Your first monthly budget: start with take-home pay

A useful budget starts with what actually reaches your account and what you need that money to do.

Open a blank page and write down the income you reasonably expect to receive this month after deductions. Use take-home pay rather than your salary before taxes. If your income changes, start with a conservative estimate based on your own recent records.

Separate the categories

List housing, utilities, groceries, transport and other essentials first. Then add flexible spending and money you want to set aside. Include irregular costs such as vehicle maintenance or annual renewals. A budget that leaves those out can look balanced until a larger bill arrives.

A worked example

Suppose a household expects $3,200 in take-home pay. It plans $2,300 for essentials, $450 for other spending and $250 for savings. The amount left is $200: $3,200 minus $2,300 minus $450 minus $250. Those numbers are an example, not a recommendation for your household. If the result is negative, revise the plan before treating any amount as available to spend.

Check the plan against reality

At the end of the month, compare actual amounts with your estimates. A difference is information: perhaps a bill was higher, a category was missing or income arrived later than expected. Use that information to revise next month. If you move money into savings, do not also count those same dollars as available spending money.

You can make this plan with paper, a spreadsheet or a planner. The free spending snapshot above gives a quick calculation. Our optional Monthly Budget Planner adds reusable pages for the plan, actual spending and next-month review; purchasing it is not necessary to create a budget.

Further reading: Consumer.gov: Making a Budget.