How to Set Up Your Own Budget in 8 Easy Steps

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how to create your own budget

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While there’s definitely nothing sexy about savings plans, 401k, and bank accounts, there’s a whole lot of appeal in living a stress-free, financially independent life–and that starts with a budget.

Even if you’ve never much thought about your financial future, or if you live pay check to pay check, there are a few easy steps you can follow to set up a simple, starter budget that will set you up to kick some personal finance goals. Sound appealing? Then let’s get started.

1. Start off by setting goals.

When you’re planning a budget, the first place to start is by writing down some goals on paper, or by using an app (here are a few of our favorites.) At this early stage, there are three main areas to focus on: Income goals, spending goals, and savings goals. Vicki Zhou, former investment banker and founder of financial advice service WiseBanyan, suggests starting with the big picture and then working backwards to figure out monthly goals for each of the three categories.

“Start with a big picture, like how much you want to save each year, remembering you can always come back and update this number after following your budget for a month or two. Next, break down the big picture number into what you are saving for. Some basics include: Rainy day fund, retirement account(s), or large or one-time purchases (vacation, car, home downpayment.) After you set these categories, divide each savings goal by 12 and you have the amount to save each month for each goal.”

There are two ways to increase your savings: Either increase your income (by working towards that promotion) or by lower your expenses.

MORE: 10 Money-Saving Tips From Women Working in Finance

2. Factor in some savings for your retirement. 

There’s absolutely nothing fun about thinking about saving for retirement, but you’ve got to do it–and the sooner you start, the sooner you’ll hit that retirement goal.

Zhou recommends starting with whatever you can afford right now, rather than putting off retirement savings until you earn more money.

“If your employer offers a 401(k) plan with a match, take advantage of it! Think of the match as a free raise. If not, you can still open a Roth or Traditional IRA. Even beginning with just $10 a week or $100 a month will make a big difference in the long run,”Zhou said.

3. Work out your net income.

Before you start nutting out the details of your budget, make sure you’re working with the right number. Your net income is the actual amount that hits your account every week after tax–there’s no use planning with your gross income, which is the figure that your employer would have offered as your before tax salary.

Zhou explains: “Gross income is how much you make–your salary or total wages. Net income is your gross income minus taxes and deductions. An easy way to find your gross income number is to look at how much is deposited in your bank–whether it’s on auto-deposit or from a paper paycheck.”

4. Divide your income into fixed expenses and variable expenses.

When it comes to prioritizing what you can afford, and what are luxuries you don’t need, it helps to know your fixed and variable expenses. Zhou explains that fixed expenses “generally cost the same amount each month and can be hard to change.” Think: Rent or mortgage payments, and health or car insurance. On the other hand, variable expenses “often represent daily spending decisions and include things like buying new clothes and eating out.”

Make a list under two columns: Fixed and variable expenses. List the amount you spend on various things each month and assign it to a column.

MORE: Finance for 20-Somethings: Why It’s Not too Early to Save for Retirement!

5. Analyze expenses and trim unnecessary spending.

If you don’t have enough money to meet you savings goals and keep up your fixed and variable expenses, it’s time to cut back.

Usually when people think about lowering their costs, they focus on variable expenses, which can be tough because you have to be disciplined on a daily basis (i.e. not buy that $18 cocktail.) Zhou suggests that one of the easiest–and often overlooked–ways to cull down your lifestyle cost is to find savings in your fixed expenses.

“Cutting down on fixed costs is a one-time decision that will keep paying off. Unsubscribe from a magazine you no longer need, switch to a less expensive cell phone plan, or close your cable account. These much easier, one-time actions can easily add up to hundreds or even thousands of dollars a year,” Zhou said.

To get started, look through your credit or debit card statements for any “forgotten” subscriptions. Keep a keen eye out for one of the biggest culprits: Free trials that have ended, and started charging fees. If you manage to cancel just just two $50 per month subscriptions, you’ll save $1,200 a year!

6. Reward yourself with a good budget. 

Vicki suggests leaving room to enjoy your money, to help you stick to a long-term budget plan: “A good budget doesn’t mean you can no longer spend money on things you enjoy. With a good budget, you know exactly how much money you have each month to spend, and you are planning for it in all the right places first. Since your budget has taken care of all the important items, now you can decide how much you can spend on the fun stuff.'”

Bottom line: If you’re taking care of the important stuff first, you can spend the rest guilt-free.

7. Write down your plan. 

Write down your budget, including the amount you can spend per week on all the areas of your life–from weekly groceries to cocktails and travel. Either use an app to track your spending and manage your budget or go old school with a pen and paper, and stick it to your fridge or somewhere you can be reminded of it constantly.

8. Continue to check and evolve your budget.  

Congratulations, you just made your own budget–now you just have to stick to it. Follow your plan, and set aside half an hour every two weeks to check your online statements and make sure you’re on track. Remember this isn’t set in stone–if for some reason your budget isn’t working, or your income changes, simply tweak the details, and continue sticking to a plan.

Here’s a handy checklist to follow when setting up your own budget:

How to make a budget checklist

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