How to Create a Budget + Free Budget Worksheet

how to create a budget

Whether you’ve never budgeted or are wanting to improve your budgeting skills, here you will learn how to create a budget and implement it, plus you can get a free budget worksheet.


Learning how to budget can be overwhelming, but it doesn’t need to be.

A budget will help you be in control of your money and choose where you want to spend it. It also helps you become more aware of where you are spending your money.

Once you learn how to create a budget, as well as some basic budgeting principles, then you’ll be able to save money and start seeing a difference in your finances.

Before learning how to create a budget, be sure to first print off the FREE budget worksheet (sign up below to get it), and fill it out while you walk through the budgeting principles below. 






I put together a video of how to use the free budget worksheet and also talk about the basics to budgeting. Watch the video above or click the link here to view it on my YouTube channel.


What are the Steps to Creating a Budget?

Here is how to create a budget and also use the free budget template printable worksheet.

1. Set Financial Goals

Since you are reading this, you are most likely motivated to start budgeting.

Before you start your budget, determine what is motivating you to do this and then set some financial goals. Are you wanting to get out of debt or save up a down payment for a home? Do you want to stop living paycheck to paycheck or save for a big family vacation?

Whatever your motivation is, you need to keep these financial goals in mind as you are budgeting each month. Write these goals down because they will help keep you on track and focused each month.

It’s also important that you have financial goals with specific numbers. For instance, how much money are you wanting to save each month? Which debt will you pay off first and how much money can you afford to put toward it each month?

Make sure these goals are realistic and achievable. You may not be able to save $500 a month, but maybe you can save $200 a month.

In order to save $200, that would mean setting aside $50 a week. In order to save $50 every week, some things you could do is don’t eat out, cut your grocery bill down, don’t go to the convenience store to grab a drink, or cut out subscription services.

It’s the small changes that make a difference over time.

Once you’ve determined what your financial goals are and printed off the free budget worksheet, then the next step is how to start budgeting.


2. Determine Income and Expenses

First, add up all of your sources of income and determine how much money you have coming in every month. This includes day jobs, night jobs and side jobs.

Add this to the top of the free budget worksheet template.

Now under the expenses section, divvy up and allocate how much money should go to each expense budget category.

Start by listing the expenses that are “needs”. This includes mortgage/rent, utilities, food/groceries, and transportation. Write down when these expenses are due so you pay them on time, and write under the “budgeted amount” column how much money will go toward each expense.

An example of the budget worksheet might look something like the one below. This is just an example. Tailor the budget worksheet to fit your income and expenses. Grab the free budget worksheet above.

free budget worksheet template


Click here to open the example budget worksheet in a PDF format. 


Once you’ve written down your “needs” expenses, then continue to write down other expenses from more important to less important. Additional expense categories could include debt, insurance, medical, eating out, clothing, pet, holidays, birthdays, charitable giving, savings, etc.

If you are unsure of how much to budget next to each expense, it will be helpful if you take time to analyze your spending and figure out where your money is being spent. Look at your bank statement to see which categories are taking the most of your income. By looking at this, you’ll be able to budget about how much you spend in each expense category. And by seeing where your money is going, you’ll also be more mindful of your spending.

It’s also important to budget realistic amounts for each expense category and stick to the budget. Remember that if the money runs out, then you can’t spend more on that category until the next month.

At the bottom of the “Budgeted Amount” column, the total expenses should equal your total income. Meaning all of your income money is accounted for and allocated to a budget category. This is called a zero-based budget when you tell every dollar where it needs to go.

3. Include Sinking Funds in the Budget

A sinking fund is a fund where you set aside money for an upcoming event that will cost money.

You know the expense is coming up, such as a birthday, Christmas or car maintenance, and instead of waiting until the expense is due and there isn’t room in your budget to pay for it, you plan ahead for the expense by creating a sinking fund within your budget and set that money aside until you need to pay for that expense.

It is beneficial to plan ahead for these expenses and to break the cost into a monthly amount to save. You’ll want to add these upcoming expenses to your budget worksheet and then set aside the money either using the cash envelope system or opening another bank account specifically for the upcoming expense.

Here is a list of expenses that you may want to create a sinking fund for and to consider including in your budget:

  • Home repairs
  • New car or car repairs
  • Family vacations
  • Kids sports and activities
  • Insurance
  • Medical expenses
  • Christmas
  • Subscriptions and dues
  • Birthdays and gifts

And here are a few examples of how to include a sinking fund into your budget.

If your car insurance of $600 is due once a year, then you need to save $50 every month and include this sinking fund in your monthly budget.

If you want to save $1,000 for Christmas every year, then you need to set aside $83 every month and include this sinking fund in your monthly budget.

