How to manage a budget

Budgets only work if you use them. Here's how.

Just about everyone knows that budgeting is a good practice, but it can be hard to find the motivation. And if you've never created a budget before, it can also seem complicated and overwhelming. Here’s a straightforward way to create one.

We’ll explain how to prepare the information you need, how to write the budget and how to manage it going forward.

We’ve created a step-by-step video with captions to help you create your budget. Play the following video in less than two minutes.


Before you write a budget

Before drafting a budget, take a look at your personal finance basics. Start by figuring out your take-home pay, which is how much money you receive in your paycheck after taxes and deductions (such as Social Security, health insurance, etc.). If you’re self-employed or your income varies, calculate your average monthly income by adding together your income over the last few months, and then dividing it by the number of months.

Calculate any additional deductions or expenses you might have after taxes, such as retirement contributions. Then, make a list of all your debts, along with the total amount, interest rate and monthly payment. Doing this will help you figure out which debts you should pay off faster.

How to create a budget

Next, figure out how much you spend in each basic category. This list can get you started:

  • Housing
  • Transportation 
  • Child care
  • Health 
  • Insurance  
  • Utilities
  • Groceries
  • Entertainment and dining out
  • Subscription services
  • Household maintenance
  • Clothing
  • Pets
  • Gifts and charity 


Be sure to write down all monthly payments, including rent, auto and student loans, credit card minimums and anything else you regularly owe. It may help to review some previous bank statements and bills — at least six months' worth to get an accurate average.

Then, add up all your expense categories and subtract the amount from your income. If the remainder is positive, you can then decide where to allocate the extra funds. You might pay off a credit card early, save more for retirement or, yes, even spend a little more on fun.

But if the remainder is negative, then you may need to cut back on your spending. Start by reviewing the expense list again. Get rid of things you can live without. You might have a subscription service you rarely use, for example. Or you may be able to find a cheaper alternative to other expenses, like cell phone contracts. Cutting back doesn’t have to be forever. A temporary cutback today can have a significant positive impact on your finances in the future. 

How to stick to a budget

Creating a budget is one thing but sticking to it is another. The key is to check in on your spending, as often as once a week. Then take a look at a bigger chunk of time. Were you on track over the first few months, or did you waver a little? 

If the first budget you create isn’t quite working, that’s OK. A budget is dynamic. It often changes depending on how your needs change. For example, if you want to start saving to buy a house, factor that goal into your budget. Lower your expenditures (maybe on things like concerts or eating out) and put that money into savings.

By following these simple steps, you can start actively managing your budget. As a result, you’ll have a healthier set of finances and the ability to direct your spending and savings to achieve your goals.

This page and the information contained herein is for educational purposes only. The information is not intended to provide legal, investment, or financial advice or to indicate the availability or suitability of any product, service, or strategy to your unique circumstances. For specific advice about your unique circumstances, you may wish to consult a qualified professional. Any links to other websites are included for your convenience only. Bread Financial does not endorse any product or service, and is not responsible for the accuracy or reliability of the information, made available through such sites.

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