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How To Make A Budget

January 30, 2020 · 6 minute read

We’re here to help! First and foremost, SoFi Learn strives to be a beneficial resource to you as you navigate your financial journey. Read more We develop content that covers a variety of financial topics. Sometimes, that content may include information about products, features, or services that SoFi does not provide. We aim to break down complicated concepts, loop you in on the latest trends, and keep you up-to-date on the stuff you can use to help get your money right. Read less

How To Make A Budget

A budget doesn’t have to hold you back, restrict you from fun, or sour your lifestyle—it can eventually set you free from the financial burdens that are keeping you from reaching your ultimate life goals.

A budget can help put your financial house in order and make you more efficient. In the end, your budget could be your strongest and most faithful economically.

The idea of creating and living by a budget can sound like a drag, but it’s nothing but a summary of what you spend each month, set against the income you bring in each month.

Once you have this equation nailed down—and the math is not as scary as it sounds—you can reconfigure and adjust.

Keep at it, and what comes in will flow evenly with what goes out. In other words, you control your finances rather than your finances controlling you.

Your Overall Budget Strategy—Establish, Track, and Refine

A budget is a tool that helps you monitor and keep track of your spending habits. In order to make it happen and make it work, you have to be aware of as much of your financial details as possible—and make sure those details are accurate.

It sounds like a lot of work, but once you lay the foundation (spelled out in this post), all that’s left is the tracking and the refining, which can be minor if you keep on it and use tech to help you. We’re going to show you the budget cycle of “establish, track and refine.”

First, though, let’s do a preamble of what you need before you even take those first budget steps.

Aligning Your Goals

Before starting a budget, it can be helpful to have a clear idea of your financial goals and keep them in mind throughout the entire process.. Goals could be anything that’s ultimately important to you:

•   buying a home

•   starting a family

•   travel plans

•   getting out of credit card debt

•   planning for retirement

•   starting and maintaining an emergency fund.

Of course, these are just suggestions. Once you have your financial goals firmly in place, then you take the “establish, track and refine” steps to make it happen. You’re working backward in order to move forward.

Achieving little victories along the way could keep you psyched and motivated, and make your budget feel real and purposeful.

Next step:

Gathering Your Financial Docs

Get a crystal clear picture of what you are earning and what you are spending each month. These will become the basic building blocks of your budget.

Your spending categories could include:

•   Credit cards and credit card debt

•   School loans

•   Car loans and expenses

•   Insurance premiums (health, life, car, home)

•   Rent/mortgage

•   Utilities

•   Monthly food expenses

•   Child care, child support or related family obligations

•   Transportation (other than car)

•   Savings/investments (401(k), IRA, automatic savings deductions)

List your monthly income, as well as all of your expenses, along with what you spend on each category every month.

See if there is any money left over. If not, or if you’re cutting it close, you may need to get creative about making your monthly income cover you better.

This begins your budget!

Stay on top of your budget and
spending with SoFi Money®.


Understanding Your Sources of Income

Hopefully, your monthly income will cover all of your monthly expenses and spending, and then some. If not, that’s where your budget could benefit you the most.

You’re going to create a bird’s eye view of what you’re earning, spending, and where you may need to cut or reduce.

Working Only With Your After-Tax Income

Remember that your overall salary is not exactly the total amount of money you bring home. The money you should focus on is your after-tax income.

You may also opt for automatic deduction retirement, savings, and health plans at work—allow for those as well before you list your actual take-home income.

Do you have a side gig or an entrepreneurial project you’re pursuing? If so, deduct anything that may reduce your income such as taxes and business expenses.

Establishing Your Budget

Before you take any further steps toward creating your budget, it can be helpful to set some ground rules for yourself:

Keeping Your Budget Simple

A complicated, hard-to-follow budget probably won’t benefit you since it may discourage you before you get too far. Keeping it simple can reduce the time you’ll need to keep track of all your finances.

It can also allow you to concentrate your focus, increasing your odds of success. Here’s a few suggestions on ways to keep it simple:

Thinking 50/20/30

This strategy can help keep your expense categories small and well-defined. It can also make your budget more readable at a glance, which might make it easier to handle and control.

