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How to Create a Budget

In addition to building a credit history, an important part of financial success is building a personal budget. Budgeting will allow you to effectively save and manage and minimize unpleasant surprises like bouncing a check or taking your bank account into a negative balance. Once you begin keeping track of your expenses, you will be pleasantly surprised by how much you can save and spend responsibly. Here are the initial steps to creating a budget.

Formally Write Down Your Budget

Setting your budget in writing is the first and most important step of building a budget. Doing this will allow you to reference it in the future.

Start your budget by writing down what you have—cash, credit, and other financial resources,  and what you need—food, rent, supplies, and transportation. You want to make realistic estimates for both your resources and expenses. If you are unsure about your exact expenses, it is safer to estimate them to be higher.

Finance experts recommend allocating 50% of your budget for needs (food, rent), 30% on wants (entertainment, travel), and 20% towards your savings and debt repayment. This budget is a good starting point, as it will balance your day-to-day needs and wants with saving for the future. As you live with your budget, you may adjust it according to your lifestyle.

Set Your Financial Goals

Now that you know how much money you have available, you should set some financial goals for yourself. What things do you want to have in your life? How long will it take to save for your aspirations? Should you seek to increase your income? Having a budget will help you determine all of these things.

For example, if you are renting an apartment, but really want to own a home one day, saving now will help you purchase a home sooner. You can determine exactly how long it will take you to purchase your home, depending on how much you are saving every month. If you do not like how long it will take to save for your home, then either save more or look towards raising your income.


Creating a budget is the first step to creating wealth and finding the feeling of financial freedom. You will learn a lot after creating your budget, such as the difference between what you need and what you want. It is the best practice to check your budget every month, and reanalyze your financial goals and adjust your budget as needed.

In the next lesson, learn more about How to Live to a Budget.


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