You can head over here to read more about sinking funds and how our family uses sinking funds.


cash envelope system


4. Choose the Best Budgeting Method for You

Everyone is different and one budgeting method might not work as well for you as another. So it’s important to choose a budgeting method that will fit with your personality and lifestyle. Here are three different options of budgeting methods.



If you tend to overspend, then a cash envelope system might work best for you. Paying with cash forces you to stick to your budget, and you will be more likely to carefully evaluate every purchase you make. You’ll also begin to ask yourself, “Is this in the budget?” and “Do I need this?”

And a cash envelope system never lets you overspend because once the money is gone, it’s gone. In order to make this work, stop using credit cards and stash the credit cards where it’s hard to get to them.

You will need to take out all the cash you need for your monthly expenses.  Then divide them into separate envelopes for each expense category. For example, you’ll have different envelopes for mortgage/rent, groceries, gas/transportation, utilities, eating out, clothing, medical, etc.

If you run out of money from an envelope before the end of the month, then you will need to wait until the next month to get out more cash to spend.

It can be tempting to use money from one envelope for different expenses, but if you do that then you’ll be short money for other expenses.

For instance, if you’ve run out of cash to go out to eat, you may be tempted to pull from your grocery cash envelope. However, if you do then you’ll be short money to purchase groceries for that week. It takes self-control and discipline to use the cash in the envelopes for what category you’ve designated it for.

If you have extra money left over that month from some of the cash envelope categories, then use that money towards your financial goals.

Using cash will help you be more aware of your spending habits.



For those of you who prefer to track your spending digitally, then try using a budget app.

A budget app can be quick, convenient, and will do the work for you once you get it set up and your bank accounts connected to it. Some budget apps are free and some are not, so review a bunch of them before deciding which one will work best for you.

So what are the best apps to create a budget?

Some well known budget apps include Mint, EveryDollar, YNAB (You Need A Budget), Personal Capital, and Mvelopes. Head over here to check out 8 budget apps with details of how they can help you keep track of your finances.



Using a budget worksheet template, such as the free one in this post that is available to you, is a simple way to monitor your expenses. You just use a paper and pencil to write down your income and then list all of the expenses.

A budget worksheet gives you more of a hands-on feel and you don’t have to worry about connecting your bank information to an app.


5. Determine Wants vs. Needs

Earlier I touched on this point very briefly, but it’s important to understand the difference between wants versus needs. For some people, this is a new way of thinking about budgeting and where their money is being spent.

Needs include things that you need in order to live. This includes food, shelter, utilities, medicine, transportation (to get you to work), and clothing.

Wants are things you would like but don’t necessarily need. These would include eating out, buying clothing you already have, entertainment and activities, extra home decor furnishings for the house, and subscription services.

It may be difficult to not purchase the items you want, but it will teach you self-control. Stay away from impulse buying. If you see something you want to purchase, write it down and wait a few weeks as you think about the purchase and how it will affect your budget.




Some wants that people tend to spend too much money on is eating out and subscription services.

Eating out for lunch, purchasing your favorite soda drink regularly, ordering take out for dinner because you are too tired to cook all can quickly become a major food expense.

Some tips that will help you cut down on eating out is to meal plan, cook at home, and spend less money on groceries.


Subscription services such as magazines, Netflix, Amazon Prime, Hulu, Disney+, and Spotify get you to join their program for an inexpensive monthly cost. However, the cost of these subscription services add up and increase your monthly expenses.

Review the subscription services you are subscribed to and see if you can cut some of them out, if not all of them, so you can save money.

By not purchasing items you want, you’ll have additional money saved to reach your financial goals, which is something you hopefully want even more.

Remind yourself what motivated you to start budgeting and stay focused.


How to create a budget plan

6. Evaluate Your Budget

As you learn how to start budgeting, remember that it is a process that it needs to happen regularly. It’s not a one-time thing.

I recommend evaluating your budget every week when you first start out. This will help you spot spending mistakes, correct them early on, and help you stay on track financially.

Review what is working for you and what isn’t. Look at where you are spending your money. Adjust and tweak your budget according to your situation and assessments. This is the time to re-evaluate and make adjustments to your budget.

Don’t be discouraged when things don’t turn out the way you wanted them to. Try to stick with your budget and continue until things get better as you make adjustments that work better for you.

Also, be patient with yourself. Learning how to budget takes time, dedication and determination.

Look at your financial goals regularly to help you keep motivated. As you continue to push forward staying on a budget, you’ll find yourself getting closer to achieving your financial goals.


Comment below on what are tips you use to budget successfully.


You might also like these posts:

6 Ways to Save Money and Increase Your Savings This Year

4 Tips to Get Out of Debt

5 Tips to Stop Living Paycheck to Paycheck

Busy Moms Budget Workbook from Family Finance Mom

Budget Boot Camp from Jordan Page of Fun Cheap or Free


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