The 50/20/30 budget breaks up your budget like this:

•   50% on essential expenses. This category could include housing costs, bills and utilities, auto payments, insurance and repairs, education costs, food, essential services (like childcare) and medical costs.

•   30% on discretionary expenses. You probably still want to live and enjoy life, but live it with a strategy and end goal in mind. Your discretionary expenses could include shopping, entertainment, personal care (like haircuts and gym), travel, and other expenses that may not necessarily be considered essential.

•   20% towards your goal. Think ”elbows and shoulders:” leave yourself some elbow room before an emergency taps you on the shoulder. Unexpected expenses can always come up, no matter how prepared you are. A solid emergency fund could cover you in a pinch.

Budget Categories

Listing 50 or more expense categories may only serve to frustrate, confuse and even depress you. It might be helpful to think macro instead of micro—instead of focusing on every little financial transaction, concentrate instead on the big picture.

Understanding where your money is actually going is ultimately more important than tracking every single penny, nickel, and dime.

Make sure your budget syncs up with your goals and values. If your budget feels meaningless, it won’t work for you.

It can be helpful to remember your initial goal and keep your eyes on that prize—being debt-free, buying a house, taking that trip, sending your kids to college, etc.

Making Adjustments

Trim the fat! It may be a bit difficult at first, but once you dig in, it can get easier and even more satisfying.

You might take a closer look at any expenses that you can honestly call non-essential, and be brutally honest with yourself. Even if you start slow and be kind, you can take off a few bucks here and there, and then maybe work your way up to the bigger expenses.

For instance, you could start with eliminating, or at least reducing, your mani/pedi appointments, or your daily espressos. Little steps. The money you save on non-essential spending can be placed instead toward your credit card debt or retirement savings plan.

Track Your Budget

Don’t think creating and tracking your budget has to be as complicated as performing brain surgery. All it is—at least at first—is an educated guess, based on your financial expectations and your past spending behavior.

Don’t think that you have to get it perfect on the first try! Once you have the budget nailed down, you’re free to make some changes and adjustments. But you probably won’t be able to do this without some proactive tracking.

Here are just a few tracking tips:

•   Going paperless. Consider using technology, like a budget app or related software, to help you track your budget automatically. It can save you time reduces the opportunity for human error.

•   Realizing that your budget will evolve and change over time. Allow for it. The way you spend money in July may not be the same way you’re going to spend money in December. You might think of your budget as a living, breathing organism that may bend and change and evolve. Instead of following rigid spending rules in the hopes of disciplining your spending, consider your spending trends. It can be helpful to get a feel for how your spending tends to change or flex over time. Step back and see how your spending has changed as the calendar moves on.

•   Don’t punish yourself if you mess up. A budget may take time to get right. If you wind up spending an extra $50 on a dinner or your wardrobe, don’t be mean to yourself. And definitely don’t give up. Instead, you might realize and consider what you’ve done and how it may affect the rest of your budget. In fact, you could allow for a treat or spontaneous spend once in a while, and feel good about it.

Refining Your Budget

After about two or three months of tweaking, observation, and trial and error, you should be ready to let your budget leave the nest and spread its wings.

This is another reason why using budgeting software can be helpful–once you set it, you can basically forget it (but not neglect it. There’s a difference!). Using tech budgeting can save you the hassle of tracking receipts, statements, and Excel every month.

This way, you can spend your time monitoring your progress in a matter of seconds rather than hours. You can benefit from a faster, clearer overview of your progress.

Sharing What You’ve Learned

Once you’ve mastered the skill, don’t keep it to yourself. Consider sharing the knowledge with family and friends, who may already be more than curious about the change in you and your financial lifestyle.

When you’re budgeting, it can be a great idea to hang with like-minded people—you can learn from them too.

Staying on Track

One way to help stay on top of your budget is by tracking your spending. With a SoFi Money® cash management account you can track your weekly spending in your dashboard within the app.

Want a better way to track your spending? Get started with SoFi Money today.


External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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