies to make budgeting effortless.

Have Different Accounts

If you only have a checking and one savings account, consider opening a second savings account that will be labeled your emergency savings.

Start small to not get overwhelmed, but slowly build up different accounts to keep your money organized. It is up to you have many accounts you want to have but have a separate emergency account from your other savings accounts.

Think about it this way. You know those times when you randomly find some cash somewhere in your home or pockets and are incredibly excited that you have extra money to treat yourself? Well the fact is the money has been there for a while and you could have gone without it if you kept on not knowing about it.

Treat your emergency fund the same way, transfer and forget until you really need the money to give you peace of mind. Having it in your regular savings account can be too much of a temptation to have the money go towards other things.

Automatic Transfers

Automatic transfers are game changers because you don’t have to worry and think about transferring your money every single month. The accounts are all setup with a predetermined amount according to your budget.

All you need to do is figure out when you get paid and set up the transfers after money comes in.

Limit Your Cards

If withdrawing cash and paying for everything with it seems too much, but you would like to use the principle of it, then consider putting limits on your cards.

This can be done by going into your banking account and searching under the card options. Once the set limit is used up for the month, you won’t be allowed to purchase anything else with the card.

The average person has several cards, each with their own reward systems favoring specific purchases. So for example, if you have 2 cards that you use, limit the one that gives the most rewards for groceries and gas and the second one that is for entertainment and restaurants with the amounts you have budgeted for those categories.


  • Card 1: Groceries and Gas – $400 limit
  • Card 2: Entertainment and restaurants – $200 limit

Budget Control Corner

Like mentioned before, it is critical that you write out your budget for the first couple of months.

Create a small dedicated space where you can see your budget and sit down for review every week for the first month to know if you are on track or if there is something that needs to be fixed.

Make it interactive with either a small whiteboard or folders to keep all of your receipts. (Write down online purchases or bill payments on a small paper and add to the folder.)

Fill in the amount you should use and the amount and the amount that was actually spent on things for the week. You might surprise yourself and actually spend even less than expected. But if not, don’t worry, you’ll get the hang of it soon as you find more ways to save.

Once you have gone through all of the major steps of creating and customizing your budget, you are now on your way to becoming financially savvy.

Budgeting is an ongoing process until you get to where you ultimately want to be. The good news is that it becomes really fun when you see your savings and investments grow. The key is to stick with it the first couple of months to start seeing that potential.